Non-Contractual Employment

This post is part of our Work Symposium. An introduction to the symposium can be found here; all of the posts written for the symposium can be found here.

 

This is a bit of heresy I play with in my mind from time to time. I dare not speak it out loud to my colleagues, most of whom lack the imagination to realize that crazy as the idea might seem, the traditional way of thinking about a contract of employment may well be inferior to not considering it a contract at all. Later, of course, I return to existing precedent because, after all, I have to function in a world governed by hidebound legal minds housed in black robes. But if you’ve ever seen a lawyer lost in thought, perhaps she’s thinking like I do here.

 

I.  The Libertarian Ideal That Isn’t Real And Never Was

A frequent objection I encounter to much of what I do with my professional life is what I’ve taken to calling “the libertarian objection.” In essence, the libertarian ideal of freedom of contract means that employers and employees should be free to negotiate the terms of their relationship as they see fit. This manifests in online environments like this with principled and logically coherent public policy arguments against things like anti-discrimination laws and minimum wage laws; it manifests in real life, with respect to a particular case, when either workers or employers come into my office and whine about object to someone else telling them what to do instead of them being able to do what they want (without penalty).

To be sure, the employment relationship has a contract at its historic fundament, from the perspective of modern Anglo-American law. The basic transaction is this: I sell you my time for an agreed-upon rate, and you may then tell me what to do with that time. We are both free to form or terminate the relationship at will and to include whatever terms of the relationship we wish.

But centuries of Anglo-American law have nibbled at the terms of the relationship, there are some very substantial deviations from the blank canvas of a truly free contractual negotiation. I will use the law of my own California, the state whose laws I know best, to portray this; other states may be thought of as having “lighter” or “less” regulation than this, but for the most part, some variation on nearly all of the rules listed below applies in nearly all of these United States:

• You may not refuse to form this relationship with me based upon my race, my national origin or ancestry, my religious beliefs or lack thereof, my marital status, whether I have children or not, my gender, my age over 40, physical or mental disabilities that do not absolutely bar me from performing the essential functions of the job, or my advocacy or lack thereof of union membership, based upon my sexual preference, expression of political beliefs, or in most cases my prior military service or lack thereof. Thus, you cannot hire whoever you like to do whatever job is in question. Thus your freedom to contract as you like is curtailed by law.
• Nor may you impose or withhold workplace discipline, withhold or workplace benefits like raises or promotions, based on the foregoing factors.
• Nor may you retaliate against me if I allege that something like what’s described above has taken place, or if I support someone else who makes that allegation — even if that allegation is later proven to be incorrect.
• I must prove to you my eligibility to be employed in the form of documentary proof of my citizenship and age. Again, you cannot hire whoever you like; the law curtails your freedom; nor may I seek whatever job I like.
• But, if I am under the age of eighteen, I must get a special permit to enter in to a contract to work for you, and you can only employ me for a limited number of hours per day and on specific days of the week to allow for my attendance at school. If the nature of the work is such that I am needed on call at a particular place, you must provide me with an on-site educator equivalent to what I would have got at school.
• I can quit whenever I want, no matter what conditions we agree on beforehand about me quitting. I do not have to explain to you why I have quit. You cannot use the courts to make me do the work. You can, in somewhat rare cases where I am providing a unique service, require me to pay a pre-determined sum of money to compensate you for the loss of that service if I quit on terms contrary to our agreement.
• Mostly, you can fire me whenever you want,  no matter what conditions we agree on beforehand about you firing me. Nor do you owe me an explanation for why you fired me, no matter how much I want one. You might owe the government an explanation for why you fired me if I sue you for violating the terms of our relationship, or if you want to interfere with my request to use unemployment, disability, or workers’ compensation insurance benefits.
• But, if you have a lot of employees, then you can’t fire me for no reason or for your own reasons without substantial notice, often sixty days’ worth or more, unless the reason you’re firing me is because I broke the rules or broke the law. And if there is a union, then you have to follow the union’s rules about firing me.
• I must provide you with my social security number so that you can withhold a fraction of the money you promised to pay me and pay it to the government instead.  Here the law curtails my freedom, because I might not want to pay those taxes. Even if you and I agree to take steps to circumvent this, we both pay substantial penalties for trying to dodge social security withholding.
• The rate that we agree upon that you will compensate me for my time may not fall below a certain minimum.  Both of our freedoms are curtailed here, although in most cases I might like that fact assuming I get the job at all.
• Under most circumstances, the time that I sell you may not exceed a certain maximum per day and per week, and if it does, the rate that you pay for my time increases according to a set mathematical formula.
• But, if the actual work I do falls within a particular set of substantive descriptions, you can pay me pretty much whatever we agree on, and then I have to work as much as is needed, even if that intrudes on my personal life. On the other hand, if that is the case, you have to pay the same amount of money whether I actually do the work or not.
• You cannot pay me on any terms we might agree upon, but rather must do so at least once every two weeks. Furthermore, you generally must pay me with a check or through its electronic equivalent, and typically cannot pay me with cash or non-monetary consideration, even if we agree otherwise. So we can’t barter to trade my labor for a specific good, you own, or barter my labor against your labor.
• You must provide me with not just the money that we agree upon but also certain mandatory benefits, primarily accounting and prepayment of taxes on my behalf.
• If you promise me something of value other than just money (for instance, health insurance), you must also provide accounting and supervisory benefits concomitant with those non-monetary benefits as well.
• You must provide me with workers’ compensation insurance, unemployment insurance, and disability insurance, whether I want them or not.  You must purchase this unemployment insurance and disability insurance from the government and your failure to do so would be a crime. And in some cases, you must also provide me with health insurance, although you can make me pay a portion of that insurance out of my own pocket.
• You must allow me time off work, without penalty, to do things like serve on juries, serve in the military, attend to sick family members, and vote. (Oh, and you can’t tell me how to vote.)
• If you require it of me, I must keep your information confidential even after I quit working for you, including but not limited to imposing a duty on me to ‘forget’ what I learned while in your employ even for my own subsequent benefit. Conversely, at least in California, you generally cannot condition employment upon my agreement to not work for a competitor after we part ways.
• You must allow me to not work during the times that you would prefer I work if I am sick, injured, disabled — or at least, if I can find a doctor willing to say that I am.
• Further, under most circumstances you must allow me to take time out in the middle of the day to rest and eat, with greater amounts of time involved on a sliding scale as you demand more and more of my time.  After a certain point, I cannot waive and agree with you that I will not take this mandatory rest time during the day.
• You cannot require me to work in just any conditions you please but instead must provide me with a working environment that meets certain very specific and technical standards set by the government, even if I agree to work in unreasonable conditions (perhaps having agreed to them for extra pay).

