Not Even a Bourgeois Freedom: Liberty of Contract in John Roberts’s America

by Corey Robin on July 6, 2013

Ever since the 19th century, one of the points of convergence between the free-market right and the socialist left has been that the most important freedom under capitalism is the freedom of contract. Whatever its other problems, the market is the one sphere where the rights of man obtain. As Marx put it in Volume 1 of Capital:

This sphere [of the market] that we are deserting, within whose boundaries the sale and purchase of labour-power goes on, is in fact a very Eden of the innate rights of man. There alone rule Freedom, Equality, Property and Bentham. Freedom, because both buyer and seller of a commodity, say of labour-power, are constrained only by their own free will. They contract as free agents, and the agreement they come to, is but the form in which they give legal expression to their common will. Equality, because each enters into relation with the other, as with a simple owner of commodities, and they exchange equivalent for equivalent. Property, because each disposes only of what is his own. And Bentham, because each looks only to himself. The only force that brings them together and puts them in relation with each other, is the selfishness, the gain and the private interests of each. Each looks to himself only, and no one troubles himself about the rest, and just because they do so, do they all, in accordance with the pre-established harmony of things, or under the auspices of an all-shrewd providence, work together to their mutual advantage, for the common weal and in the interest of all.


For the free-market right, that’s the end of the discussion: Workers are free. No one’s forcing them to work. If they don’t like a job, they can leave it.

For the socialist left, it’s more complicated. Workers are not in fact free, the left argues, but the source of their unfreedom is not to be found in the usual guise. The most important constraint upon the freedom of contract is not the discrete or formal acts of coercion by power-holders (what political scientists sometimes call the first face of power), which are embodied in law and enforced by the state. Rather, it is systemic inequality and disparities of power between labor and capital: people with few resources are not in much of a position to say no to a job that they don’t like. Formally, workers are free; in practice, they are not.

Now there was always a problem with this thesis: as Karen Orren has argued, up until the twentieth century, public and private power-holders (specifically, employers and judges) often imposed overt and formal constraints upon the worker’s exercise of her independent will. At-will employment was often a myth, not merely because workers were not the economic equals of their employers, but also because of legal liabilities imposed by these judges and employers. For example, when seeking a new job, workers were often required by law to present testimonial letters from their previous employers; without those letters, they were out of luck. That rule effectively kept them in the employ of their previous boss. Conversely, vagrancy laws could be used to force men and women into the workplace.

But now comes this latest report from the Los Angeles Times (h/t Frank Pasquale), suggesting we’re back in a version of the nineteenth century, in which this same nexus of employers and judges is being used to sharply abridge whatever modicum of freedom there is to be found in at-will employment.

Emboldened by a series of Supreme Court decisions and an employers’ job market, many companies are starting to require workers to sign away their rights in return for a job. It is a trend that experts worry could further wear away employees’ power in the workplace. The contracts make it harder for employees to join class-action lawsuits, take their employers to court, or leave to go work somewhere else.



Mazhar Saleem is bound to his employer by a number of contracts that made it hard to earn enough money to live, but also hard to go work anywhere else. He drives a town car for a company in New York as an independent contractor, rather than as a full-time employee. That means he doesn’t get benefits, never gets overtime, and isn’t guaranteed set hours.


But he also signed a non-compete contract when he started working, meaning he can’t drive a car for anyone else in New York. So even if his employer doesn’t give him any work, he’s not allowed to go find it elsewhere, says his attorney, Michael Scimone, with the law firm Outten and Golden.


“It ties into the larger theme of employers trying to use contracts to alter pieces of the employment relationship that are supposed to be governed by law,” Scimone said.


Non-compete clauses, once a staple of the high-tech world, are being extended to cover hairdressers, auto mechanics, exterminators and other professions that courts would traditionally not uphold them for, lawyers say. They essentially mean an employee can’t leave a job to take another one nearby, unless he or she wants to stop working for a year or so.


It’s a way to keep promising employees from leaving, said Matt Marx, an MIT professor who has studied these contracts.


“Given the increased job mobility of today’s world, companies are saying, ‘We can’t count on people to be here forever. We have to lock them up with contracts,” he said.


In a recent case in Worcester, Mass., three women working at a hair salon tried to leave after their conditions at work deteriorated. All three received cease and desist letters when they started working elsewhere, because they had signed non-compete clauses. They had to wait a year for the clauses to expire before they could work in the area again.



Many employment lawyers say they’re not surprised that courts have made life tougher for employees. Since the beginning of the Roberts court, experts say, the Supreme Court has issued decision after decision cutting back employees’ legal avenues to complain.


“Since the Warren court, employers have done well at the Supreme Court, but in the Roberts court, they have done exceptionally well,” said Cynthia Estlund, a professor at New York University’s School of Law. John G. Roberts Jr. became chief justice in 2005.


Law historians trace the court’s conservative leanings to the long stretches of Republicans in the White House in the 1980s and 2000s that allowed presidents to appoint more conservative judges to lower courts and to the Supreme Court. A study published earlier this year in the Minnesota Law Review found that two of the court’s current justices are the most conservative out of any of the justices who served between 1946 and 2011, and that court under Roberts is friendlier to business than it was during either of the two previous chief justices.


Adding up seven years of decisions, the workplace is getting to be a tough place for many, said Cliff Palefsky, an employment lawyer at McGuinn, Hillsman & Palefsky in San Francisco. Employers already can ask employees to work harder for less because the job market is still so sluggish in many fields. But in some cases, employees who think they can find a better situation elsewhere are going to have trouble doing so.


“The law is being undermined and it’s putting some workers in a bind,” Palefsky said. In some situations, when non-compete clauses are mixed with arbitration agreements, he said, “We’re one step away from indentured servitude.”


Not to get all libertarian on you, but when I read these reports about the actual state of freedom of contract in contemporary America, I’m reminded of Gandhi’s alleged reply to a reporter asking him what he thought about Western civilization: sounds like a good idea.

{ 103 comments }

1

Anderson 07.06.13 at 11:25 pm

I was just talking to a lawyer friend about a local hospital that requires new physician employees to sign noncompete agreements, while also setting definite terms of employment. So you work the two years of the contract, and if the hospital lets you go after that, you’re *also* banned from working anywhere else within 100 miles for 2 years after that. Not sure that would stand up in court, but paying to litigate can be an awful lot like losing.

(Not that physicians are exactly the proletariat.)

2

Davis X. Machina 07.06.13 at 11:48 pm

The law is being undermined and it’s putting some workers in a bind,” Palefsky said. In some situations, when non-compete clauses are mixed with arbitration agreements, he said, “We’re one step away from indentured servitude.”

Remind me again how social democracy is the road to serfdom?

3

Nick 07.07.13 at 12:32 am

I have heard about similar dodgy contracts in the UK, though mostly with respect to franchise agreements. I think at least some of those contract obligations ought to be unenforceable and unlawful on the grounds that they don’t constitute a mutual exchange of benefits, and that failing to fulfill those obligations doesn’t deprive the employer of a legitimate benefit. But ought is not is.

Perhaps this is one area where libertarians and liberals could work together.

4

adam.smith 07.07.13 at 12:39 am

Don’t get me wrong, I think US employment law is somewhere between a tragedy and a farce, but I don’t see how the fact that you can sign contracts that sign away part of your rights is a particular problem for free-market fundamentalists. It’s still a contract you entered freely. For a libertarian it’s much harder to make an argument _against_ indentured servitude than an argument _for_ non-compete contracts.
(which, to be clear, I agree are unacceptable as applied to anyone but well-paid hi-tech workers, but that’s part of a larger believe that labor markets must be thoroughly regulated).

5

Corey Robin 07.07.13 at 12:56 am

It’s not necessarily though libertarians go back and forth on the question of how robust the right of self-alienation through contract can be. But I don’t think this is a simple signing away part of your rights, which of course is a feature of all labor contracts. This goes further in that it prevents you from quitting your job. Insofar as there’s a vulgar libertarianism out there that thinks the simple answer to the problem of domination in the workplace is the option of voluntary exit, it poses some slight problems. Also the fact that the only reason these provisions are now happening on such a wide scale is a decision by the courts to enforce them — it raises an old and ancient specter, as I say in the OP, of the nexus of employer and judicial power that most vulgar libertarians prefer not to think about.

6

Bill 07.07.13 at 1:31 am

“Freedom of contract implied that workers should not be constrained to enter only revocable agreements but should be free to bind their labor irrevocably as well” (Robert Steinfeld, Coercion, Contract, and Free Labor in the Nineteenth Century, p. 9). Back to the future, I guess.

7

David Kaib 07.07.13 at 1:33 am

But what if some worker somewhere wanted to sign a contract where they sign all their rights away? It could happen, so this is no big deal. If you stopped that hypothetical worker from signing such a contract, there would be no liberty.

QED

8

John Holbo 07.07.13 at 1:52 am

Hmmm, I take it the vulgar libertarian answer is going to be clear: you are free not to sign these pieces of paper that would infringe your exit power. So there’s no problem here. Signing a non-compete is no worse than, say, signing a 3-year contract. The problem here is not going to be different than the case of workers agreeing to work for lousy wages because there’s nothing better available. If they don’t want to work for pennies, they don’t need to do so.

