Document Type

Article

Publication Date

2026

Publication Title

Ohio State Business Law Journal

Keywords

firms, employment contracts, noncompete, nondisclosure

Abstract

In recent years, government entities have pursued legal action against restrictive clauses in employment contracts that limit labor mobility and may stifle competition in both labor and product markets. To date, however, little is known about how firms respond to enforcement actions aimed at regulating the relationships they have with their employees. Leveraging a sample of 293 franchisors, in this paper I investigate the spillover effects of the so-called “No-Poach Initiative,” an unprecedent enforcement action launched by the Antitrust Division of the State of Washington Attorney General’s Office in January 2018. This initiative resulted in 237 franchisors (39 of which are included in my sample) agreeing to remove no-poaching clauses—i.e., provisions in franchise contracts that prohibit franchisees from hiring each other’s employees—nationwide. I find that approximately 36 percent of franchisors not targeted by the No-Poach Initiative removed the no-poaching clause from their franchise contract, with this responsiveness unrelated to whether the company operated in the State of Washington. By exploring some of the mechanisms underlying these spillover effects, I present suggestive evidence that the risk of follow-up enforcement actions in other jurisdictions and the common ownership of franchisors by the same parent company may be important factors at play. Lastly, I document a significant relationship between the removal of no-poaching clauses and changes in the use of noncompete and nondisclosure requirements for franchisees’ hired managers, suggesting that franchisors more deliberate or invested in employment-related covenants may be more likely to respond to shifts in the regulatory environment. These results underscore the wide-ranging implications of state-led enforcement initiatives and their capacity to shape firms’ behavior nationwide, ultimately illustrating that enforcement attempts aimed at altering the use of contractual provisions can function as policymaking tools in the labor market.

Volume

20

Issue

1

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