Dissecting the Bargain

Contracts – Prof. Merges

Jan. 20, 2011

Kirksey v. Kirksey

• Procedural History

Kirksey v. Kirksey

• Procedural History

• What is the “agreement of the parties” with respect to the appeal?

• “If you will come down and see me, I will let you have a place to raise your family”

–Is this a request for return performance?

“Williston’s tramp”

• “If you will meet me at J. Press on Mt. Auburn Street, I will give you a new overcoat.”

“If you will come down and see me . . .”

• Note 2., page 57

–“Lunchtime at Tiffany’s”

Breakfast at Tiffany’s (1961)

Which one resembles Kirksey?

The key issue in Kirksey

• Is the return performance “sought in exchange for” the promise?

Which one resembles Kirksey?

• Is the return action requested to make possible a gift?

• How can you tell?

• What is the promisor’s motive?

• Is the return performance what the promisor wanted, or is it merely necessary to carry out the promisor’s true intention?

Rest. 2d, § 71: Requirement Of Exchange; Types Of Exchange

(1) To constitute consideration, a performance or a return promise must be bargained for.

(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise AND is given by the promisee in exchange for that promise.

It’s simple: “reciprocal mutual inducement,” that’s the key!

Employment Agreements

• What is an “at-will” employee?

At Will

“Those whose employment agreements are terminable by either party at any time and for any reason, or for no reason at all.”

-- P. 58

History

• Who sued whom, for what?

History

•Who won?

Court of appeals

• Result?

Court of appeals

• “Certified question” (teeing up a Supreme Court decision)

• “Is subsequent employment alone sufficient consideration to support a promise” not to compete after termination?

What does Lake Land Employment argue in the

Ohio Sup Ct?

• There is consideration

Agreement

• What was the key provision?

Noncompete

“Columber will not engage in in any business within a 50mile radius of Akron, Ohio for three years following termination of employment”

-- P. 58

Facts surrounding the signing

• When signed?

• What was said or promised?

Hypothetical . . .

• What if Lake Land had said “if you sign this you get a raise tomorrow?”

• Or: “we promise not to fire you the rest of today”?

• Or: “not for the next three minutes”?

Compare these promises with at-will employment

• What is the basic deal in an at-will arrangement?

Ohio Sup Ct opinion

• History of common law reception of covenants not to compete

Basic attitude . . .

• Quite negative

• Agreements “in restraint of trade”

• Guilds, royal privileges, “engrossing,” monopolies

Blackstone, Adam Smith

But in today’s modern economy . . .

•What is the rationale for enforcing covenants not to compete?

Basic rationale

“Trust and cooperation . . . Share confidential information and secrets . . . Encourage productivity increases . . .”

Judge Richard Posner

Enforceability may be desirable, but . . .

• Where is the consideration?

Employer Employee

Employer Employee

Can a “covenant not to compete” be part of the consideration provided by the employee at the outset of employment?

Employer Employee

What about after employment has commenced?

Employer Employee

Staring salary

Agreement to work

According to critics of noncompetes --

• What is the problem with enforcing them?

According to supporters of noncompetes, where is the

consideration?

According to supporters of noncompetes, where is the

consideration?

• Continued employment for a substantial time

• Additional compensation

• Additional training

Employer

Employee

Raises, promotions, etc.

Agreement not to compete after leaving

Employer

Employee

Raises, promotions, etc.

Agreement not to compete after leaving

T1

T2

Employer

Employee

Same fixed term salary

Agreement not to compete after leaving

T1

T2

Fixed term salary

What is the holding?

• There is consideration for the agreement not to compete; it is the continued employment of the employee

Does this make sense?

• As described, was there consideration for the noncompete?

Judge Resnick Dissent

Resnick Dissent

• Where is the consideration?

• What has the employer bound itself to do that it was not bound to do before?

Judge Pfeiffer

Pfeiffer Dissent

• If this holding is good in one direction, it holds in both

• Thus standard at-will employment is converted at some point to something more: agreement by employer not to discharge for – how long? Open question

Cal.Bus. & Prof.Code § 16600

Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.

Employee Handbook cases

• Do they state implied employment terms different from “at-will”?

• Can the terms of employment be changed without formal revision of the contract, or without additional consideration?