It’s a great article, though. It’s the sort of thing that thoughtful libertarians really ought to think hard about.

9

JW Mason 07.07.13 at 2:02 am

This is a great article. Thanks for posting it.

Check out this bit, tho:

It’s a way to keep promising employees from leaving, said Matt Marx, an MIT professor who has studied these contracts. “Given the increased job mobility of today’s world, companies are saying, ‘We can’t count on people to be here forever. We have to lock them up with contracts,” he said.

In a recent case in Worcester, Mass., three women working at a hair salon tried to leave after their conditions at work deteriorated.

Notice what that last sentence is NOT an example of: promising workers moving on to better jobs thanks to higher mobility.

10

Ben 07.07.13 at 2:47 am

That’s the thing, idn’t it: market relations can’t exist without the state enforcing them, and changes in state enforcement change those relations. It’s such an easy and almost arbitrary point to make that you almost have to start looking for psychological reasons to hold the simpler vulgar libertarian positions.

“It’s a way to keep promising employees from leaving”

Pull the other one.

11

jake the snake 07.07.13 at 3:17 am

It should not be a surprise to anyone to see even more power assumed by the employer
in the neo-liberal world. The question is whether you welcome it, or oppose it.
In the past, it was assumed that you gave up some of your rights by taking employment.
Certain aspects of freedom of speech and freedom of action being understood to be abridged. There were things you were not free to say about the employer and your coworkers, and you ability to come and go at will was limited.
I am reminded of Pohl & Kornbluth’s “The Space Merchants”, in which breach of contract was a more serious crime than “femicide.”

12

Rich Puchalsky 07.07.13 at 3:26 am

The whole phrase “vulgar libertarianism” fails on multiple levels. There is no libertarianism but vulgar libertarianism. You might as well call a liberal a vulgar liberal for holding to liberalism, or a conservative a vulgar conservative. Therefore it’s at once both merely an insult and a misrepresentation of what libertarianism is — a suggestion that there has to be some higher libertarianism more pleasing to non-libertarians rather than the reality.

If you hold that freedom of contract is an important right, and it you accept that contracts can, of course, bind your actions in the future, then libertarianism has no answer to the “problem” of non-compete clauses, and indeed sees no problem. If a worker doesn’t like the contract, they don’t have to sign it. Libertarians are quite happy to say that a starving worker has the freedom to reject work, so they can hardly cavil at non-compete clauses.

I do wonder what the point of holding that libertarians are conservatives is if you’re going to label this vulgar libertarianism. Libertarians want employers and holders of capital to be powerful and workers not, and this follows.

13

Corey Robin 07.07.13 at 3:37 am

John: “Signing a non-compete is no worse than, say, signing a 3-year contract.” But it is, from the point of view of liberty. You can quit a 3-year contract. Voluntary exit is as much a part of the vulgar libertarian package as voluntary entrance. You did a great job last summer (almost to the day, no?) of using Hayek to make the point that contracting oneself into slavery does not make you free once you’re a slave. And it didn’t require all that much of a departure from vulgar libertarian principles to make the point. In any event, what’s doubly troubling here is that we’re not talking about a statute being imposed by a legislature but a newly and recently constructed legal regulatory regime — entirely concocted by judges in alliance with employers — that radically diminishes the mobility and freedom (including the freedom to contract) of labor. Under this regime, there will be fewer voluntary contracts. Even if you think voluntary contract is the beginning and end of freedom, the fact that there will be fewer contracts means that there will be less freedom.

14

Matt 07.07.13 at 3:43 am

I’m not a labor lawyer, but my understanding is that the law on “no compete” clauses is, 1) state law, and 2) varies very heavily from state to state. So, my understanding (from talking to people who work on this stuff) is that, for example, in California, no compete clauses are almost always unenforceable, and that in many other states there are significant limits on the enforceability of such contracts. But- many employers have employees sign these, even when, under state law, they are not enforceable. That’s odd, and can really only be explained by bad intentions or motives. So, at the least, people should look very carefully at particular state laws to see when, if at all, such contracts are enforceable, and should never just assume that they are.
(Orly Lobel of the University of San Diego Law School is a very good person to read on this subject. She has a book, either just out or out soon, on it that should be very good.)

15

banned troll 07.07.13 at 3:56 am

When they had unpacked Mr Salteena and Ethel went downstairs to dinner. Mr Salteena had put on a compleat evening suit as he thought it was the correct idear and some ruby studs he had got at a sale. Ethel had on a dress of yellaw silk covered with tulle which was quite in the fashion and she had on a necklace which Mr Salteena gave her for a birthday present. She looked very becomeing and pretty and Bernard heaved a sigh as he gave her his arm to go into dinner. The butler Minnit was quite ready for the fray standing up very stiff and surrounded by two footmen in green plush and curly white wigs who were called Charles and Horace.

16

Bdnv 07.07.13 at 4:01 am

@Matt: Right on all counts. It is state law and California is an outlier that will refuse to enforce pretty much any covenants not to compete, except in some narrow contexts like partnerships. But it is still a common contract term.

There is actually an interesting theory (I believe there was a law review article on it within the last few years) that California non-compete law played a large role in the rise of Silicon Valley at the expense of Route 128 in Massachusetts (which does enforce non-compete clauses).

17

The Raven 07.07.13 at 4:25 am

It’s not just employment contracts. Consider mortgages. When a legal system based on Anglo-Saxon law can’t decide who owns what piece of land, things have taken a bad turn indeed. The last decade in the USA, and arguably the last 30 years, have seen the abrogations of rights of property and person that have stood for centuries.

If this were a fantasy novel, now, this would be the point where the wizard points out the source of the evil and says, “There is a chance…”

If only!

18

Brett 07.07.13 at 5:24 am

How enforceable are these non-compete contracts, and the old laws concerning vagrancy? Medieval regimes would have similar laws with the goal of preventing villeins from leaving for other lords or the towns, but actually enforcing them was almost impossible – especially when the other lords had incentives to subvert them because they needed the labor. How well would many of these contracts stand up in a booming economy?

There are a lot of laws on the books, many of which are almost impossible to enforce in practice.

19

Brett 07.07.13 at 5:26 am

That said, it is troubling. I’m more worried about the mandatory arbitration requirements than the non-compete clauses, though, since what good are the rest of the rights if you can’t actually enforce them in court?

20

John Holbo 07.07.13 at 5:56 am

” “Signing a non-compete is no worse than, say, signing a 3-year contract.” But it is, from the point of view of liberty. You can quit a 3-year contract. Voluntary exit is as much a part of the vulgar libertarian package as voluntary entrance. You did a great job last summer (almost to the day, no?) of using Hayek to make the point that contracting oneself into slavery does not make you free once you’re a slave.”

Yes! Almost to the day, now that you mention it. My comment was a bit too brief to be clear, sorry about that. The Hayek connection goes like this: Hayek has a bizarre inconsistency in his position, following from the passage you and I are thinking about. He says that everyone but the vagabond is unfree. Having a day job makes you unfree.

Vulgar libertarians are propertarians. That is feudalism-that-dare-not-speak-its-name. And the article illustrates this wonderfully. It obviously isn’t a philosophy of freedom. (Again: that article is a great catch. It’s brilliant for making your case about private regimes of power. Take it and run with it, with my blessing!)

Sophisticated libertarians – who are actually worth talking to – come in a couple different flavors. No time to write a comment long enough, but the article should be highly embarrassing to some of them, and a real puzzler for others.

21

Brett 07.07.13 at 6:11 am

@Matt

I looked into it, too. Most states allow them and enforce them to varying degrees, although a lot of them have gray areas where they’re unenforceable if a judge determines them to be unreasonably restrictive on an employee’s ability to earn a living. California is the most against these contracts – they’re completely unenforceable except for equity investors in businesses, and California won’t enforce such contracts done in other states either.

That said, the article has some case examples where this happened, so it’s rather troubling. If you were in that situation, you’d be best advised to simply fight the CND in court, and try to get a judge to toss it out (or get the former employer to back down rather than paying the legal costs of enforcing the contract).

22

Rakesh Bhandari 07.07.13 at 6:21 am

As Poggi writes in Forms of Power, what you don’t see by understanding society atomistically, is differentials in power not at the individual level but at the collective level.

Employees as a class are at a disadvantage to employers as a class. “Many workmen could not subsist a week, few could subsist a month, and scarce a year without employment…In the long-run the workman may be as necessary to his master as his master is to him, but the necessity is not so immediate.”*

Employers may not always have the upper hand but they can react by changing their methods of production, or in some other ways.

Of course it is a political question the extent to which we reduce the asymmetry in the immediacy of necessity–do we ban yellow dog contracts (Lochner) or no-compete clauses; do we allow card-check or only secret ballots; do we institute collective bargaining.

But why we would ever regulate the labor market that way–could we not show that each person who signs a non-compete clause makes himself better off without having had anyone worse off? If there is a Pareto improvement to be had, and each additional signing of a non-compete clause could be shown to be one, then how could giving the workers the to right to agree to non-compete clauses yield a Pareto sub-optimal state? That is one problem. How does adding up grains of sand ever come to a pile of sand?

