Cubewrap Contracts and Worker Mobility: the Dilution of Employee Bargaining Power Via Standard Form Noncompetes

31 Pages Posted: 13 Dec 2006 Last revised: 3 Dec 2014

Rachel S. Arnow-Richman

University of Denver Sturm College of Law

Date Written: September 1, 2006

Abstract

This symposium article critically considers the role of bargaining power in the creation and enforcement of agreements restraining post-employment competition. Under current doctrine, courts assess the fairness of employer imposed restraints on competition by analyzing the employer's need for protection and the hardship that the restraint will impose on the employee at the point enforcement is sought. In most jurisdictions, they will also modify overbroad agreements to make them less onerous to employees. While this approach has historically been justified by reference to workers' limited bargaining power, it fails to account for the ways in which employer contracting practices intentionally exploit inherent imbalances between the parties, both at the point of contract formation and at the point at which an employee wishes to terminate the relationship. On the front end of the relationship, noncompetes are frequently provided to employees in the form of cubewrap terms - they are made available for review and acceptance only after initial oral assent to employment. On the back end of the transaction, employers' wide scale adoption of broad, standardized noncompetition terms has significant in terrorum effects that alter workers' perceptions about their default rights and impact their ability to negotiate terms and conditions of continued employment. In these ways, cubewrap noncompetes succeed in further diluting an employee's already tenuous grip on any form of bargaining power: they strip away the worker's ability, both at the outset and during the course of employment, to refuse the deal. Current law not only fails to address these forms of power imbalances but in some situations encourages objectionable contracting practices. Courts often accept cubewrap terms as valid unilateral modifications of the at-will employment relationship, and their practice of reforming agreements at the time of enforcement encourages employer overreaching. The article considers how enforcement rules can be reshaped to incentivize better contracting practices on the part of employers, arguing, among other things, that courts should refuse to enforce noncompete agreements withheld until after the commencement of employment and should abandon the practice of modifying overbroad restraints in favor of deferring to industry standards of reasonableness.

Suggested Citation

Arnow-Richman, Rachel S., Cubewrap Contracts and Worker Mobility: the Dilution of Employee Bargaining Power Via Standard Form Noncompetes (September 1, 2006). Michigan State Law Review, Vol. 2006, No. 963, 2006; University Denver Legal Studies Research Paper No. 07-01. Available at SSRN: https://ssrn.com/abstract=951262 or http://dx.doi.org/10.2139/ssrn.951262

Rachel S. Arnow-Richman (Contact Author)

University of Denver Sturm College of Law ( email )

2255 East Evans Avenue
Denver, CO 80208
United States
303-871-6264 (Phone)

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