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Thursday, April 25, 2019

The Contract Thicket; or The Sum is Larger than the Parts: Supra Addition in Contract Law

Summer is coming and with it time to delve into half baked, or quarter baked projects. Here is something I have been thinking about for a while and would like to turn into a law review article. I would love any reactions, comments, ideas about other examples that fit:

In employment relations we often see what I call a contract thicket. First, contracts contain multiple clauses that together have a greater effect than the aggregation of their parts. For example, contracts will include multiple clauses about post-employment competition, including non-competes, ndas, non-solicit, assignment clauses, non-disparagement clauses (I have written about this breadth of clauses most recently in two forthcoming papers, Knowledge Pays, forthcoming in the Columbia Law Review and Gentlemen Prefer Bonds forthcoming in an antitrust symposium in Santa Clara Law Review). They will also include procedural clauses including choice of law and forum, arbitration and class waivers. Many of the clauses contain misleading and unenforceable terms and would be deemed void by courts if they were the subject to contract breach claims.The idea is that public policy should develop a better way to consider contractual arrangements where the sum is something larger than the parts. This means that for example clauses that restrict mobility should be judged in relation to each other, on how much they operate together to signal, and to create, a lock-in talent and prevent competition. Similarly, clauses that restrict voice or procedural rights should be judged on how they operate together. The jurisprudence on unconscionability includes some such considerations when judged on substantive and procedural effects and multi-factors are taken into account, but I don't the law has developed a direct and consistent framework to adjudication what I am calling "Supra Addition" - how the whole is larger than the sum of the parts in contract law.

Other related examples are consumer contracts, landlord-tenant contracts, and IP licensing arrangements. 

Second, a contract thicket, and this may be a separate paper - exists when an entire workforce or industry are signed on similar clauses, which again creates a supra addition effect: for example, if everyone is signing non-solicitation of co-worker clauses or everyone is signed on class waivers or arbitration agreements or secrecy arrangements, the effects are on the industry at large, beyond the number of employees who sign the clauses, and they also have an effect on the terms and conditions of employee who have not signed these contracts.

The implications are broad. A better conceptualization and adjudication of supra addition has implications both at the assessment stage: contract interpretation and whether contracts are enforceable, void, voidable, misleading, should be blue-penciled or completely tossed. Second, a better understanding of the phenomenon of supra addition should suggest a more proactive approach to contract policy: waiting for each individual clause to be the subject of litigation never reveals the full picture. The lens of unfair competition, a tort lens, seems more suitable.

As a I said, this is a law review project in the initial stages -- I know it touches on a lot of related area of law, such as the relationship between contract law and torts; antitrust law, policy areas such as consumer protection, employment regulation, IP...but I think what I most want to focus on is the lens of contract doctrine. I would so appreciate any and all feedback and ideas to propel the summer project forward! 

Posted by Orly Lobel on April 25, 2019 at 12:25 PM | Permalink

Comments

And just recently posted, Larry Solum's HLR response to Kar & Radin.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3363616

Posted by: Jeff Lipshaw | Apr 27, 2019 9:46:17 AM

Orly, also on the subject of boilerplate adopted across industries, Mitu Gulati and Robert Scott have a book - The Three and a Half Minute Transaction - dealing with the pari passu provision in sovereign debt contracts. The book is on Amazon, but here's a link to the SSRN version of the intro. (Kar and Radin refer to this in their HLR piece as well.).

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1945988

Posted by: Jeff Lipshaw | Apr 27, 2019 9:44:23 AM

Or I see actually the link to your article on ssrn jeff - downloading now

Posted by: Orly Lobel | Apr 26, 2019 12:57:55 AM

thanks Jeff and El Roam. These are helpful comments. Jeff send me your article and I will definitely delve into all the articles you mention.

Posted by: Orly Lobel | Apr 26, 2019 12:56:58 AM

Interesting. What has attracted my mind, is the idea indeed, that such "contract thicket " has effects on industry at large.But, the issue would be the given norms or custom that exist of course, and to what extent it can change or become mobile.

Let's take for example, article 18, of the " Contracts law ( general part ) of the Israeli law, here I quote:

If a party has entered into contract in consequence of the fact that the other party, or a person acting on his behalf,takes advantage of his distress, mental or physical weakness or inexperience, and if the terms of the contract are - to an unreasonable degree - less favorable than is customary, he may rescind the contract.

End of quotation:

So, it would be enough to take advantage, of inexperience of a person, and, to an unreasonable degree the terms are less favorable than is customary, and as such, he may rescind the contract.

So, that is to say that such terms ( less favorable ) can be dynamic and mobile indeed as stated in the post. That is a very interesting point to concentrate on. Setting for example, philosophical / legal boundaries for what can be customary, and what not ( while the lowest or " supporting level " would be: legality, and public policy or public interest, and, on the other edge, as example, the " resisting point " would be the average salary in given industry).

But, finally it does depend or does vary of course in accordance with the forum chosen and signed. But, as a subject for research, quite interesting.

Thanks

Posted by: El roam | Apr 25, 2019 2:51:17 PM

Have you seen "Pseudo-Contract and Shared Meaning Analysis" (Harvard Law Review this year) by Rob Kar and Peggy Radin? Here's a link.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3124018

My understanding is that there will be online responses in the HLR Forum. And, of course, my response, "Conversation, Cooperation, or Convention" forthcoming in the Australian Journal of Legal Philosophy:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3144687

Posted by: Jeff Lipshaw | Apr 25, 2019 2:44:17 PM

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