Still at the collective level property in the conditions of production allows one class to dictate the term terms under which others can gain some access to these others.

He can only work with their permission, hence live only with their permission.**

Of course ** is from Marx, but * is from the great libertarian Adam Smith.

Marx’s argument has a weakness and an additional strength. The weakness in the quoted formulation is the unremitting moral skepticism of individual rights as nothing other than the freedoms that the bourgeoisie needs workers to have for them to found at the price and conditions that make surplus value production possible. This left Marxism with a dangerous tendency to devalue the importance of individual rights (see Steven Lukes).

Not only did Marx recognize the power asymmetry in exchange (so did Adam Smith as well as Max Weber), he argued that the relation between the classes is only an exchange in form. But to understand this we would have to supplement Marx’s characterization of that exchange in Section II of Capital with his further discussion of it in chapters 21 and 22 of Capital. Most people don’t make it that far.
___________

Last point: I believe that there may be a confusion in the article. Those who signed the no-compete clauses are characterized as both employees and independent contractors. But as the article suggests the arbitrary reclassification of defacto employees as independent contractors may deprive them of certain protections under the law, e.g. overtime pay or rights to collective bargaining. Arbitrary reclassification is a major dimension of economic power, one that is understudied, I believe.

At any rate, it’s not clear whether clients and employers can both stipulate non-compete clauses in a contract with an independent contractor and employee, respectively.

23

Brett 07.07.13 at 6:26 am

The arguments I’ve heard for non-compete contracts signed at the beginning of employment were that they encourage companies to invest more time and training in employees, as well as discourage employees from deciding to bolt to another company with a bag-load of trade secrets that the other company will pay them for.

24

Tim Worstall 07.07.13 at 8:09 am

“I have heard about similar dodgy contracts in the UK,”

My very dim memory of an undergraduate law class was that how enforceable a non-compete clause is depends upon the nature of the job. This is UK law of course (more specifically, England and Wales). If you’ve been the civil servant in charge of buying weaponry then it’s entirely righteous to have a clause saying you can’t go to work for BAe for a year or two after leaving (and there are arrangements about that sort of thing).

If you’re a shelf stacker then such a clause would be restraint of trade.

At this distance of decades the details escape me: but the law does (perhaps did, they could have changed it) recognise the “right” to keep people skipping off with trade secrets or customer databases and contacts and stuff, but on the other side the right of people to practise their trade. There’s obviously a tension between the two and which “right” prevails is based upon how reasonable it is in any one specific situation. The more senior you are the tighter the restrictions can be, very roughly.

As an example, D2 formerly of this parish. When he moves from one job to another in The City he takes some months of enforced “gardening leave”. You couldn’t legally impose that on a cab driver switching companies.

25

mjfgates 07.07.13 at 10:00 am

I see five different comments here discussing whether non-competes are enforceable. They almost always aren’t, but it’s an irrelevant point. If your ex-employer sends a boilerplate C&D letter to your new employer today, you will probably have two ex-employers tomorrow.

26

s johnson 07.07.13 at 1:26 pm

The opposite of a vulgar libertarian would be a scientific libertarian. It is hard to imagine such a thing.

The night watchman state is generally regarded as having two functions, sovereignty (the right and obligation to exercise force, violence and the threat of force and violence against other states and those citizens illegitimately using force, violence and the threat of violence.) The principle that requires this severe limitation in the functions of the state is the denial that the state can rightfully address social equity. There is no principled way to reconcile the repudiation of equity in the polity with concessions to equity in the courts. The courts, with their powers to fine and jail or execute, are a core part of the state.

Those libertarians who wish to place the moral right to exercise force, violence and the threat of force and violence in private hands I tend to think of a death squad capitalists.

27

Nick 07.07.13 at 2:04 pm

Tim: is gardening leave usually paid? That is a very important difference.

28

Omega Centauri 07.07.13 at 2:48 pm

I suspect most non-compete clauses resemble those waivers of the right to sue for damages that are so common. Rarely legally enforceable, yet sufficient to discourage many aggrieved from attempting legal remedies. So they have (statistical) value to the party requiring them.

29

Davis X. Machina 07.07.13 at 2:54 pm

….you’d be best advised to simply fight the CND in court.

Where do three Worcester cosmetologists come by the resources to fight this in court?

30

Corey Robin 07.07.13 at 2:57 pm

I’m not clear why so many people here are saying these non-compete clauses are rarely enforced. The Los Angeles Times article says that once upon a time that was true but that judges in recent years have in fact begun to enforce them, and in industries where they were traditionally not at all invoked. Do you guys have actual evidence that the article is wrong?

31

Bruce Wilder 07.07.13 at 3:08 pm

How much of conservative libertarian philosophical commitment comes down to a deficiency in reading comprehension?

32

Anderson 07.07.13 at 3:31 pm

29: correct. Many states will enforce a NCA if it is limited in time (2 years is often the max) and territory. Some states require an additional showing of an “insurable interest” on the boss’s part, along Brett’s lines above. But it is dangerously ill-advised to toss out pronouncements like “They almost always aren’t” enforceable.

33

Rakesh Bhandari 07.07.13 at 3:44 pm

Non-compete clauses is only one of the problems, most probably not the most important one. We also have the weakening of the right to file a collective action lawsuit, the reclassification of full-time employees to independent contractors or part-time workers, the withholding of wages, unpunished sexual harassment at the workplace, workers being locked in warehouses overnight to reduce leakage, denial of bathroom breaks, unpaid overtime, massive violations during the secret ballot process. See the reporting of the excellent Steven Greenhouse, a national treasure.
_________

Orren is an important historian of the struggle to broaden workers’ rights to exit labor arrangements. A more comprehensive history has been provided by Robert J. Steinfeld. We have an interesting problem– how did anachronistic master-servant laws last so long. This suggests that the totality is temporally out of joint, to draw from Althusser. Elements from different periods can coexist in a social formation. Not everything, e.g. labor law, is an expression of some essence or spirit of the times (Althusser’s critique of the Hegelian totality). But then this can mislead because we treat these elements as anachronistic rather than results of the contemporary balance of power.
____________

Why did we decide that workers should not have the right to sign yellow dog contracts? Once we have clarity on that, then it will be easier to show that restrictions that we put or want to put on employment contracts (serious restrictions on when there can be non-compete clauses) can have a sound normative and even legal basis. But tightening up that reasoning is very hard work. It is true that libertarians want to strengthen class-based power asymmetries that they may not even recognize as existing.

34

Bruce Wilder 07.07.13 at 3:55 pm

Rakesh Bhandari: “could we not show that each person who signs a non-compete clause makes himself better off without having had anyone worse off?”

Honestly and objectively? No.

We wouldn’t even be discussing such asymmetric contract clauses, if our rough intuition did not hint that they would fail a test mutual and social benefit, whether the formal test of Pareto optimality or some other of fairness, if we could, somehow, formulate such a test for the anecdotal cases presented in the article.

In the practice of professional economists, Pareto efficiency usually comes down to a Rich Man telling a Poor Man: “what’s mine is mine, and what’s yours is negotiable,” but it takes that form by invoking justification by counterfactual: Policy A, if modified into Policy B by a scheme of redistribution, would be Pareto-efficient, so Policy A is Pareto-efficient even though it will never be modified into Policy B. And, the concept was intended that way by its eponymous originator, the ripe bastard, Vilfredo Pareto. A few months back, an eminent UCLA economist, in a guest post on CT, gushed about the Pareto improvement possible by cutting salaries, without any apparent awareness that such a “deal” violated the definition on its face.

The concept of Pareto-efficiency just moves the slippery business of what is voluntary, what is mutually beneficial exchange, and how the asymmetry of power in bargaining arises, into a formal, but still no less ambiguous context, in which reason must navigate still another hazard course of counterfactuals.

The result, though, remains the same: these clauses are clearly meant to disadvantage one party, not in the immediate exchange, but in some future exchange. So, clearly not Pareto-efficient. One party is being made worse off, period, end of story.

35

Rakesh Bhandari 07.07.13 at 4:19 pm

Sorry I can’t respond, Bruce, without my posts going through moderation. I am not putting up with that inconvenience. So I’ll post elsewhere when I get the itch.

36

bianca steele 07.07.13 at 4:26 pm

The obvious reading of the linked article is that any small businessman is a sucker if he doesn’t make his employees sign non-compete clauses. It provides helpful information on changes in the law that either have happened, or are probably going to happen, or don’t really matter. That’s the sophisticated version, actually. The naive version (for brothers-in-law who read the paper regularly and are considered to be reliable sources of advice) is that every employee has a “non-compete clause” in their “contract” (the article says they’re “distributed at the workplace”), and there’s no legal recourse. (And as Anderson points out, the existence of a statute in CA denying support for non-compete clauses in employee contracts may have no bearing on any given case, and it’s irresponsible to bring it up.) I’m not familiar with the LA Times. Is this the kind of thing they run regularly?

