Construction of Noncompete Enforceability Index
| Question | Scoring | Bishara Weight | Starr Weight |
|---|---|---|---|
| Statute of enforceability: “Question 1: Is there a state statute of general application that governs the enforceability of covenants not to compete?” | Score of 10 to a state that has a statute that favors strong enforcement, 5 to a state that either did not have a statute or had a statute that was neutral in its approach to enforcement and 0 was given to a state that has a statute that disfavors enforcement. | 0.10 | 0.09 |
| Protectable interest: “Question 2: What is an employer’s protectable interest and how is that defined?” | Score of 10 to a state that has a broadly defined protectable interest, 5 to a state that has a balanced approach to defining a protectable interest, and 0 to a state that has a strictly defined limited protectable interest for the employer. | 0.10 | 0.12 |
| Plaintiff’s burden of proof: “Question 3: What must plaintiff be able to show to prove the existence of an enforceable covenant not to compete?” | Score of 10 to a state that places a weak burden of proof on the plaintiff employer, 5 to a state that has a balanced approach to the burden placed on the employer, and 0 to a state that places a strong burden of proof on the employer. | 0.10 | 0.10 |
| Consideration at inception: “Question 3a: Does the signing of a covenant not to compete at the inception of the employment relationship provide sufficient consideration to support the covenant?” | Score of 10 to a state where the start of employment is always sufficient to support a covenant not to compete, around 5 to a state where the start of employment is sometimes sufficient, and 0 to a state where the start of employment is never sufficient. | 0.05 | 0.13 |
| Consideration post-inception: “Question 3b & 3c: Will a change in the terms and conditions of employment provide sufficient consideration to support a covenant not to compete entered into after the employment relationship has begun? Will continued employment provide sufficient consideration to support a covenant not to compete entered into after the employment relationship has begun?” | Score of 10 or near 10 to a state where continued employment is always sufficient to support a covenant not to compete, around 5 to a state where only a beneficial change in terms was sufficient, and 0 to a state where neither continued employment nor a beneficial change in terms would be sufficient consideration. | 0.05 | 0.08 |
| Overbroad contracts: “Question 4: If the restrictions in the covenant not to compete are unenforceable because they are overbroad, are the courts permitted to modify the covenant to make the restrictions more narrow and to make the covenant enforceable? If so, under what circumstances will the courts allow reduction and what form of reduction will the courts permit?” | Score of 10 to a state where judicial modification is allowed and there are broad circumstances where revision can be made and limited restrictions on maximum enforcement, score of 5 to a state where so-called “blue pencil” modifications were allowed as a way to reform the contract instead of disallowing it outright, showing a balanced approach to the allowable scope of restrictions and to accommodating the plaintiff’s enforcement request, and low score, possibly 0, awarded to a state where neither “blue pencil” nor judicial modification was allowed. | 0.05 | 0.04 |
| Quit vs. Fire: “Question 8: If the employer terminates the employment relationship, is the covenant enforceable?” | Score of 10 to a state where a covenant is always enforceable if the employer terminates, 5 to a state where a covenant is enforceable only in some circumstances, and 0 where a covenant is not enforceable if the employer terminates. | 0.10 | 0.09 |
Notes: The Starr (2019) index used in this paper is constructed using factor analysis to reweight the seven dimensions of CNC enforceability initially scored in Bishara (2011). Bishara selected seven questions from periodic, comprehensive, state-by-state surveys of noncompete enforcement policies undertaken by Brian Malsberger.40 Bishara notes that these questions “were chosen because they directly address the legal issues relevant to measuring a given jurisdiction’s intensity of noncompete enforcement” and adds that “these questions, in the aggregate, can flesh out a full picture of a state’s policy on noncompetes, including if the state has contemplated its policy to the extent that it has enacted legislation on the topic.” The seven questions and how they were treated for the construction of the CNC index by Bishara (2011) are described in the table below; raw scores on each of the seven dimensions for each of states are provided in Online Appendix Table OA12. See Bishara (2011) for a detailed discussion of the scoring.