Norman D. Bishara

Covenants Not to Compete in a Knowledge Economy: Balancing Innovation from Employee Mobility against Legal Protection for Human Capital Investment

This Article examines a specific policy issue that goes to the heart of the larger debate surrounding the changing employment relationship: How should the law of covenants not to compete adapt to the changing landscape of the U.S. labor market and to the increasing importance of a knowledge-based economy? The author first argues that noncompete policy is of great importance to fostering economic growth and labor markets, and then discusses various theoretical approaches to noncompete enforcement in a knowledge economy. The preferred approach, the author contends, is a hybrid model of selective enforcement that differentiates among workers as “creative” or “service” employees, thereby enhancing the positive spillovers gained from policies at the extremes of the enforcement spectrum.

Noncompetes in the U.S. Labor Force

As typically unobserved features of the employment relationship, the role that covenants not to compete play in shaping economic dynamics is intrinsically difficult to grasp. Using nationally representative survey data on 11,505 labor force participants, we characterize the use of noncompetes by employer and employee characteristics and document the labor market effects with which they are associated. We find that noncompetes are more likely to be found in high skill, high paying occupations, but that they are also prevalent in low skill, low paying occupations. We document that negotiation over noncompetes is rare and that firms regularly delay the offering of the noncompete until after the employee has accepted the job. In the cross-section, noncompetes are associated with both increased retention and redirection from competitors, as well as a greater likelihood of receiving training and higher wages. We find little role for the enforceability of the noncompete both in determining where noncompetes are used and the strength of the relationship between a noncompete and labor market outcomes.

Noncompetes and Employee Mobility

We study the relationship between employment noncompetition agreements and employee mobility patterns using novel data from the 2014 Noncompete Survey Project. Specifically, we examine how noncompetes relate to the duration and nature of employee mobility, and we leverage our detailed individual-level survey data to identify and explore the precise mechanisms underlying the relationships we observe. We find that individuals with noncompetes appear to exhibit materially longer tenures and are more likely to depart for new employers that do not “compete” with their prior employers. To account for these patterns, we investigate the role noncompetes may play at each stage of the mobility “process”: job search, employer recruitment, offer receipt, negotiation, offer acceptance, etc. We present evidence that employees bound by noncompetes substitute job search activity and receptivity to recruitment in the direction of noncompetitors and that noncompetes are a factor in the choice to turn down approximately 40 percent of the offers employees receive from competitors.

Human Rights and a Corporation's Duty to Combat Corruption

Increasingly, there is awareness that corruption and human rights are intimately connected. However, the debates and reform proposals on improving corporations’ social performance in these two areas are often treated as separate concerns. This article argues that companies must see combating corruption and promoting human rights as connected and complementary moral duties in the countries where they operate. MNCs know (or should know) that corruption greatly impacts their ability to respect human rights. Thus, awareness of how corruption impacts human rights throughout the MNC’s supply chain should be essential for conducting “human rights due diligence.” To accomplish this goal, MNCs should not only ensure that their employees and agents do not pay bribes, but that corruption is not standing in the way of their suppliers’ ability to meet human rights obligations. In addition, this may also include an obligation to work towards reducing the enabling environment that allows corruption to thrive in that location. This duty goes beyond legal compliance with the FCPA or other national anti-bribery laws and must be central to the discussion of corporations’ human rights obligations.

Governance and Corruption Constraints: The Business Ethics Glass Ceiling in Middle East Corporate Governance

This paper argues for a model of a corruption constraint on organizational growth and development in the form of a business ethics glass ceiling. Although the problem of corruption‘s negative impact on economic growth is well documented, this paper‘s contribution is to propose a cohesive model to show how corruption combines with other influences such as weak corporate governance to act as a serious constraint on the business growth of local firms. This previously unidentified barrier to business success is marked by corruption and the model particularly applies to small and medium-sized and family businesses in the Middle East and North Africa (MENA). These businesses are vital to the economic growth and political stability of that region, but corruption makes it difficult for them to grow, overcome a financing gap, and become stronger organizations. Corruption also drains firm resources and warps normal incentives like transparency and accountability that encourage expansion because firms may choose to appear unprofitable to avoid corruption. As a result, the growth of these businesses is limited when they remain poorly run and small in size as they attempt to avoid an onslaught of corruption. This short-term coping strategy fosters the glass ceiling constraint that is the subject of this paper. The business ethics glass ceiling is formed by several factors. These influences are weak corporate governance, social and cultural aspects, and political and economic pressures. This paper focuses on the role of corporate governance and first describes the constraints and the place of these businesses in MENA, before using the regional example of Lebanon to demonstrate the stunting nature of the corruption-influenced ceiling and its role in producing a financing gap. Finally, the paper presents recommendations for breaking through the glass ceiling and provides suggestions for additional research on the intersection of corruption and ethics constraints in emerging markets.