37

bianca steele 07.07.13 at 4:39 pm

It also undermines progressive legislation, like the law apparently under consideration in MA, by attacking suggestions that workers might actually rely on that law.

38

Omega Centauri 07.07.13 at 4:41 pm

I kind of think of the assymetry, as not different in kind from “a deal he can’t refused” as offered by the godfather. Given the weakness and weakening over time of the welfare state, the would-be employee acnnot make the sign/not-sign decision on the basis of taking the job versus not taking it is over whether he can embellish his life with a few more baubles, but rather whether he can have a decent life versus the life of a street beggar. So as a prospective employee, I have little choice, either take the heat or get out of the kitchen (and starve as a consequence).

39

Nick 07.07.13 at 5:16 pm

This is probably a painfully simple observation, but this whole article seems to reference the difficulty in formally regulating every aspect of human economic behaviour. The ideal form of regulation here would be shame — i.e. the employer would be embarrassed and humiliated at being such a giant prick — and personally, I would be, but that doesn’t seem to be working very well. Perhaps in a society with increasingly rigid and wide separation between classes, those who are higher up feel more empowered to do whatever they want.

40

Nick 07.07.13 at 5:16 pm

‘I’m not clear why so many people here are saying these non-compete clauses are rarely enforced. The Los Angeles Times article says that once upon a time that was true but that judges in recent years have in fact begun to enforce them, and in industries where they were traditionally not at all invoked. Do you guys have actual evidence that the article is wrong?’

That’s not actually what the article says. It says its been made harder to sue in these cases (especially using class actions). The actual merits of the the contract terms aren’t discussed. That’s still a big problem. Employees are discouraged from seeking relief by some court decisions from what might well be unenfirceable terms.

41

Bruce Wilder 07.07.13 at 6:20 pm

Nick: This is probably a painfully simple observation, but this whole article seems to reference the difficulty in formally regulating every aspect of human economic behaviour.

We have to negotiate our economic relationships with one another. It is difficult, sometimes, but it never goes away. Giving all the power to the bosses only makes it seem as if some of the difficulties have gone away — for the bosses.

This is one of the essential differences between liberal and classical liberal, and now, neoliberal, viewpoints.

The liberal view was to accept both conflicts of interest in society and a human tendency to get carried away in the pursuit of power and self-interest, as givens. The task of political (and economic) institutions was to use and maintain conflict, sublimating it by constraints imposed by the state, into rational deliberation and negotiation.

The neoliberal view is to eliminate the constraints of the regulatory and judicial state, dismantling the institutions, effectively eliminating the conflicts between elites and the masses from political or economic operation.

42

William Timberman 07.07.13 at 6:25 pm

Keynes is banished. Marx is resurrected. Neoliberals cheer the first, can’t imagine the second. Full report at 11:00.

43

Brett 07.07.13 at 6:30 pm

I found a newspaper article with some more details on the Worcester hair salon non-compete case.

What happened was that the three hair stylists had signed non-compete contracts that forbade them to work within 10 miles of the salon they left and from serving any of said salon’s clients, up to one year after leaving the job. They ultimately did leave for a rival salon in that area, apparently taking a bunch of clients with them in the process. It went to court, and the judge sided with the business’s argument that they suffered financially when the three took a ton of clients with them to a rival business.

That fits with the existing pattern of enforcement, although expanding it to a client-based hair-styling business seems to be new according to the article. A one-year duration, the judge enforcing it when there were trade secrets or something like a list of clients involved, and so forth.

44

Bruce Wilder 07.07.13 at 7:06 pm

the judge sided with the business’s argument

The article Brett found, referred repeatedly to “intellectual property protections”.

The judge enforced a restraint of trade, which not only interfered with the ability of the hairdressers to seek employment in their own profession, but prevented customers seeking their services, to choose them.

And, boo hoo, the original salon owner suffered financial losses. Life’s a negotiation, bub. He should have given them a raise instead of alienating them.

45

dogfacegeorge 07.07.13 at 7:12 pm

We sort of accept “inequality of bargaining position” as a fact of nature, but it’s not. It’s a creature of state action. The State encourages Capital to conglomerate in the form of corporations, so oligopolistic corporations exercise market power over atomistic employees. As a result, such employees do not enjoy liberty of contract.

And that’s not me talking — that’s what Congress said over 75 years ago when it enacted the Wagner Act.

46

Nick 07.07.13 at 7:37 pm

To Bruce Wilder, I’m not conversant enough with the differences between neo-liberals and liberals to say anything about your observation, and I’m not certain if my original comment was in the spirit of one or the other. I guess that my basic point is that despite the existence of constant conflict within human relations, it’s still fairly common that social mores regulate this as effectively as legal norms. A good example is the U.S. Senate, which functioned better under a social interpretation of its filibuster procedures than the current legalistic one. Another is the comment made above, where the social convention that workers be defined as workers, rather than contractors, made employment a more equitable proposition. A country where social norms are violated unless they are supported by explicit legal norms is an unpleasant place to live, and one reason that I find Canada a better home than the States. When this kind of thing takes place, and I think it can be seen in a wide range of American institutions, it reflects a society where people don’t see themselves as part of a community. CEO pay is another example — you can’t pass a law that says CEOs have to act with the best interests of the company in mind, or that the ‘company’ is an entity that includes workers and their families, but capitalism is a much more palatable affair in a community where that is accepted.

But if you said that these relationships have to be upheld legally, I would agree with that — I guess the original point was that a conservative tinge to the judiciary has helped the current situation to develop, so perhaps there is a simple legal, or electoral, solution.

47

Brett 07.07.13 at 8:02 pm

@Bruce Wilder

And, boo hoo, the original salon owner suffered financial losses. Life’s a negotiation, bub. He should have given them a raise instead of alienating them.

“Boo hoo, the three hairstylists can’t work in the same 10 mile area or service the same clients for a year. Life’s a negotiation – they should have refused to sign on rather than accept a non-compete, or demanded a raise before threatening to leave.”

48

chris 07.07.13 at 9:14 pm

The law, in its majestic equality, allows both the rich and the poor to enter into whatever one-sided contracts they can pay someone to draft for them.

@46: how effective do you think demanding a raise or threatening to leave would be for an employee bound by a NCC? How willing would they be to make that demand in the first place? Even if they only think the NCC might be enforceable? Keep in mind that the employer — and usually *only* the employer — already has an attorney who wrote the NCC in the first place and can explain when it is applicable. The employee will probably have to take the employer’s attorney’s word for it or be in the dark completely. (Hopefully, they would have enough professional ethics not to outright lie to an unrepresented other party about what the contract means, but that still leaves a lot of room for presenting the truth in a way that favors their own client. And of course they would routinely advise the other party to get their own lawyer, even though everyone involved knows that can’t practically happen for most such transactions.)

The judge enforced a restraint of trade, which not only interfered with the ability of the hairdressers to seek employment in their own profession, but prevented customers seeking their services, to choose them.

Yes, and in California, that would be legally relevant. The point of the article is that not many jurisdictions are like California.

49

robotslave 07.07.13 at 9:27 pm

Matt @14:

That’s odd, and can really only be explained by bad intentions or motives.

Or perhaps by the fact that employers with job sites in many states tend to use standardized contracts?

It’s interesting that the examples being tossed around are a town-car rental business and a hair salon business. In both of these, there tends to be a very strong customer loyalty to a particular worker, rather than a particular company, and when a worker changes employers, a significant chunk of business can follow. And in both businesses, it’s very common practice for the contract to be more like that between a supplier and a firm than between a firm and an employee.

Hair salons and town-car companies frequently operate by renting chairs to stylists or cars/medallions/dispatch to drivers at a flat rate plus a percentage of sales; in these businesses, the laborers are rarely simple hourly employees. This model insulates the business owner (or upstream supplier, if you want to look at it that way) from the effects of turnover in labor.

I wouldn’t be at all surprised if the employers in the particular cases cited were operating on a completely different contractual model than that used by local competing firms.

50

Walt 07.07.13 at 9:28 pm

Brett apparently thinks they kidnapped the clients. In the trunk of their cars, maybe?

51

Anarcissie 07.07.13 at 10:27 pm

Have any of you actually had to sign NCCs? I have occasionally been presented with them, or with contracts which contained clauses to the same effect. In one case I crossed out that particular part, and the other party accepted it; in the other cases, I guessed that the clauses would prove practically unenforceable, and so they did, for I ‘competed’ and was not sued. I am impressed that someone would actually persecute mere hairdressers unless they were some sort of genii of hairdressing with loyal clienteles. Finally, isn’t there some rule that one can always get out of a contract at the cost of possibly paying damages, which have to be shown to a court? Or has that been superseded by laws similar to the IP laws, where astronomical punishments are specified for trivial offenses?

52

rea 07.07.13 at 10:28 pm

@Brett–and boo hoo, the customers can’t get the stylist they want to do their hair for a year–the business owner gets to hold them captive. But heck–what’s important here is to protect the rights of etrepreneurs.

53

Matt 07.07.13 at 10:57 pm

robotslave 07.07.13 at 9:27 pm

Matt @14:

[Putting clauses in a contract one knows to be, under state law, invalid, but that might not be known to be so by the employee] is odd, and can really only be explained by bad intentions or motives.

