Review of An Empirical Analysis of Noncompetition Clauses and Other Restrictive Postemployment Covenants

I wrote recently about a blog post suggesting that the enforceability of employee noncompetes be tied to CEO compensation.  Well now I'm going to write about a law review article regarding CEO noncompetes.  But first, I want to thank attorney and good friend, Sam Payne, for forwarding this article to me:  Norman D. Bishara, Kenneth J. Martin, and Randall S. Thomas, An Empirical Analysis of Noncompetition Clauses and Other Restrictive Postemployment Covenants, 68 Vand. L. Rev. 1 (January, 2015). In that article, the authors analyzed 874 publicly available employment contracts of CEO's at 500 S&P 1500 companies from 1996 to 2010. Based on their data, some of the authors' conclusions include:

• 80% of the contracts contained noncompetes;
• The percentage of contracts with noncompetes increased from 2001-2010 as compared to 1996-2000;
• 89% prohibited CEO's from working for a competitor during the restricted period whereas only 25% prohibited CEO's from financing competitors;
• If a company used noncompetes in the past, it is more likely to use noncompetes in the future;
• Contracts with longer terms are more likely to have noncompetes;
• The overwhelming number of contracts had temporal restrictions of up to one to two years;
• 75.6% also included an employee nonsolicitation agreements;
• Only 50.8% had client nonsolicitation agreements;
• While over 40% of noncompetes were silent as to geographic scope, 38.3% of them were limited to locations where the employer operated, about 10% covered the entire U.S., and only about 4.3% contained global restrictions;
• 93.4% of contracts with a noncompete also included a nondisclosure clause;
• 56.8% of the noncompete terms are triggered by the CEO's termination for any reason whereas less than 20% are triggered by the CEO's decision (as contrasted with the employer's decision) to terminate the contract;
• With regard to remedies for breach, only 9.9% required CEO's to repay funds in the event of a breach; 
• It is becoming more common to see a greater number of restrictive elements in CEO contracts; and
• Perhaps most shockingly, the article confirmed that CEO's are less likely to have noncompetes in their contracts if the contracts would be enforced in a jurisdiction that does not enforce noncompetes.  Who would have thunk it!