And on top of all of that, nearly every kind of activity that an employer might hire an employee to do is subject itself to substantial governmental regulation about how the job is done. For instance, I am a lawyer; if you hire me to practice law as in-house counsel for your company, I must comply with the state’s Bar Act with respect to maintaining my law license, complete continuing education, pay special taxes, and so on. If you’re a computer code writer, then you may be required by law to write in certain compatibilities with governmental oversight and reporting laws, or at least to refrain from writing code intended to obstruct governmental oversight of what the code is doing; if you’re tending bar, you may be prohibiting from drinking alcohol while working and if you’re driving a truck there are certain limitations on how long you can be at the wheel and tests you must pass to demonstrate competence.

And the list goes on and on and on. All of which takes away from the libertarian-style freedom of you to tell me how to do my job. What we negotiate gets trumped by the law.

 

II. Lack of Consideration

Perhaps less obvious to a non-lawyer is the fact that because the terms of the employment relationship can change at will, and for no additional exchange of consideration and indeed sometimes for a diminution of consideration, and unilaterally without even the consent and sometimes even over the objection of the other party, the relationship is not strictly contractual, either.

In a typical contract situation, if you and I want to change the terms of our contract such that I get more from you, I need to give you something of value in exchange. But if I am your employer, I can tell you, “Sorry, profits are down, so you can either take a pay cut or a pink slip,” and while that isn’t a particularly joyful choice for you, there isn’t much you can do about that other than choose the pay cut or the pink slip. If you pick the pay cut, then you still have to keep on working for me just as before — only one of the core terms of our contract has changed.

If you’re not a lawyer, you’ll read that paragraph and think, “So?” The lawyer’s response is that if the terms of our relationship can be changed unilaterally without a supporting exchange of consideration, then maybe what we wind up with isn’t strictly a contract, but instead is something else.

I could go on, and in fact digging in to the details of those generalized statements and applying those external rules to specific cases is what I do most of the time at in my own line of work.

 

III. Employment Law On The Ground: A Heavily-Regulated Environment

So sure, in theory, employment is a matter of contract rather than of, say, tort. (Occasionally, there are crimes involved. Gratefully rarely.)

But I work with the reality of employment, on the ground, working with the nuts and bolts of failed employment relationships, failing employment relationships, or prospectively thinking about how employment relationships might fail. And from that perspective, employment doesn’t look like a freely-negotiated contractual arrangement to me, at least in the strongly libertarian sense. Rather, this is a richly statutory, strongly-regulated transaction.