Robotslave:
Or perhaps by the fact that employers with job sites in many states tend to use standardized contracts?

Well, maybe, but certainly it’s not the only explanation, nor would it make it okay. It seems to me quite close to fraud to put a clause in a contract that you know isn’t valid, but that you can reasonably expect to get benefit from, because of an information asymmetry. (I.e., the employer knows it’s not valid, but expects that many employees won’t know, and so gets some benefit from it.) At the very least, it’s bad form, or shows culpable ignorance on the part of the employer.

Finally, isn’t there some rule that one can always get out of a contract at the cost of possibly paying damages, which have to be shown to a court?

Contract law is state law, so it’s dangerous to make general claims about it. But, while “expectation damages” are the most common remedy for breach of contract, an injunction can sometimes be issued, and would plausibly be appropriate in cases like this, assuming the clause is valid. Violating an injunction would then lead to civil contempt charges, I’d think, which would in turn have a penalty-like structure.

54

Alan 07.07.13 at 11:07 pm

Here in Northeast Wisconsin it’s common for local news/sports personalities to leave a station and disappear for a year until they pop up on another local station due to those contracts; I assume this is universal in the industry at this level. This has gone on here for about 20 years at least; maybe more. It’s all so silly; like popular media figures will be forgotten in a year? Framing contracts essentially to be punitive in case of “betrayal” doesn’t seem like a detached business-like attitude at all–when you resign, it’s like a bad movie trailer: “Now, it gets personal!”

55

Matt 07.07.13 at 11:22 pm

The “plausible” justification for such clauses is that, in many cases, the most valuable things a company has are either, 1) it’s contacts and list of clients, or 2) know-how that the employee gains on the job. In this way, such jobs are different from, say, a factory job, where the most important thing the company owns is a bunch of machines or the like, that can’t be taken with the employee to a new job. The idea, which isn’t crazy, is that if the employee can leave the job with these valuable assets, it will make the business much harder to run or riskier. There’s something intuitive to that, though it’s unclear (as Lobel, among others, show) that it’s right in the end. It’s not obvious to me that these clauses are always unreasonable in limited forms and for some sorts of jobs, but it’s also not at all obvious to me that society might not decide that, over-all, they are a bad deal and so bad them, as California has. (The stronger and more regularly applied such clauses are, especially where the plausible rationale is lacking, the less justification for them there is, I’d think.)

56

Moz in Oz 07.07.13 at 11:33 pm

I suspect the real power of the NCC is the rude letter to a new employer, rather than actual suing.

I’m curious about what requirement there is to let the employees keep a copy of the contract. I’ve had multiple employers fail to do that over the years. Once on the grounds that it was the employers intellectual property!

In Anglonesia AFAIK no-compete clauses are very difficult to enforce against employees – in NZ the advice I got was that the no-compete applied for exactly as long as the employer paid my salary. At soon as they stopped I was bound only by the laws against theft of company property (etc).

Interestingly, the contract in question was a stock contract developed by a local employers association and when I gave it to a union lawyer they both knew all about it and had a previously prepared explanation of what the enforcable bits meant and an offer of pro bono representation for the rest.

But in a tight market I’ll sign whatever drivel the boss wants me to, because 99% of the time they have no intention of honoring it. I recently had one where the letter of offer was wildly different from the contract I was given a couple of weeks into the job, and when I asked for a copy of it I was refused. So I signed, of course. By then I’d already quit my old job, it was a bit late. I just relied on not being bound by a contract I didn’t write and wasn’t permitted to have a copy of.

57

jonnybutter 07.08.13 at 1:18 am

Here in Northeast Wisconsin it’s common for local news/sports personalities to leave a station and disappear for a year until they pop up on another local station due to those contracts; I assume this is universal in the industry at this level. This has gone on here for about 20 years at least; maybe more. It’s all so silly

This started to be common in broadcasting about 35 years ago (something really magical started happening in the US circa 1980…). I seem to remember people challenging and beating them a few times, but most people just signed and abided. I guess what’s interesting is that they made the nobodies sign them too, the excuse being that if the Firm, in its infinite and inscrutable wisdom, decided to go to great lengths to promote a person(ality), they should be able to protect their investment. It was pure crap. Promotion didn’t make the personalities popular most of the time (certainly not in radio), and it was in the company’s interest to promote the personality anyway.

Broadcasting – especially local, and especially local radio – was always super conservative and almost feudal in the way it treated most of its employees. Makes perfect sense that the lion’s share of what’s left of that business is scoundrels like Rush Limbaugh. People like him *always* had a home on the radio. Good DAY.

58

Collin Street 07.08.13 at 1:19 am

Mind, english-tradition contracts aren’t supposed to actually bind people, as-such. You just have to fix the damages your breech causes… which sometimes requires that you “do what you agreed to”, but that’s [supposed to be] a very limited special case, and in general you just stump up money.

But that was back when only important people signed contracts and the help ran on other systems.

59

Bruce Wilder 07.08.13 at 3:48 am

Quite right. These constraints are about creating and extracting rents.

60

Omega Centauri 07.08.13 at 4:26 am

My feeling as a tech worker, for whom these things were originally invented, is that for us semi-professionals, that it works as Colin describes, i.e. it will only be invoked in special cases -usually involving the taking of corporate secrets directly to a competitor.

61

Bruce Wilder 07.08.13 at 4:37 am

My own comment @ 58 is kinda dumb — I just want to try it on. It’s not that it doesn’t fit, but the abstraction does not distinguish or identify the meanness and unfairness involved.

62

robotslave 07.08.13 at 5:07 am

@59

That would be an NDA violation, not a non-compete violation.

63

Tim Worstall 07.08.13 at 8:16 am

“Tim: is gardening leave usually paid? That is a very important difference.”

Not by the employer you’re leaving, no.

But the employer who has enticed you over will indeed pay it because they have enticed you over and that would be an important part of the enticement.

64

reason 07.08.13 at 11:28 am

Omega Centauri @59
Being also a tech worker, I can remember having seen these clauses, but it was clear that they we be interpreted narrowly (i.e. would not effectively prevent me from seeking alternative employment), as software is often related to narrow niche markets. This case seems quite different.

65

Chaz 07.08.13 at 11:44 am

This business about protecting customer lists and customer loyalty makes no sense at all. Customers cannot be property, they are people! And customers do not ideally choose service providers based on the name and the ownership of the company, but on the skill of the employees performing services (though they may use brand as a proxy, to the huge advantage of the companies and disadvantage of employees who might jump ship). If you don’t hang on to the employees your customers want, why on earth should they keep going to you? If your competition (whether they are former employees of you or not) can offer services superior to yours, how can one argue that they’re not entitled to do so and customers aren’t entitled to choose them. From the perspective of society and of customers, the secrecy around who is interested in buying a service is an inefficiency with no positive value at all.

Even after reading through this comment thread I can’t see a single case in any industry in which noncompete agreements are socially beneficial. The only case which makes sense is trade secrets, but as people have said those are better handled with NDAs (not to mention patents). I say ban them outright.

As for the mountain of rights unlawfully waived in standard contracts (I’ve signed several!), it pisses me off that those are even legal. Why is the focus only on enforcing or challenging them? There should be a law against drafting unlawful contracts in the first place! It (often deliberately) misinforms the weaker party, and creates a waste of the court’s time and a burden on the weaker party when they are fought over in court. Any company that proposes an unlawful contract, or represents it as lawful, or tells employees they have an obligation which does not lawfully exist, should be fined, or shut down in severe cases. Any lawyer who drafts or misrepresents such a contract should be sanctioned or disbarred. You may argue that people often prepare these things thinking they are valid–too bad, as a lawyer it’s your duty to know that stuff. And as the employer/stronger party, it’s your duty to ensure you follow the law, and don’t dump these problems on your employees (same as with worker safety and environmental laws). You may argue that the laws are often hazy–fine, only apply penalties in clear cases. And if the laws are hazy, so the lawyer is unsure whether the contract would hold up or not, then oblige the lawyer and employer to say so in the contract and in all discussions of it–a notice (specific to each section) that the terms may be illegal or unenforceable.

As for mandatory arbitration, I straight up don’t get how that is even a thing. The whole point of laws is that you have recourse to the courts to enforce them. You can sue over anything you want; if your suit’s absurd the court may say so at an early stage but you still get to at least file it. To surrender your right to access the courts over any matter is the same as surrendering your right to be protected by the law. That right should be totally inalienable.

66

Katherine 07.08.13 at 12:51 pm

I have somewhat more direct experience of this: a friend of mine was a journalist (nothing fancy – at a trade mag) who resigned to move to a different trade mag – the same rough area and sort-of competitors. The original mag declared that she her employment contract required her not to work at a competitor mag for 3 months. Enough to cause a real rent-paying problem.

Since I was then a solicitor, she called me. This often happened. I said that from my recollection of employment law at university this was a restraint of trade and as such a there was a very high evidential bar to get over before any court would uphold it. I also told her to go see a solicitor who specialised in this sort of thing, since that was not my area of expertise.

