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The end of noncompetes? Many workers stand to benefit from a ban against noncompetes, particularly low-wage workers like employees of the sandwich chain Jimmy John’s, who were banned from working at a competitor selling “submarine, hero-type, deli-style, pita, and/or wrapped or rolled sandwiches” within two miles of a Jimmy John’s for a period of two years. But Thomas Hubbard, a professor of strategy at Kellogg, notes that while noncompetes can get in the way of efficient matches between people and jobs, a ban could also have the unintended effect of hindering knowledge-sharing and productivity. Consider the example of a chef who, reluctant to share recipes with an underling, insisted on doing all the work themselves. If the chef did share their recipes, what’s to prevent the worker from taking that knowledge to a new restaurant? Noncompetes address that problem by banning the observable, detectable action of going to work at a similar firm. “You can observe and detect whether I’m working somewhere and where I’m working, but you can’t observe what I’m doing with my knowledge,” says Hubbard. This has made noncompetes a very desirable tool for companies where the so-called “secret sauce” involves particularly sensitive information or distinctive practices. And in the absence of noncompetes, companies may be far less willing to share knowledge with their workers. This will come at a cost to the companies, of course. But it could also come at a cost to workers, limiting their on-the-job training. “Banning them will tend to make workers less productive,” Hubbard says, “because people aren’t going to tell them much, which would ultimately hurt their earning potential.” Read more about the rule from Hubbard and Kellogg clinical professor R. Mark McCareins in Kellogg Insight.

The end of noncompetes? | The Insightful Leader Weekly

The end of noncompetes? | The Insightful Leader Weekly

insight.kellogg.northwestern.edu

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