There are lots of taxes involved, too.

Which means that employment is not purely an arrangement between just you and me. The government, at both the state and national levels, is intimately involved and indeed in some respects, the government micromanages the details of our relationship. Perhaps we’d have reached similar sorts of arrangements if we were both infinitely sophisticated and had equal bargaining strength in the negotiations, but perhaps not — and that’s the point; the result of the agreement in which you will employ me will not be a reflection of our respective bargaining strengths because the employer almost always has more strength than the employee in most such negotiations.

And in addition to the ongoing and intrusive meddling of the government, private third parties, in the form of insurance carriers providing at least workers’ compensation insurance and health insurance, are also involved.

Amazingly, people just deal with this, for the most part.

Employers complain that they have to spend more money on overhead for this sort of thing than they’d like. It takes time and mental energy and knowledge, sometimes it takes relying on outside experts (or even lawyers like me) to sort through it all. But it’s not impossible to do and it’s quite possible to generate profit in this environment. In California, Jerry Brown makes for a convenient punching bag in this respect, although it’s quite unfair to use him that way.

Employees sometimes think they have more rights than they actually do, but most of the time, I find that they have only a general idea of what their “rights” are and generally they think they have to put up with quite a lot from their employers. Generally, they do put up with quite a lot from their employers that they find unpleasant before seeing someone like me.

Most of the time, they figure it out on their own, and most of the time, it’s roughly within the guidelines the law sets. So there’s lots of regulation out there, sure, but somehow, employers are still making money and workers are still getting jobs.

 

IV: The Weight of Experience

Quite a lot of this governmental intrusion into the employment relationship is the result of bitter experience playing in to social policy. We can trace almost all of those mandatory terms of the employment relationship back to specific kinds of experiences that other employers and employees have had in the past, and a political dynamic resulting from those experiences.

Some of this experience is quite old; the “good old days” weren’t all that good, and the sacrosanct nature of the employment contract was never very sacrosanct — you can go back to the pre-Enlightenment era laws of Merry Olde England and find Acts of Parliament and royal decrees limiting the term of apprenticeships to seven years and requiring the masters of apprentices to actually teach the craft and provide room and board to their otherwise-uncompensated workers because of conditions we now label as “Dickensian.”

Of course, the object lesson in that neologism is that Dickens was writing about a state of affairs that had persisted for quite some time and generated widespread sentiments of injustice. Dickens wouldn’t have been as popular as he was if he hadn’t touched a cultural nerve: stories like David Copperfield’s and Oliver Twist’s were heartbreakingly common on both sides of the Pond, and political institutions responded with regulatory laws.

And we’ve had all sorts of awful experiences of our own. Share cropping and peonage. The Triangle Shirt factory fire. Strikes busted by Pinkertons. Racist management, racist unions. On-the-job rapes. And lots more, less dramatic, more morally-gray kinds of friction than all these.

So we can talk about a “contract of employment” all we like.  But the relationship is far from a free contract between just you and me.  At least this resembles a contract insofar as there is an offer — “I will work for you for X dollars per hour” — and an acceptance, and an exchange of something that can be legally recognized as being of value between you and I, even if neither of us really gets to take away from the relationship everything that we bargained for. It’s not just what we bargained for, it’s what society in general, acting through the political process, expects of each of us.

The fact that so much of this modification of the employment relationship comes from bad experiences in the past indicates quite a lot of things about human existence. In a purely contractual relationship, the law will only protect the bargained-for, explicit terms of the parties’ agreement; the law will not protect someone from having made a bad deal. But the law does intervene to protect employees from bad deals — it intervenes in granular, atomic detail; it intervenes often; it intervenes so much that most of us have come to accept its intervention as part of the natural, expected, and comfortable universe of our economic reality.

 

V: The Perhaps Not So Radical Notion Of A Special Relationship

So let me propose that the idea that a contract is the foundation a contemporary employment relationship is, if still technically correct, a truth that is very substantially obscured by all of the regulatory superstructure that has been placed atop that foundation.

Not every legal relationship is contractual. The relationship of parent to child, for instance, is not treated by the law as a contract. There are obligations and responsibilities between parent and child, to be sure, and the cultural assumptions underlying those legal obligations are very powerful. But it’s not a contractual relationship, it’s something else.

And for particular individuals, they might choose to govern themselves contrary to cultural expectations and, with some effort, can gain legal exemptions or variances from the traditional legal responsibilities and obligations that otherwise might apply. (For instance, a child might gain emancipation, or a parent might adopt a child, or a court hearing a disputed child custody case might allocate parental obligations and responsibilities amongst the disputants.)

