On the Inordinate Power of Some Law Professor to Justify Employers’ Right to Fire Your Ass for No Particular Reason

You go to work Monday morning, as usual. As you are caffeinating yourself into sentience, your boss sidles up to your cubicle, “Right, so, I don’t particularly like your name. It’s just occurred to me how much I hate it. You’re fired based on my intense dislike for the lack of euphony of your name.” This has to be against the law, you think. He can’t just do this, you think. It’s not and he can.

And it’s largely thanks to Richard Epstein, a professor at the University of Chicago Law School. He wrote an article, In Defense of the Contract at Will, 51 U. Chi. L. Rev. 947 (1984) which is such a strident paean for an employer’s right to fire employees for any and no reason that it embarrassed me to read it. Before I attempt to blast shotgun-sized holes in his argument, I’ll summarize it.

A Bit of Context

Historically, when you got a job in America, your employer had the legal right to fire you at any time for any reason and you had the power to quit at any time for any reason. At first, this seems only fair and balanced. But then you think for a second and realize that the power to quit is usually the power to inconvenience your employer, whereas the power to fire can be the power to make it hard for you to stay alive.

In any event, an employer’s unfettered right to fire, known as the “at-will doctrine”, was the default rule for employment contracts applied by U.S. courts during most of our rough and ready capitalist history. A default rule means that courts imply the rule into all employment contracts that don’t mention firing. This rule was taken advantage of in all sorts of charming ways throughout history, e.g. firing people for unionizing, refusing to commit a crime, using their sick days, serving on a jury, getting pregnant, getting old, voting in a different way than your boss, speaking Spanish, etc,

The question of whether the certainty of an at-will rule was really worth all of the social costs and unfairness of the sort listed above began to arise in some judicial decisions and legislatures, especially after the Civil Rights Movement. Some sorts of firings became illegal in most states, e.g. firing someone for refusing to break the law; for being old, black or a woman; for being a whistleblower, etc. Although the anachronistic “at-will” default rule was still enforced by the majority of courts, it was on the wane. By the 80’s there was a significant movement to change the default rule to “just cause,” meaning in order to fire someone you had to state a reason that was not completely arbitrary or completely despicable. Logically, such a change seems necessary a fortiori, otherwise employers could fire their employees for an impermissible reason and just provide no reason and duck liability (unless the fired employee could present really compelling proof to overcome the at-will default rule). Of course, if employers and employees so desired, they could still enter into contracts with an at-will provision, it just wouldn’t be the default rule any more. This pissed Epstein off, and he wrote an article in 1984 saying why. In employment and labor law today, the article is something of a classic, and it’s arguably responsible for the persistence of at-will employment contracts. (As of 2.5.04, 17 judicial decisions and 255 law reviews and periodicals directly refer to Epstein’s article.)

Epstein Breaks out the Trumpets, Going Analytically to Bat for Employer’s Right to Fire Your Ass

First, he appeals to our flag-waving patriotism. Who is the government to impinge upon our freedom of contract?!? Such freedom is, he writes “…an aspect of individual liberty, every bit as much as freedom of speech, or freedom in the selection of marriage partners or in the adoption of religious beliefs or affiliations.” Therefore, any attempt by the government to modify employment contracts should be as presumptively verboten as trying to silence dissent, or forbid Santeria. He even implies that the right to freely enter employment contracts is more important than the right to free speech because more people are concerned about their economic welfare than politics. Aside from the dubious nature of enshrining the freedom of contract within the bill of rights (think slavery contracts or contract killings, for example), this argument is a red herring. Nobody has said that employers and employees couldn’t design their relationship to be at-will, only that it might be unwise to make such a rule the default when a contract is silent.

Epstein, being an intellectually honest guy, admits as much and proceeds to show how most of the time it is rational for employers and employees to adopt an at-will contract as such a relationship is mutually beneficial. The benefit of the contract is achieved by minimizing the sum of employer and employee abuse.

An employer has to worry about slacking employees, which is the inevitable result of not getting all the profit generated by your labor. In order to reduce slacking, in Epstein’s words, “the carrot cannot be used to the exclusion of the stick”, i.e. bonuses and promotions may motivate hard work, but the ability to fire someone without stated reason is a crucial weapon in an employer’s behavior-modification arsenal.