She called me the next day to tell me she had marched into her boss’s office and told him to stuff his non-compete clause where the sun didn’t shine – her solicitor had told her that this was an unenforceable restraint of trade. After I’d stopped ventilating and having kittens (very difficult things to do, simultaneously) I asked her what they’d said to that. The answer: nothing. It would have cost them money to go to a lawyer and make a thing out of it. The loss to them of her going to a sort-of-competitor was exactly zero.

Actual loss is the key. Does an employee breaching their contract cause loss? If not, then stop wasting everyone’s time.

67

Nick Z 07.08.13 at 1:40 pm

A commentator (Bloix) over at LGM draws attention to how the Phoenix School of Law has adopted a policy of not permitting faculty to write letters of recommendation for students looking to transfer to another law school, with the stated intention of ‘building a better mousetrap’ (i.e. retaining the students they are scamming with enormous tuition and dismal placement statistics). Given the desperation of academic job seekers, it seems a logical next step would be to introduce non-compete clauses for new faculty members, thereby creating an even more vulnerable and pliant group of professors.

68

Andrew Burday 07.08.13 at 1:44 pm

John Holbo @20, like a couple of other commenters, my idea of a libertarian pretty much is identical with what you’re calling a vulgar libertarian. If you have time at some point, at least one reader out here would be interested in a post on (the two varieties of?) sophisticated libertarianism. I can take a guess at the direction this will go, but if my guess is right I’m unclear about the difference between a sophisticated libertarian and a liberal who puts a particularly heavy emphasis on personal freedom. Maybe that’s not a problem? But I also have no idea about the two varieties. Anyway… If you’re bored some time this summer.

69

Anderson 07.08.13 at 2:27 pm

(1) Brett’s hair-salon example is actually a case where there’s a good argument for a NCC. Salon owner hires stylists, they benefit from his salon’s goodwill to get business they wouldn’t have gotten just starting up their own place; then they acquire regular clients, whom they “take” to their new salon. The 10 mi./1-yr. NCC sounds actually appropriate on facts like those. Maybe I’ve been corrupted by the Dark Side.

(2) “As for mandatory arbitration, I straight up don’t get how that is even a thing.” Nope, the theory is that you’re not relinquishing any rights, just “choosing” a different forum.

I believe it started in inter-company transactions, where it might make sense to have an arbitrator decide contract disputes relatively inexpensively. Naturally, two trends arose – arbitration became more & more like litigation (i.e., more expensive), and it expanded to include employer-employee situations and, most obnoxiously, consumer arbitration. Plus numerous SCOTUS decisions highly deferential to arbitration.

There’s an occasional push to amend the Federal Arbitration Act to exclude consumer arbitration “agreements” (generally buried in fine print), but it won’t happen with a GOP House. Or ever, maybe.

I would just say: if you’re in a situation where you’ve been pretty evidently screwed over, don’t assume that arbitration is some kind of kangaroo court. Arbitrators tend to be older lawyers who’ve “retired” into the mediation/arbitration career, they’ve gotten successful because of their reputation for fairness, and they will smell a load of manure when it’s presented to them. With the internet, you can vet potential arbitrators in a way that was impossible for “the little guy” a decade or two ago.

70

John Holbo 07.08.13 at 2:33 pm

“John Holbo @20, like a couple of other commenters, my idea of a libertarian pretty much is identical with what you’re calling a vulgar libertarian. If you have time at some point, at least one reader out here would be interested in a post on (the two varieties of?) sophisticated libertarianism.”

Busy now. But later.

71

Trader Joe 07.08.13 at 2:55 pm

As noted @66 and @69 in customer/service businesses the enforcability depends on proving damages and usually hinges on who “owns” the customer. Non-competes usually have as term of them a non solicitation clause – courts spend a lot of time deciding whether a departing employee is “stealing customers” or simply notifying them of their new address. I suspect the actions of the employees (not mentioned in the article) were at least a part of the reason the court decided the way it did.

The point in the OP is still spot on – there is no question that the cumulative effect of the Roberts court has been to make it harder for employees to sue in various ways ranging from mobility to job classification even to harrassment. This is a legal pendulum which seems to swing in fairly long cycles and its unclear if the current conservative trend has reached its full conservative arc. The GOP dominance of most state governments is also a factor as this is where many of these types of employment rules are set – not at the federal level.

In the late 1990s in the era of $600m spilled coffee claims, there was a societal view that “jackpot justice” had gone too far resulting in state and federal changes that made class actions more difficult to bring, these together with a decidedly conservative judiciary has led to outcomes described in the OP. The pendulum will no doubt swing back, but these are changes that run to decades not years.

72

Donald A. Coffin 07.08.13 at 3:15 pm

One thing that’s been elided (or dropped or ignored) is that many of the NCCs apply in cases in which the *employer* terminates an *employee.* And then tries to enforce the non-compete restriction. How, under any theory of employer rights, can that possibly make sense?

73

Anderson 07.08.13 at 4:34 pm

72: if that weren’t in there, an employee who wanted to evade the clause could simply behave in such a manner as to ensure his being fired. You’ve seen that sitcom episode before, surely.

74

Scott 07.08.13 at 4:40 pm

I think most libertarians would agree with the idea that people should not be able to sign away certain fundamental rights; what qualifies as fundamental is the tricky question, but the right to exit should be very, very high on that list. I can’t think of any circumstances off-hand where banning this sort of contract would be an issue; the libertarian case would be that people are then prohibited from (theoretically) earning more in exchange for signing away their right to exit, but this isn’t really relevant below high executive levels.

On the difference between libertarians some commenters have mentioned – I think it’s mostly a consequentialist vs moralist issue. Some libertarians just want to maximize liberty and accept that, in practice, a society that does this will not exactly be a Nozickian-utopia. Others are more or less uncompromising on the morality of coercion (defined specifically as the use or implied use of violence) and tend to scream about any government action that restricts anything – at extremes, they probably wouldn’t care if people signed away their rights, even when subject to indirect coercion/coercion of circumstances or whatever it’s called (not subject to violence, but constrained in other ways).

75

PatrickfromIowa 07.08.13 at 5:22 pm

The plaintiff in the McDonald’s coffee asked for $20,000 for this: “Liebeck was taken to the hospital, where it was determined that she had suffered third-degree burns on six percent of her skin and lesser burns over sixteen percent.[11] She remained in the hospital for eight days while she underwent skin grafting. During this period, Liebeck lost 20 pounds (9 kg, nearly 20% of her body weight), reducing her down to 83 pounds (38 kg).[12] Two years of medical treatment followed.”

When McDonald’s offered $800, she sued. The trial judge reduced the jury award to 640,000, and the parties settled before appeal.

“Jackpot justice” bears the same relation to reality as “welfare queen” or “death tax” or “incompetent teachers protected by too powerful unions.” There may be a thing there, but the foreground is right wing framing.

76

Trader Joe 07.08.13 at 6:31 pm

@75
It may well be right wing framing, but that’s the basis that got the tort reform passed and conservative law combined with conservative judges isn’t helpful to employees. What Liebeck got and what she deserved is moot in the context that it was spun as a reason to limit damages and limit court access.

I think you misconstrue my point which is that a change in the Supreme Court really wouldn’t change things that rapidly – changes in the tort cycle take years to play out since they operate through changes in both the underlying laws (which tend to be state legislated) and the jurists who opine upon them.

77

sherparick1 07.08.13 at 6:37 pm

Mike Konzal has an interesting article on libertarianism, that includes a long quote from Robert Nozick’s “Anarchy, State, and Utopia,” a/k/a “Ayn Rand for smart people.”

http://www.nextnewdeal.net/rortybomb/we-already-tried-libertarianism-it-was-called-feudalism

He in the passage below Konzal quotes the following passage from Nozick to sharply draw the difference between Liberals and Libertarians:

“..Nozick argues you can sell yourself into slavery, a condition under which all basic liberties are extinguished. (“[Would] a free system… allow him to sell himself into slavery[?] I believe that it would.” ASU 331) The minimal libertarian state would be forced to acknowledge and enforce contracts that permanently alienate basic liberties, even if the person in question later wanted out…”

78

Rich Puchalsky 07.08.13 at 6:46 pm

“Sophisticated libertarians – who are actually worth talking to – come in a couple different flavors. No time to write a comment long enough, but the article should be highly embarrassing to some of them, and a real puzzler for others.”

But there’s an excluded middle here. If you talk about left-liberalism, there are sophisticated left-liberals, and there are ordinary left-liberals, but they will more or less say variations of the same things. The ordinary left-liberals may be more or less ignorant and so on, but they’ll still give a recognizable version of left-liberalism that owes a lot to the New Deal, the Sixties, etc.

The same isn’t true of libertarianism. Sure, there are maybe 2 or 3 people who qualify as “sophisticated” or “interesting”, but they aren’t really libertarians in the sense that they’re really saying the same things that actual libertarians do. For instance, actual libertarians have no real problem with these kinds of contracts — see this thread for examples — because there’s nothing in libertarian theory or practice that speaks against them. You can create a sophisticated libertarianism, but you’ve created it, it has no real existence as a political entity or tendency.

