Bargaining for Loyalty in the Information Age: A Reconsideration of the Role of Substantive Fairness in Enforcing Employee Noncompetes
82 Pages Posted: 15 Oct 2002 Last revised: 3 Dec 2014
This article explores the enforceability of employee non-compete agreements, with particular attention to their use in information-based industries as a response to increased worker mobility. Non-compete agreements have long been viewed with skepticism by courts and scholars due to historical concerns about employee bargaining power. This article argues that the current approach to assessing the fairness of these agreements is misdirected. Courts attempt to distinguish proper from improper restraints by looking to whether the non-compete protects an employer interest that is separate and distinct from the employer's desire simply to retain the employee. Such an approach is unworkable in an economy where human capital is considered a valuable corporate asset. Rather, the crucial issue in crafting an approach to enforcement is the tension between fixed terms contained in the written non-compete and the norms that develop between companies and employees which informally govern employees' loyalty and commitment to their work. In negotiating that difficulty, the article draws on the law of premarital agreements, an area of domestic relations law that has been influenced by many of the same policy concerns at stake in non-compete enforcement. Relying on uniform legislation in that context, the piece proposes a formation-based model of non-compete enforcement that rejects a pure contract-based approach, as well as approaches that rewrite non-competes based on relational norms, in favor of a rigorous inquiry into the quality of the parties' bargaining process and the terms of their exchange.
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