What would Rothbard say about non-compete language in an employee contract?

Economics Political Theory
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Hello…First post here…sort of a selfish one. I am currently reading Man Economy and State and have read the first 2 Chapters of The Ethics of Liberty. Rothbard was AMAZING! Do any of y’all have any references or opinion on what Rothbard would say about non-compete agreements? I’m currently an insurance agent and my contract has a covenant not to compete. Basically I wouldn’t be able to sell any insurance products within 25 miles of my current employer’s location.

Any thoughts on this?

Thanks and great forum here!

Regards,

Bucket

digital property
Is the justification of title transfer theory circular?
Capitalism is just as bad as Statism.
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Contracts can only be enforced when property rights are violated. When you sign this agreement and there is no property clause, then all you’ve broken is your word, and this cannot be punished. If, on the other hand, the contract says that you entitle your employer to some amount of money if you compete with them, the contract can be enforced, because as soon as you compete, property is transferred and they have full power over what used to be your money.

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Kinsella on this:

It’s an attempt to keep an employee from leaving, and/or from competing, by making him agree ahead of time, to pay a steep contractual fine IF he leaves to compete. I tend to think this is valid, but that in a vigorous free market people would be reluctant to sign such ridiculous agreements. It’s giving away your bargaining power from the beginning of the employment relationship. Further, I do think there might be less employment anyway, and a lot more outsourcing and use of consultants and contractors, so less of this problem to arise anyway.

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^ I think I could move Kinsella off that position on the subject of contracts, conveyance, and damages when defining valid enforcable contracts. ^

This is a two way street. If all compensation is based upon scopes of work for work performed then there was no property conveyed for executing any other terms of a contract. It would be one thing for one party to say, “hey I gave you $x.xx upon contract execution for these terms which have been violated.” It’s a completely different thing to argue I gave you nothing for these terms but you owe me something for not complying with them. Is competition a form of damage? To make a larger point, if nothing has been conveyed and no property has been trespassed has any damage occurred?

On a side note… I hate using United States, Inc. intellectual property ($) to convey a point involving money. I wish we would rub our genie lamps around here and come up with new symbols to mathematically express the accounting of money.

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How about from the horse’s mouth?

If you would have continued in The Ethics of Liberty, you’d find:

Property Rights and the Theory of Contracts

However, to the OP:
Might I make a suggestion…hold off on MES and EoL and try For a New Liberty first. Then perhaps a more introductory economics text (or two or three, actually). You’ll get much more out of MES that way.

See here.

After you read that, check here. Then finally, you might check out the list of reading lists.

What is property?
What is property?
Human Action help, please.
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if nothing has been conveyed and no property has been trespassed has any damage occurred?

That’s irrelevant. You said that upon the occurrence of event X you entitle party Y to Z of your dollars. It doesn’t matter what X, Y, or Z are as long as the contract was voluntary.

For example, if I sign the non-compete contract with a clause that says I entitle them to $10,000 if I do compete and then I go on and actually compete, the $10,000 is theirs because of the entitlement. The same goes for any conditional transfer of money. If we sign a contract where I entitle you to $50 if the moon is full on March 3rd, then I cannot stop you from getting that money if the moon is indeed full. No damage has been done, but there is a title transfer.

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  • That’s irrelevant. You said that upon the occurrence of event X you entitle party Y to Z of your dollars. It doesn’t matter what X, Y, or Z are as long as the contract was voluntary.

Rothbard actually doesn’t hold that position, in my understanding. In either For A New Liberty or Ethics of Liberty, I forget which, he specifically states that contracts that say “I will pay X if I don’t physically perform act Y” aren’t enforceable. This is different than transferring property, as in a loan agreement, which would be “I will transfer X to you at time A, in exchange for Y from you at time B”.

He uses the example of an actor signing a contract garunteeing his exclusivity for a number of years. The employer cannot force him to act, or pay a “fine” for breaking the exclusivity agreement, as that would require agressive compulsion. Instead, what you would have to do is pay the actor a sum of money under the agreement that he would remain exclusive, and if he broke that contract, then he would be liable for that sum of money. You cannot fine him later from his own property, or compell him to owrk, you can only pay in advance and recoup that money if he breaks the agreement. Because then a theft has occured.

So for the non-compete contracts, Rothbard would probably say that you cannot compell or fine a person for working for a competeing firm. However, a company could pay an employee a bonus on the condition that they sign a non-compete agreement. Then if the employee broke that agreement, they would be require to return those funds. This is similar to what happens now, just in a roundabout way.

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I don’t think that was the conclusion we reached at the end of the gambling thread… I thought that the conclusion was that conditional property transfers are fair game.