A left-liberal goes out in search of a sophisticated libertarianism. Why? Because left-liberals like to argue in a particular way, against people with coherent world views, and conservatives don’t have a coherent world view and anyways the arguments against them are old and tired. So the left-liberal finds a few people and defines them as “sophisticated libertarians” and all the rest as “vulgar libertarians”. But all that does is justify the left-liberal’s intuition that sophisticated people have to care about the same kinds of things that left-liberals care about. (Substitute “social democrat” if you like.)

79

Chaz 07.08.13 at 6:47 pm

Anderson @69,

What does the salon really give to the stylist? They give them a couple chairs and a sign out front that says “Salon”. They draw in customers with their sign. The customers stay because they like the work done by a particular stylist. Then when the salon owner fires the stylist for demanding higher pay or for spurning his sexual advances, the stylist quits and goes elsewhere. The customer naturally follows the stylist to her new location because she does her hair the way she likes it. The customer has a lot more confidence that they’ll get continued good service by sticking with their current human service provider than from a random new person at the old company. Alternatively the customer just found the old location convenient and keeps going there.

If the customer does follow the stylist, the stylist has not taken a customer, and she certainly hasn’t stolen one. The customer has moved on of their own accord. Is the customer to be treated as property of the salon owner? Is the customer to be required to drive >10 miles or banned from seeing their favorite service provider (and possibly friend)?

Or for creepy people who see customers as property, look at it this way: the stylist is a small businesswoman who hired the salon to provide a facility, and the stylist later switched facility providers. Naturally, the stylist did not allow the old facility provider to steal her clients!

Businesses must work hard to obtain their clients, and work hard to retain them. Keeping employees the customer likes is part of that work. It’s about keeping a customer satisfied, not controlling property.

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Trader Joe 07.08.13 at 7:09 pm

@79
The courts examine the scenario based on the actions of the employee (or really ex-employee) not based on the actions of the customer who is free to choose his service provider.

If the employee contacts her former customers and simply says I’m now at a new address that’s one thing.

If the employee contacts her former customers + other customers of the business thats something more.

If the employee then offers a discount or special terms to any customers of her former employer that more yet.

If the employee makes disparaging remarks on top of contact and enducement that’s yet another thing.

The customer is still free to decide from whom they wish to take service, but the employee cannot offer enducements (or disparagement) without running the risk that the ex-employer will be able to prove harm and therefore be able to enforce a non-compete (and/or collect damages). I’d grant that personal services like hairdresser are bit different than stock broker, insurance agent or real estate management (all of which routinely have very strict customer contact and non-compete practices), but the underlying reasoning is much the same.

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PatrickfromIowa 07.08.13 at 7:11 pm

@76 You’re right about the time line.

My point was that there was no 600 million coffee bean lawsuit and that the “societal view” in favor of tort reform was largely ginned up. I hear the “multi-million dollar coffee law suit” meme frequently and I used to work on a burn unit, so I’m testy about it.

The damage will live, though, you’re right about that.

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Barry 07.08.13 at 7:59 pm

Tim: “My very dim memory of an undergraduate law class was that how enforceable a non-compete clause is depends upon the nature of the job. This is UK law of course (more specifically, England and Wales). If you’ve been the civil servant in charge of buying weaponry then it’s entirely righteous to have a clause saying you can’t go to work for BAe for a year or two after leaving (and there are arrangements about that sort of thing).”

One of the rare times I’m in agreement with you on principle, although I thought that in both the US and UK this was the standard deal: retire and immediately work for those – well, for whom you were actually working beforehand :)

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Anderson 07.08.13 at 8:05 pm

What does the salon really give to the stylist? They give them a couple chairs and a sign out front that says “Salon”. They draw in customers with their sign.

Yep, that’s all there is to it. One salon’s exactly like another, which is why every woman I’ve ever known doesn’t care where she gets her hair cut.

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Chaz 07.08.13 at 8:22 pm

Anderson,

She gets her hair cut by a stylist she knows to do a good job. She knows that through experience. For me getting haircuts has always been trial and error, and going to the same barbershop but getting a different barber means a totally different haircut. Do you know women who have loyalty to a salon rather than the stylist? To the building and brand and management?

85

Joshua Holmes 07.08.13 at 8:48 pm

I agree that there’s no inherent libertarian problem here. If a libertarian isn’t interested in how we got to this current property arrangement, they’re not going to worry about it. Even within standard libertarianism there’s room to make employers be careful what they wish for.

But note these people are now no longer at-will employees. That means they lose a lot of the freedom of at-will, but they should now gain the protections of contract construction. Namely, if you draft it and go to enforce it, every mistake in the contract will be on you. If you draft it, go to enforce it, and have unclean hands (i.e., you didn’t hold up your end of the deal), you get nothing. If you pull a contract out of a form book and get your to employee sign it, but a bunch of the provisions are illegal or unenforceable under state or federal law, you lose.

Will state and federal judges enforce this view? Probably not, but the John Roberts Libertarian Fan Club is miniscule (although I suppose we share elective affinities with him, just as we do with Nietzsche and Spider-Man).

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Anderson 07.08.13 at 9:31 pm

But note these people are now no longer at-will employees. That means they lose a lot of the freedom of at-will, but they should now gain the protections of contract construction.

In Mississippi, at least, an at-will employee can sign an enforceable free-standing NCC and still be fired for, as the cases put it, “a good reason, a bad reason, or no reason at all.”

Here’s the kicker: the consideration for the contract (“what’s in it for the employee,” for you happily-not-a-lawyer types) can be continued employment, i.e., not being fired on the spot.

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rea 07.09.13 at 12:18 pm

A contract providing for noncompetition doesn’t make the employee anything other than at-will, unless it says so.

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Barry 07.09.13 at 12:49 pm

Joshua, I’m wondering where you even came up with such an idea.

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Rich Puchalsky 07.09.13 at 2:17 pm

“But note these people are now no longer at-will employees.”

That isn’t vulgar libertarianism, it’s magical libertarianism — the idea that contracts are somehow balanced so that if one party gives up something, the other party has to give up something. But of course they don’t have to be. As society becomes more and more of a hellhole in which everything is for sale, workers get increasingly immiserated, and their desperation causes them to give up more and more while getting nothing but subsistence in return. This is a feature, not a bug.

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Anderson 07.09.13 at 2:38 pm

“magical libertarianism — the idea that contracts are somehow balanced so that if one party gives up something, the other party has to give up something”

Exactly. A contract has to be pretty crazily unbalanced to be stricken by the courts as unconscionable (and maybe not even then). Sensibly enough, the courts don’t want to be in the business of second-guessing whether any given deal was a good one or not. But rationalizations like “X contracted with Y, hence X was getting the same value as Y” don’t pass the laugh test.

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Rakesh Bhandari 07.09.13 at 4:36 pm

It’s possible to imagine a professional enticing a company to make human capital investments in him or make him part of an R&D team with an offer to sign a NCC. He may imagine that it’s worth possible lost income to have that work experience. He may imagine that the firm would not undertake a big R&D project if each member did not sign a NCC (there is not much talk anymore, I don’t think, but big Silicon Valley firms once complained that “vulture capital” firms were stealing their best workers just before R&D paid off, resulting in a lot less R&D off of which the venture capital firms could be parasitic; now VC’s may themselves insist on NCC because they are afraid of losing their best start up workers before the investment pays off—still the point is that some investments may not be made without NCC).

At any rate, a ban on NCC may prevent Pareto improvements from being made.

On the other hand, it is conceivable that while each such NCC contract allows for a Pareto improvement, that at some point some kind of suboptimal state would result. It is possible that the investments would be made and the rate of innovation would remain the same even if NCC were prohibited. Certainly this would seem to be true in some industries, where employers may be attempting to contain wages to the benefit of their own consumption budgets by depriving workers of exit option

These are not easy arguments. They have to be worked through.

Instead what we basically have here is libertarianism on both sides—one side arguing for the liberty for workers to enjoy free exit as a matter of basic principle and their also libertarian opponents arguing for the sanctity of free contracts, including ones in which both parties agree to an NCC.

But those with former position implicitly put emphasis on workers using exit options to improve their conditions, not voice or collective bargaining options. It is of a piece with neo-liberalism—that there is nothing wrong with the market that even freer markets cannot solve.

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WNY-WJ 07.09.13 at 5:26 pm

Libertarians have always been naive about what would truly transpire when individuals are free to employ their property with little/no restraint by society and government: pursuit of naked self interest by an economic elite and immiseration of workers. Until popular attitudes towards collective action return to where they were before liberalization of markets/society, we can expect a continuing journey towards a new Guilded Age.

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Rich Puchalsky 07.09.13 at 5:43 pm

“Instead what we basically have here is libertarianism on both sides—one side arguing for the liberty for workers to enjoy free exit as a matter of basic principle”

If you define both left-liberal and anarchist principles as libertarian, then everyone in favor of free exit by workers is a libertarian. Also, if I said that everyone against free exit of workers is a Communist, there would be a lot of Communists out there. I think that both assertions are equally illuminating.

