The Law & Economics of Post-Employment Covenants: A Unified Framework
62 Pages Posted: 11 Jan 2007
This article seeks to provide a unified framework to the disparate treatment that post-employment covenants receive in federal and state courts. Plaintiffs seeking relief from (or enforcement of) such covenants in federal courts typically are subjected to an antitrust analysis known as the rule of reason: The restrictions contained in the covenant are balanced against the procompetitive benefits sought to be gained from the agreement. In contrast, in state courts such agreements have largely been subject to traditional contract analysis.
Our approach synthesizes the approaches used in both federal and state courts. We believe, for example, that it is insufficient to engage in a rule of reason cost-benefit calculation if there are issues such as duress, mutual mistake and other bargaining and market failures afoot. Likewise, finding a contract valid under traditional contract analysis does not address the important societal question of whether the agreement unreasonably restrains trade. Thus, courts must engage in both analyses, first determining whether the contract is valid under traditional principles and then determining whether the contract unreasonably restrains trade.
Keywords: covenants, antitrust, contracts, employment
JEL Classification: K12, K21, L4
Suggested Citation: Suggested Citation