Cooperation sometimes breaks down, and former teammates will disagree about what happens next. for example, when can an employee quit to join a competitor? Courts often resolve disputes by looking at the parties actual or hypothetical bargain. Thus, a court may ask whether there was a non-competition agreement (and whether it was reasonable), or whether the employee is taking a “corporate opportunity” as she departs. These are all-or-nothing determinations by courts; either the bargain, or law, fully allows or fully prohibits the disputed conduct.
This is a suitable approach when fair and efficient bargains are possible. But, this article argues that fair and efficient bargains are often impossible, and explains a better way of resolving disputes in such cases. We consider impossible bargains in numerous areas of law (admiralty, family law, patent law, and more). When assessing disputes in these areas of law, courts often look beyond the bargain, and frequently shy away from all-or-nothing decisions. Instead, courts should review the parties’ collective success (or failure) and split up the gains (or losses) in a way that is intended to credit each person’s contribution and give the right incentives to both parties in multiple time periods – before, during and after their interactions. We argue that this approach deserves serious consideration in employment law, corporate law, and beyond.
Saul Levmore & Andrew Verstein, "Sharing where Bargains are Impossible", Coase-Sandor Working Paper Series in Law and Economics, No. 999 (2023).