The employees, Epstein argues, also get something out of the ability of their boss to can them at any moment. Namely, freedom to quit. There are certain contracts called “fixed-term” contracts which involve a certain sum paid for a certain period of employment. In such an arrangement, you could agree to pay me 100,000 dollars for one year of my counsel and companionship, only to be paid after successful completion thereof. I, to my chagrin, realize that we have very different ideas of what companionship entails 6 months deep, and I am faced with the Hobbesian choice of taking nothing or taking much abuse at your hand. This situation is eliminated when our relationship is at-will, as I am free to quit and be paid for my work theretofore anytime the disutility of my job eclipses the utility of the ends I’m paid.

Furthermore, Epstein argues that reputation costs curb capricious firings by employers. The logic goes, if any employer acts harshly or irrationally to their employees, prospective hires will not want to work there and it will take more money for them to be hired, redounding to a stinging deterring decrement for the employer. This “implicit price” of firing keeps employers in check and is a large part of why the at-will rule is still around.

The distillation of Epstein’s argument: The at-will default rule has been around for a long time for a reason, it is to the benefit of employers because they can prevent slacking, to employees because they can quit if their employer is a dick, and the whole thing is moderated by reputation costs for abusive employers.

Why I Humbly Contend that the Good Professor is in Error

To see why this argument is flawed, first assume that it actually is wildly advantageous for employees to be able to be fired and to quit at any time for any reason. If true, why should such a relationship be a default in contracts instead of an explicit provision? What are employers hiding? Moreover, if it truly is the best rule, why would Epstein have to put up such an adamant defense of it?

The most important principle in contract law is that both parties have to know what they are agreeing to in order to have a valid contract – this is called the “meeting of the minds” requirement. Therefore, a default rule can only be used if it is nearly certain that the parties would have agreed to the contractual provision had they discussed it. If there is implicit agreement on the default term, it would be a waste of time and dead trees to print it on every contract. However, if there is not agreement on the default term, then it is ipso facto not a waste of time to include it in the contract because without it there is no “meeting of the minds”, and no valid contract.

This is why Epstein is so concerned with demonstrating how mutually advantageous the rule is to employers and employees. If convincing, the inference that we are supposed to make is: Of course employers and employees would choose at-will employment, it’s so great for all involved! However, the fact that so many fired employees sue precisely because they did not think their employment was at-will negates this inference. Either they are all lying about what they thought the terms of their employment contract were when they were hired, or they did not know (no meeting of the minds) and would not have chosen (no valid use of the default rule) at-will employment. I think the latter is much more likely.

Imagine a huge sign next to the office coffee machine that says, in neon orange, 40 pt. font letters, ALL EMPLOYEES CAN BE FIRED AT ANY TIME FOR ANY REASON. The reason such signs are laughable and extremely unlikely is one of two things: either at-will employment does not favor employees, or it does favor them, but the law considers them too stupid to know it and therefore operates for their best interest but without their consent.

There is something sneaky going on here. A contract is only valid if both parties know what they’re getting into. I contend that most employees don’t know about the at-will default rule even though most are still working under its legally-sanctioned Sword of Damocles. I also think that employers are being unjustly enriched by keeping their right to can your ass hidden in the default. They are able to get the benefit of being able to fire without constraint, and they also get the benefit of a workforce who doesn’t know their jobs rest on the whim of their employer. This second benefit, the illusion of job security, is the real reason I think the powers that be advocate the default rule.

Although Epstein’s point about reputation costs is a possible way to prevent employer abuse, it is beside the point. First, it seems implausible that employees have accurate information about employer’s hiring and firing habits. There is no mandatory disclosure of such habits under the law, and it is unlikely an abusive employer would be eager to disclose how crappy of a work environment they have out of the goodness of their heart. Second, a contract needs two people who are on the same page. Based on the amount of litigation from fired employees, it is obvious that many employees aren’t aware of the at-will default rule. Therefore, in order to have valid contracts, employers either need to explicitly state that employees can be fired at-will, or they need to change the default rule to accord with what people who get hired actually expect and would realistically agree to.

If it’s really good to work in an environment where you could be fired at any moment, employees should be allowed to know what they’re getting into and judge the benefits themselves. If employees are kept in the dark, employers unfairly get the benefit of their ignorance in the form of happier, less fearful workers. The law codifies lots of these tricky little slights, and clever-as-hell professors like Epstein do a good job providing legal groundwork to justify them. Adam Smith is worth invoking here: People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public… (The Wealth of Nations, Book 1, Chapter 10).

Sources:

Employment Law: Cases and Materials. Willborn, Schwab and Burton, Jr., LexisNexis, 2002.
In Defense of the Contract at Will, Richard Epstein, 51 U. Chi. L. Rev. 947 (1984).
http://www.adamsmith.org/smith/quotes.htm#jump1(Quotes from the Adam Smith Institute)(last visited, 2.6.2004)

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