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Labor Relationships & and the Legal Vision of 1L Contracts


Sanjukta Paul (@sanjuktampaul) is Professor of Law at Michigan Law School.

Contracts is more than an area of law; it is a key piece of the vision we lawyers bring to many other areas of law. The 1L Contracts course supplies a foundation-stone of the “pre-analytic vision” with which lawyers will eventually think about many other things, including labor relationships. Labor regulation as such is addressed only in the optional upper-level curriculum, and it is relatively marginalized even there. As a result, many lawyers, notably in the commercial and business sphere, will bring to their dealings with labor issues the contracts “vision.” That vision ultimately tends to erase the law’s deep involvement in constituting labor relationships. It thus tends to furnish apparent justification for the exercise of power by the already-powerful, in pursuit of private ends rather than the public interest, on the stage created and sustained by law.

The specific pre-analytic vision transmitted by the conventional Contracts curriculum is of atomistic individuals contracting at arms’ length. In this vision, any pre-contracting power differentials, including those power differentials that are created or sustained by law, are rendered invisible. In our historical imagination this vision is symbolized by ‘the Lochner Era,’ which was characterized by the frequent judicial invocation of contract principles to either invalidate or undermine democratic attempts to structure labor relations and markets more generally.

But apart from ignoring, for example, “the background distribution of property rights,” this vision also sits uneasily with the present-time legal constitution of labor relationships. Moreover, perhaps because of its foundation in the pre-analytic vision of contracts, commercial law is generally selective about when it chooses to treat labor contracts as “special” on the one hand, or as instances of a more general type on the other.

To start with, the law of agency imposes upon employees various duties, notably the duties of loyalty and obedience, which are automatically read into any employment contract or relationship. An employee may not compete against her employer; and even absent direct economic competition, she generally may not act counter to the interests of her employer even outside work-time. Violating these duties are in theory and occasionally in practice torts, not just terminable offenses. For example, one court held that the tort of disloyalty lies when employees publicly report unsafe food handling practices by their employer.

As another example of the reach of the duty of loyalty, covenants not to compete that extend past the term of employment are, in most jurisdictions, either presumptively permissible within a “reasonable” temporal or geographic scope, or at least more likely to be permissible when they are incident to an employment contract than when they are free-standing or incident to some other sort of contract. Notably, such restraints typically include a prohibition on employees’ going into business for themselves in competition with the employer—a restraint on horizontal competition that is otherwise viewed with supreme suspicion by antitrust law. The law thus effectively extends employees’ duty of loyalty past the end of the employment relationship itself. This is “special” treatment of the labor relationship—in the direction of suppressing the market competition that the pre-analytic vision of 1L contracts generally favors—and it also echoes the historical origins of the modern duty of loyalty, wherein it was not always so easy for employees to end employment relationships in the first place.

The pre-New Deal common law of employment was suffused with the idea of status, and of subordination based upon status, which is generally elided in the vision presented by 1L contracts. Karen Orren described the American common law of employment as uniquely grounded in English feudal relations—in which “worker” was not only a special and highly regulated status, but a status that bore an uncomfortably close connection to (the employer’s) property—and showed that this character persisted well into the era of putatively “free labor.” Meanwhile, Christopher Tomlins has emphasized that most production—and most American working people—existed outside the employment relationship altogether well into the nineteenth century. Tomlins also pointed out that the law governing this relationship became standardized relatively late, drawing in elements of both subordination and (relative) freedom. Like Orren, however, he rejected the idea that this new master-servant law ever became genuinely contractarian:

the essential characteristic of the relationship created by the employment contract was that it was assumed to reproduce the magisterial authority of the master in the person of the employer … the relation of master and servant was less a discrete instance of the more general phenomenon of contract than itself a particular species of legal relation with its own particular incidents, in this case incidents geared to the representation of the authority of the master as a matter of law.[1]

Thus, “[r]epresenting employment relations in the voluntarist language of contract…mystified the existence and exercise of power in the employment relationship.”[2]

This is still true. “Freedom of contract” is still sometimes invoked by judges to undermine or read narrowly statutory employee rights, and against the democratic coordination of markets. But meanwhile, the basically anti-contractarian nature of the duty of loyalty and the duty of obedience are still present and indeed have invaded other areas of commercial law. As previously noted on this blog, the current governing paradigm in antitrust law systematically allocates economic coordination rights to the powerful over the less-powerful. The ultimate logical basis for this allocation of rights lies in the “productive efficiencies” that supposedly flow from subordination, notably from the organization of economic activity according to the authoritarian terms supplied by the employment relationship—but that supposedly do not flow from more democratic, horizontal forms of economic cooperation. The Borkian revolution in antitrust—in which we still live—was fundamentally about elevating and intensifying this allocation of coordination rights.

Current law and policy questions around the so-called gig economy and the fissured workplace intensify these basic questions about labor and antitrust. As many firms seek to disclaim the responsibilities that New Deal labor legislation attached to the employment relationship, they also seek to retain as much of the control that inheres in that relationship as possible. In order to justify that control, they seek to retain the special treatment of the business firm under antitrust, which is ultimately predicated upon the command, rather than contract, nature of the employment relationship.

The influence of the peculiar legal character of the labor relationship is far-reaching in the law more broadly. The vision of 1L Contracts, along with the more concrete “contractarianism” to which it gives rise in legal theory, tend to erase this peculiarity as well as its origin in the specific privileges that are created and selectively assigned by the state.

[1] Tomlins, Law, Labor, and Ideology in the Early American Republic, at p. 269.

[2] Id. at 269-70.