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Now I have never sat down and read a Rothbard book because over the years I have worked these things out for myself. Since I have participated here at Mises sure… I have read a lot of links people post etc. What I have discovered is that for whatever reason I find myself naturally intellectually aligned with Rothbard on most issues that come up. Actually I can’t think of anything I disagree with Rothbard on but the main area of Austrian economics in general I am uncomfortable with is the concept of just interest without regard for risk. But taking into consideration Rothbards definition of a valid enforceable contract it makes swallowing the concept of interest without regard to risk easier because for interest to be enforceable title to something must be transferred.

So let’s take the link someone posted behind me. I took the time to scan it and it was a spot on work of Rothbard discussing the subject of enforceable contracts in depth. I find myself in agreement with Rothbard on what the definition of a “valid enforceable contract” ought to be.

So here is my summary in my own words. Rothbard draws a distinction between a promise and a title transfer with regards to contracts. Rothbard concludes force is not justified against someone who breaks a promise. Rothbard states force should only be used against someone who commits theft. Furthermore Rothbard states theft is the only reason for using force because if someone received conditional title to something per a contract and broke their promise they have essentially stolen. I don’t recall if he specifically says it in his paper there but the very term “enforceable” is the act of using force against someone. In order for someone to commit theft they must receive title to something or conditionally receive title to something.

Let’s take a non compete clause which is the specific example of this thread… what did you recieve title to specifically?

If you didn’t receive title or conditional title to anything then it is impossible for you to steal anything. Therefore it is unenforceable (ie. not proper to use force against an individual). As Rothbard points out breaking promises is purely a matter of discriminating against reputations althought I don’t think he uses those exact words.

I find it difficult to believe if you read the link previously posted on Rothbard you would argue he holds a different positon. It is a pretty in depth article on the subject.

P.S. can you link the “gambling” thread"?

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Here’s some of Rothbard’sa actual text from EoL:

Let us take a seemingly more difficult case. Suppose that a celebrated movie actor agrees to appear at a certain theater at a certain date. For whatever reason, he fails to appear. Should he be forced to appear at that or at some future date? Certainly not, for that would be compulsory slavery. Should he be forced, at least, to recompense the theater owners for the publicity and other expenses incurred by the theater owners in anticipation of his appearance? No again, for his agreement was a mere promise concerning his inalienable will, which he has the right to change at any time. Put another way, since the movie actor has not yet received any of the theater owners’ property, he has committed no theft against the owners (or against anyone else), and therefore he cannot be forced to pay damages. The fact that the theater owners may have made considerable plans and investments on the expectation that the actor would keep the agreement may be unfortunate for the owners, but that is their proper risk. The theater owners should not expect the actor to be forced to pay for their lack of foresight and poor entrepreneurship. The owners pay the penalty for placing too much confidence in the actor. It may be considered more moral to keep promises than to break them, but any coercive enforcement of such a moral code, since it goes beyond the prohibition of theft or assault, is itself an invasion of the property rights of the movie actor and therefore impermissible in the libertarian society.

Again, of course, if the actor received an advance payment from the theater owners, then his keeping the money while not fulfilling his part of the contract would be an implicit theft against the owners, and therefore the actor must be forced to return the money.

For utilitarians shocked at the consequences of this doctrine, it should be noted that many, if not all, of the problems could be easily surmounted in the libertarian society by the promisee’s requiring a performance bond of the promissor in the original agreement. In short, if the theater owners wished to avoid the risk of nonappearance, they could refuse to sign the agreement unless the actor agreed to put up a performance bond in case of nonappearance. In that case, the actor, in the course of agreeing to his future appearance, agrees also to transfer a certain sum of money to the theater owners in case he fails to appear. Since money, of course, is alienable, and since such a contract would meet our title-transfer criterion, this would be a perfectly valid and enforceable contract. For what the actor would be saying is: “If I do not appear at Theater X at such and such a date, I hereby transfer as of the date the following sum ___, to the theater owners.” Failure to meet the performance bond will then be an implicit heft of the property of the owners. If, then, the theater owners fail to require a performance bond as part of the agreement, then they must suffer the consequences.

http://mises.org/rothbard/ethics/nineteen.asp

So I guess it’s not as clear cut as I laid out, including the performance bond stuff. However under no circumstances can the employer compell someone to not work, or force them to work. Only to require a bond/payment.

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EDIT: Doh, John James already linked the same text in the daily article. Sorry.

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I just want to comment that I do not think the way peformance bonds are stuctured now jive with title transfer theory. Right now a principal pays a bonding provider money, receives no title in return, yet all liability remains with the principal. Seems more like bribing a witness to certify a reputation than a performance bond. Right now a performance escrow would be a better alternative than a performance bond. At least your escrow would accrue interest.

