Usage of non-competes in Norway
On Tuesday 30 May 2023 Cassandra Lee Fredrickson Torgnes will hold a trial lecture on a prescribed topic and defend her thesis for the PhD degree at NHH.
Employees are widely recognized as the most valuable assets for many firms. This poses a challenge for firms as they cannot own their employees in the same way as other physical or intellectual assets such as patents, trademarks, and licenses.
Employees are free to leave for competitors and take their valuable investments in human capital with them. Non-competes restrict employees from joining rival firms and thereby provide a partial solution to this challenge by offering firms a level of security for their investments in employee human capital akin to that they possess over their other assets.
Proponents of non-competes argue that this security is an essential element in promoting investments in human capital and thus innovation and economic growth. Opponents, however, argue that non-competes impose unnecessary restrictions on employees’ freedom and decrease knowledge spillovers, and with that, innovation and economic growth.
Most of the data relied on by both the proponents and opponents of non-competes comes from the US. However, many European countries have more extensive labor law protections and the findings from the US research might not be directly applicable outside the US. This thesis aims to bridge this gap by examining the usage of non-competes in Norway and evaluating whether their implementation aligns with positive or negative outcomes.
The first chapter analyzes data from in-depth interviews with managers in three different innovation clusters on why and how they use or do not use non-competes. The findings suggest that the use of non-competes in these clusters is less strategic than previously assumed with most firms using non-competes as insurance for worst case scenarios without increasing their investments in human capital and thus capitalizing on the security of this insurance. The findings also suggest that these firms attach relatively little value to non-competes compared to other intellectual property and employee human capital retention mechanisms.
The second chapter uses survey data matched with registry data to examine the motivators and precursors to using non-competes. The study finds that firms are not well-informed about the status of the law on non-competes, and many use non-competes indiscriminately across all employee roles. Large firms, large markets, and firms with high percentages of highly educated employees were found to be drivers of non-compete use.
The final chapter also relies on survey data matched with registry data and explores the relationship between non-competes and employee wages. The study finds that non-competes lead to substantial start wage penalties for inexperienced employees, with inexperienced tradespeople bearing a significant share of the start wage penalty, but that the penalties are either non-existent or negligible for other occupations. The study also finds that non-competes lead to total wage premiums for salespeople, professionals, and managers.
Overall, this thesis provides stylized facts on non-compete use in Norway and insights into whether, and under which conditions, non-competes might provide net positive employee, firm, and societal utility and how we can use this information to better craft policy to ensure that we are capturing the full potential of non-competes.
Prescribed topic for the trial lecture:
Labor mobility and its effect on firm productivity, profitability, and innovation
Aud N, NHH, 11:15
Title of the thesis:
Non-competes in the Norwegian Context
Aud N, NHH, 13:15
Members of the evaluation committee:
Professor Bram Timmermans (leader of the committee), Department of Strategy and Management, NHH
Professor Matt Marx, Charles H. Dyson School of Applied Economics & Management, Cornell University
Associate Professor Pernille Gjerløv-Juel, Aalborg University Business School
Professor Kirsten Foss (main supervisor), Department of Strategy and Management, NHH
Professor Michael Dahl, Aalborg University Business School
Professor Siri Terjesen, College of Business, Florida Atlantic University
The trial lecture and thesis defense will be open to the public.