Between Rights and Contract: Arbitration Agreements and Non-Compete Covenants as a Hybrid Form of Employment Law

Abstract

The employment relationship is governed largely by contract, but with a heavy overlay of “rights”: minimum terms and individual rights that are established by external law and are typically nonwaivable. But some terms of employment are governed neither by ordinary contract nor by ordinary rights, nor even by ordinary waivable rights. Both of the two most controversial contractual instruments in employment law today—non-compete covenants and mandatory arbitration agreements—take the form of written contracts; both waive important employee rights (the right to compete postemployment, the right to litigate future claims); and both are subject to substantive criteria of validity that are set by external law. Both bodies of law may be usefully described as recognizing “conditionally waivable” rights. This Article aims first to show structural parallels between non-compete covenants and mandatory arbitration agreements that place them at a distinct intermediate point along the spectrum between nonwaivable rights and ordinary contract. Second, it seeks to uncover a common logic underlying the law’s choice of this particular hybrid of rights and contract. The linchpin of that common logic lies in the threat that an unregulated waiver of one right (the right to compete or to litigate future claims) poses to adjacent employee rights that the law deems nonwaivable. Third, this Article deploys that underlying logic to offer a critical assessment of the law governing non-competes and arbitration agreements. Finally, this Article tentatively explores the broader potential usefulness of conditional waivability as a way of regulating some terms of employment. The intriguing potential of conditional waivability lies in its injection of some of the virtues of contract—especially flexibility and variability in the face of widely divergent and changing circumstances—into the pursuit of public goals and the realization of rights in the workplace.