Noncompete Clauses and Who They Really Benefit

At the end of 2016, the sandwich chain Jimmy John's settled a lawsuit and ended a very strange company policy. Low-wage hourly workers — so the people making sandwiches, not the ones drafting legal strategies — were barred from taking another job at a competing franchise. The policy was patently ridiculous; thankfully, there was no evidence it had actually been enforced.

Noncompete clauses aren't uncommon in the working world, though. They're largely found in industries that create intellectual property or that guard trade secrets. Pundits, activists, and economists all have different ideas about whether they're a good idea for workers, but a new study from the University of Kansas reiterates why they're popular with employers. Using the mutual fund industry as a testing ground, researchers found that employees working under noncompete clauses "tended to be more productive, take fewer risks, and align their behaviors with the goals of their employers."

This may read like controlling or exploitive behavior to some, but it's not such a bad outcome in the financial industry. One of every 13 financial advisers has at least one disclosure on their record related to misconduct. Hedge fund managers with the so-called "Dark Triad" of psychopathy, narcissism, and Machiavellianism earn less money for their clients. Investors often lose out when analysts seek opportunities to benefit their own institutions over their clientele.

That all means that noncompete clauses may have their place in sectors like finance and money management. In other industries, however, skeptics worry that they stifle innovation and unfairly punish workers. Either way, the effect is real — and if your bank employs them, you might come out on top.