Between Rights and Contract: Arbitration Agreements and Non-Compete Covenants as a Hybrid Form of Employment Law
Cynthia L. Estlund
New York University School of Law
June 21, 2006
University of Pennsylvania Law Review, Vol. 155, 2006
NYU Law School, Public Law Research Paper No. 06-20
NYU, Law and Economics Research Paper No. 06-27
The employment relationship is governed largely by contract, but with a heavy overlay of rights: minimum terms and individual rights that are established by external law and typically non-waivable. But some terms of employment are governed neither by ordinary contract nor by ordinary rights, nor even by ordinary waivable rights. Consider the two most controversial instruments in employment law today: non-compete covenants (NCCs) and mandatory arbitration agreements (MAAs). Both take the form of written contracts that waive important employee rights (the right to compete post-employment, the right to litigate future claims); both are subject to substantive criteria of validity that are set by external law. Both bodies of law may be usefully described as recognizing conditionally waivable rights.
This paper aims first to show structural parallels between NCCs and MAAs that place them at a distinct intermediate point along the spectrum between non-waivable rights and ordinary contract that I call conditional waivability. Second, it seeks to uncover a common logic underlying the law's choice of this particular hybrid of rights and contract. The linchpin of that common logic lies in the threat that unregulated waiver of one right (the right to compete or to litigate future claims) poses to an adjacent employee right that the law deems non-waivable. Third, the paper deploys that underlying logic to offer a critical assessment of the law governing NCCs and MAAs. Finally, the paper tentatively explores the broader potential usefulness of conditional waivability as a way of regulating some terms of employment. The intriguing potential of conditional waivability lies in its injection of some of the virtues of contract - especially flexibility and variability in the face of widely divergent and changing circumstances - into the pursuit of public goals and the realization of rights in the workplace.
Number of Pages in PDF File: 68
Keywords: employment, contract, covenant-not-to-compete, arbitration
JEL Classification: J38, J78, K12, K31
Date posted: June 25, 2006 ; Last revised: January 10, 2014