We might call this a “familial relationship,” which is more than a little bit tautological. But then again, nearly every other descriptor of this sort of relationship will also wind up being tautological. The point to take away is that it’s a special relationship unto itself. It seems culturally just a bit offensive, and certainly off-putting, to describe the relationship between parent and child as contractual. Yet we seem to have little discomfort (anymore) with the idea that the law can intervene and dictate facets of that relationship, like mandatory schooling, providing the child with nourishment and shelter, prohibiting gross acts of abuse, and regulating the financial contributions for this sort of support when parents split up for whatever reason.

So too is the relationship between spouses properly considered a “contract” of marriage despite the lingering inaccuracy of that phrase. Marriage again creates a regime of default mutual legal obligations and responsibilities, which again are predicated upon particular cultural assumptions, which again are subject to modification by mutual consent of the parties or intervention of the government in particular cases.

Nor are family relationships the only ones in which the law functions as an arbiter or guarantor of the terms of the relationship. Many providers of professional services may only render those services under regulated conditions — as a lawyer, the law tells me that I may not discriminate amongst potential clients based upon my subjective racial or religious preferences, for instance; a doctor always owes a battery of legal duties like competence, candor, loyalty, and confidentiality to her patients even if the subject of those inquiries has nothing to do with the kind of medical advice she has been asked to dispense; in many cases both the doctor and I have caps set upon the fees we may charge for our services. Does this render our relationship with our clients, patients, customers, etc. any less contractual?

A specific agreement between the parties is but one dimension, and not always the governing facet, of the actual terms of their relationship.

Employment is so heavily-regulated that about the only facet of that relationship that needs to be negotiated at all is its mere existence. After that, if the parties haven’t agreed on anything else, the law allows the employer to make ad hoc decisions about what is to be done and when, and the law fills in the gaps on just about everything else, from how much the employee is to be paid to what kind of equipment the employer must provide to the worker. And if the worker doesn’t like it, she can quit, although we also have some understanding that “just quitting” is quite often not a viable real-world choice.

 

VI: Concluding Thoughts

So it seems to me that culturally, we have already tacitly come to accept the firm hand of government intervening in the employment relationship as a matter of course. We do this typically with little conscious thought or acknowledgement. But so much of this departs from our traditional legal notions of what a contractual relationship really is that it often seems to me that we are not discussing a contract anymore at all.

Maybe, then, it’s really more like a parental relationship, or a cousin of a fiduciary relationship like that of an estate’s trustee managing assets for the benefit of a beneficiary. Maybe it’s more of a way employer and employee create a commonwealth of sorts, one where each undertakes to look after the welfare of the other, at least in some specific subject matter areas? Of course, these are analogies meant to demonstrate the larger concept; the reality of it is that employment is it’s own thing, not exactly like any other legal relationship.

What would a legal regime that integrated this cultural reality into the formality of its regulatory environment look like? It seems to me that in the short run, it wouldn’t look all that different than the way things look now. We’d just dispense with the notion of a contract as the summit of the employment relationship, and make whatever deal had been struck as a facet of it.

In the long run, law and culture reciprocate on one another. Should the law abandon the pretense of employment being a regulated contract and move to the idea of this being a regulated relationship, with a contract being only one part of it, I suspect that we’d have a lot less hostility to things like Obamacare and wage regulation.

Over time, we’d probably also have a more paternalistic attitude between employer and employee. We’d move closer to an ideal where employer and employee have moral obligations to take care of one another and be loyal to one another for both short- and long-term durations. I suspect that would be good for productivity in the long run, and if so, that might maybe even good for profitability in the long run, too.

But we’d also have employers and employees being much more selective about forming these relationships, at least for the sorts of jobs that are held by breadwinners. Education and accumulation of experience would become more important, since employers would at least feel and may be impelled to make substantial investments in their workers, and workers in their employers.

In the very long run, notions of personal identity might involve some degree of synthesis between employer and employee. Even as it is, when friendly strangers prompt me to tell them about myself, I usually begin with a description of what I do for a living before I even talk about my family and certainly before I describe my hobbies or interests or cultural preferences or my overall assessment of my own happiness. In a world where my employment was considered not just a legal contract but a special regulated relationship, I suspect that would become even more true than it already is.

Burt Likko is the pseudonym of an attorney in Southern California. His interests include Constitutional law with a special interest in law relating to the concept of separation of church and state, cooking, good wine, and bad science fiction movies. Follow his sporadic Tweets at @burtlikko, and his Flipboard at Burt Likko.