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thanks for the suggestion! I was an econ major at the University of North Carolina…basically Keynesian statist indoctrination propaganda…so I do have some background. But I was never really introduced to the Austrian school until I started reading Hayek. But I’m reading as much Rothbard and Hoppe as possible now. Constantly listening to the MP3 stuff. It’s AWESOME. I’m getting a real education now vs. the indoctrination of 20 years ago at UNC…but I am still a TARHEEL…basketball wise anyhow.

I’m bad to skip around and have several books going at once…currently reading

Democracy the God that Failed

The Ethics of Liberty

A Theory of Socialism and Capitalism

Man Economy and State

I should probably just focus on one…but for some reason…this is how I have always “rolled”.

Great stuff! Love this place as well!

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Just to be clear on my given situation…in North Carolina…Non-Compete agreements must include some sort of “consideration” for the employee “not to compete”…

So this sort of depends on WHEN the non-compete agreement is slapped infront of you as a salesperson/employee…

So if you are employed and you don’t have an non-compete with the original employment and then the employer tries to slap you with the non-compete…the employer must give the employee additional monetary consideration…such as “we will pay you X percent not to compete on these accounts with in this geographic territory”.

But if you are just being hired the consideration not to compete can be the EMPLOYMENT itself. So basically they say…if you want a job you gotta sign this pal.

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I have no doubt what you state is an accurate representation of North Carolina.

Obviously paying for a non compete is consideration in the form of a title transfer that ought to be enforceable.

Providing a loan to some company in the form of time, energy, and labor to be repaid at a future specified interval that does not accrue interest, labeled EMPLOYMENT, hardly seems like consideration from the company. More like recurring considertion from you. Ya gotta love those lobbied for privileges of corporate limited immunity.

I don’t think the phenomemon you articulate is limited to North Carolina…

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Rothbard states force should only be used against someone who commits theft. Furthermore Rothbard states theft is the only reason for using force because if someone received conditional title to something per a contract and broke their promise they have essentially stolen.

That’s essentially what I said. When you entitle someone to $50 on the condition of competition, and then you go on to compete, the property transfer occurs, and if you try to prevent the man from using his new property you are stealing.

As to the gambling thread: https://forum.freecapitalists.org/t/gambling-questions-for-fellow-rothbardians/20363

You have to read quite a bit into it. My posts on there are actually mostly incorrect (I’ve come to change my views since then). At one point RothbardsDisciple acknowledges he is wrong, and that should be the point where what you said is essentially repeated.

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And Rothabrd agrees. Quoting from above:

many, if not all, of the problems could be easily surmounted in the libertarian society by the promisee’s requiring a performance bond of the promissor in the original agreement. In short, if the theater owners wished to avoid the risk of nonappearance, they could refuse to sign the agreement unless the actor agreed to put up a performance bond in case of nonappearance. In that case, the actor, in the course of agreeing to his future appearance, agrees also to transfer a certain sum of money to the theater owners in case he fails to appear. Since money, of course, is alienable, and since such a contract would meet our title-transfer criterion, this would be a perfectly valid and enforceable contract. For what the actor would be saying is: “If I do not appear at Theater X at such and such a date, I hereby transfer as of the date the following sum ___, to the theater owners.” Failure to meet the performance bond will then be an implicit heft of the property of the owners.

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The problem is sort of one of semantics. We can define “promise” and “title transfer” in different ways. The essence of the issue is that there has to be some property right at stake. Whether you call the transfer a promise or a title transfer doesn’t matter too much, and I’ve come to accept the slightly more precise language of title transfer.

Either way, breaking a promise that is not bound to a property transfer can lead to no legitimate uses of violence on the side of the employer in the example.

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No it is not essentially what you said. I scanned through the gambling thread I noticed something absent from a large part of the discussion.

Action

A big part of a contract is setting expectations before acting. A promise has no risk. A promise contains no action. The contractual act of transferring title has a risk… peformance which derived from action.

Someone has to act first. The contract is a surety to the party that acts first they will not be stolen from.

You didn’t “entitle” (interesting verbaige) someone to $50. You promised $50. If you want to “entitle”… then actually transfer the title of $50 by performing the action of giving $50. A promise is not enforcable. Furthermore if you risk $50 what performance is expected of the party you paid $50 to?

Regarding the gambling example I think the market worked out a pretty darn good solution. Are poker chips property? Exchanging title to poker chips for title to currency is about an easy of an example as you can get exchanging titles. However… leave it to the State to intervene against the progress of civilization:

I will elaborate more on gambling later. I was going to try to include the act of a wager in this post but I need to eat.

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Did you miss my bolded Rothbard quote ^