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Rakesh Bhandari 07.09.13 at 5:51 pm

What is not libertarian are state-backed minimum wage laws, robust social wages, universal health care, quality public education, etc. Prioritizing the workers’ struggle to make sure that they never can sign a NCC even when it may be in their interest to do so seems to me follow from dogmatic libertarian principles. I am not saying that it would ever be socially beneficial to allow NCC, but it is possible that certain investments would not be made in their absence. That possibility has to be considered if there is to be a persuasive critique of NCC.

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Bruce Wilder 07.09.13 at 5:59 pm

Rakesh Bhandari @91 “These are not easy arguments. They have to be worked through.”

Sometimes, “working them through” consists of just confusing one’s self and others with counterfactual nonsense.

“It’s possible to imagine a professional enticing a company to make human capital investments in him or make him part of an R&D team with an offer to sign a NCC. He may imagine that it’s worth possible lost income to have that work experience. “

It’s possible to imagine the sky could be green. Imagining such a thing doesn’t prove anything. In any case, the issue isn’t whether people seeking to become employees can induced to sign a NCC. We know that they will do so. The question is whether it is socially efficient to enforce such clauses, when there’s a dispute.

So, fantasies about whether such an agreement might be rationalized ab nova are irrelevant. The operative question is whether this clause can be enforced after the fact, after employment, after (some of the putative) investment has been made, in a way that remains efficient. Was the judge’s decision to impose a restraint of trade against the hairdressers and their customers, pareto-efficient? I think that’s actually pretty easy to answer: no. It imposed lost production on the hairdressers, lost value on their customers, and did nothing to compensate the salon owner.

The case for banning NCCs — and I’m not committed to arguing for a blanket ban or defining good or bad NCCs in a comment thread — is going to rest not on the prospective merits of the original deal, but on the unacceptable costs of enforcement in any and all emergent circumstances.

A committment to idleness and lost production is socially inefficient on its face. Arguing that only such a socially costly commitment can yield a socially superior deal is going to have to cross a very high bar. I don’t see that anyone on this thread has even tried to cross that bar.

Sure, from the business owner’s perspective, having his employees leave and take business is personally costly. But, from a social perspective, which should be the public interest perspective of the judge, competition — even, or especially, competition which imposes financial losses on less successful firms — is socially desirable. It is not sensible to prevent the re-organization of production represented by the hairdressers leaving the salon and setting up production in some other firm: this is the activity that delivers increased social surplus.

It is only a purely libertarian argument, if your accounting of costs and benefits presume only private values, costs and benefits, so that the business owner’s losses become a reason to punish the errant hairdressers. That’s terrible economics.

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Bruce Wilder 07.09.13 at 6:13 pm

RB: it is possible that certain investments would not be made in their absence.

I don’t know how you would establish such a thesis, against the considerable logical apparatus that establishes the fluidity of contract. People are very inventive, and just on its face, it is hard to see how any instance of NCC could not be handled with smaller social cost on enforcement, by some kind of purely financial investment upfront or penalty after the fact, to allow predictable recovery of the same investment.

If you don’t want Person A to work for your competitor, hire Person A yourself. If Person A’s work has value, compensate in proportion to that value. Imposing costs on Person A so that the Firm, in which Person A is given no interest, can realize a return on investment, all at increased expense to the whole society (from, say, losing the best use of Person A’s productivity for a period of time), does not make much economic sense. And, it is not particularly whooly.

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Anderson 07.09.13 at 6:35 pm

Some miscellaneous reforms I would casually suggest:

(1) No NCC without significant consideration, not just continued employment. In practice, a worker cannot be discharged for refusing to sign a NCC. (Even at-will employees cannot be fired for illegal reasons.) This alone will make employers shy of offering NCC contracts to existing employees.

(2) As used to be the case, NCC’s should be disfavored under the law, and the employer has the burden of proving a real insurable interest.

(3) Att’y fees payable to the employee if the employer’s NCC suit fails. For obvious reasons, this cannot work in reverse.

(4) Immunity from suit for the new employer of a NCC-bound employee (no “tortious interference” suit by the old employer).

(5) NCC unenforceable where employee is terminated without cause.

These would go far to ensure that an employer would include a NCC only where there’s a real basis for it.

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Joshua Holmes 07.09.13 at 11:28 pm

“X contracted with Y, hence X was getting the same value as Y” don’t pass the laugh test.

I didn’t say it did. My point was that once an employer introduces NCAs, there’s no longer an “at-will” agreement. If you the employer make your employees sign NCAs, you’ve altered the at-will deal. You shouldn’t be entitled to enjoy the rights and benefits of the at-will deal any longer because you changed it. And once you change it, the courts should apply the rules of contract construction against you.

Will they? Probably not. But not because the courts are stacked with libertarians: they aren’t.

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JimF 07.10.13 at 1:15 am

As a prospective employee, I’d be willing to sign such an agreement, provided it were paired with a reciprocal provision that, in the event I am terminated, the employer is prevented from having someone else do my work for an equal span of time. That would be fair, wouldn’t it?

100

Dr. Hilarius 07.10.13 at 4:45 am

NCC used to be uncommon and aimed at employees with scarce, highly sought-after skills who might jump from company to company bidding up their pay. The other major category was that of employees who would be entrusted with trade secrets or other confidential information. An NCC would prevent a departing employee from using confidential information until it was stale. Highly prized workers with special skills could bargain with a prospective employer over terms, maybe not with full equality but it need not be a contract of adhesion.

Situations like the hairdressers show NCCs being used as just another means of beating down workers lacking any union protection or real bargaining power. These clauses don’t need to be enforceable, very few people working for low to modest wages are going to consult an attorney much less be able to hire one. Unless there is potential for a class action suit, an individual worker’s damages would be so small that finding legal counsel would be very difficult. The “American Rule” for legal fees; in the absence of a contract or statute to the contrary each side pays it’s own legal fees. Legal fees could dwarf any damages awarded and the lawyer will want a substantial retainer upfront.
( My bet is that many employment contracts call for the prevailing party to have its legal fees paid by the losing side. The fear of paying two sets of legal fees is another strong deterrent against even meritorious lawsuits.)

An earlier poster wrote that arbitration is just a choice of forum without any particular bias. Not my experience or that of many attorneys. Most of these standard contracts specify who does the arbitration. Employers (as well as stock brokers, your telephone company, your internet provider, ebay …) choose who does the arbitrating and a neutral forum is not what they want. A big disadvantage of arbitration for employees is the lack of significant discovery. There might be a smoking gun document in the employer’s files but the worker will never see it.

The US legal system is very poor at providing a remedy for litigants of modest means. Poor people can’t even get in the courtroom door. The increasing use of contracts to limit worker rights is just another ugly legal irony.

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Peter Dorman 07.10.13 at 8:01 am

Let’s step back a moment. There are millions of people in this world, especially in the Indian subcontinent, who have contracted away their civil liberty more or less entirely and exist as bonded laborers. They represent one extreme. At the other end lie the various restrictions on your freedom of how to use your time and effort that are intrinsic to all employment contracts. NCC’s are somewhere in the middle.

What this suggests is that what we face is essentially a boundary-drawing problem.

From a political theory point of view, this spectrum indicates there is a libertarian paradox corresponding to the liberal one. The liberal paradox is that, to preserve liberal institutions, one must be illiberal toward those whose goal is to eradicate liberal institutions. This paradox also entails very difficult boundary-drawing. The libertarian paradox is that, to preserve libertarian freedom of choice, one must restrict some choices that eliminate the possibility of subsequent choices. (If you think a society in which bonded labor is nearly universal could be “libertarian”, you have a grotesque view of liberty which I suspect few libertarians would sign onto.)

Another way to think about the boundary problem of freedom of contract is across moments in time. At a certain moment an individual agrees to bind herself through contract. This reduces her future freedom of action. Thus in subsequent moments she is less free than she was at the initial point at which the contract was made. The contractarian view of liberty privileges the initial moment at the expense of later ones. But does it grant complete privilege? Presumably the more time that passes, the more potential changes in interest and perspective (and indeed self) the individual undergoes, the less privilege it should have.

In the end I can’t see any way to cope with these matters of judgment that isn’t at least partially pragmatic. If people can’t bind themselves to some extent by making commitments over time to one another, economic life becomes chaotic. (And it’s usually better that people make these commitments themselves rather than having them imposed on them.) But there are diminishing returns, and the calculus at some point must give the nod to matters of personal liberty at each moment in people’s lives (not just one prior moment of contracting). In fact, as many commenters have made clear, there are often economic arguments in favor of prohibiting excessive contracted constraints. (There is a lot of deadweight loss in the hair stylist example, for instance.)

And all this without bringing in matters of class and inequality, which, as I see it, drive a rather large wedge between what those with bargaining and political power see as “pragmatic” and what actually benefits the community in general.

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Barry 07.10.13 at 11:50 am

Joshua, the real point is that you’re making a claim, with nothing to support it.

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dax 07.12.13 at 11:19 am

““Tim: is gardening leave usually paid? That is a very important difference.”

“Not by the employer you’re leaving, no.”

In my neck of the woods garden leave is in fact paid by the employer I would be leaving.

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