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Could a ban on non-competes bring down unemployment rates?

For a large portion of workers in the state of Indiana, at one time or another during the course of their careers they may have had to sign a non-compete clause.  These clauses, as many may already know from previous posts on this blog, help companies protect their business secrets by prohibiting workers from sharing this information with competitors for a period of time after employment has been terminated.

But while perfectly legal in every state except for California, employment contracts containing non-competes are now being looked at as the reason why the unemployment rate is so high in many states, including here in Indiana.

Studies are split on the issue, some saying that non-competes are more likely to stop a worker from leaving their current job for another employer.  But what if you're forced out of your job via termination or lay-offs?  This is where many critics step in and say non-competes are hurting unemployed workers.  With most non-competes binding a signer to a period of one to two years, and limited geographic areas, some workers are finding it hard to follow the rules while also finding comparable work at the same time.

With budget cuts being forced across the nation, many states are struggling to pay unemployment wages and benefits, mostly blaming non-competes for their financial woes.  Following California's example, five states are currently considering a ban on non-compete clauses in an effort to encourage more people to return the workforce.  While Indiana may not be on the list of states considering this drastic change in employment law, the more states that make the change could force our state legislators to rethink why unemployment rates are so high and encourage solutions such as non-compete clause bans as a remedy.

Source: Reuters News and Insight, "Analysis: Unleashing job hoppers could give economy a bounce," Reynolds Holding, April 25, 2013

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