Employment freedom of contract is under attack. The last two decades has witnessed an unprecedented assault on one of the last frontiers of free contract, the employment relationship. The ability of individuals to freely choose whom they will work for and who will work for them is being undermined by activist jurists and legislators, cheered on by liberal academics determined to see public control of most aspects of private life.
Michigan has been in the forefront of this assault. While pretending to preserve "employment-at-will" freedom of contract, the courts of Michigan have made Michigan common taw a national beacon for public control of the employment relationship. Combined with one ofthe nation's most extensive array of state statutes circumscribing the employment relationship, Michigan can truly be said to have virtually eliminated employment freedom of contract.
The consequences of this public takeover of the employment relationship are becoming readily apparent. Michigan's courts are clogged with employment litigation, employers have turned defensive hiring and firing measures into a fine art, and the cost of doing business in Michigan, which was already high, has become prohibitive. Legal confusion reigns, as employers wait for the next edict from Michigan's activist Supreme Court.
The practical result has been the loss of millions of dollars in litigation costs and forfeited managerial opportunities. Michigan is losing business. Employers are leaving for states with more business-friendly legal environments, especially to the South. Out-of-state employers looking to expand their businesses are rejecting Michigan as a possible site. Employers willing to stay in Michigan are finding themselves steadily less competitive as more of their costs are lost in the mire of employment law rules and regulations.
Yet have Michigan's employees really gained anything? This paper will argue that the losses have far outnumbered the gains. The destruction of employment-at-will has not enhanced the employment setting, but instead burdened it with uncertainty, high transaction costs, and reduced opportunities for both employers and employees. The process by which employment-at-will has been eroded has been fueled by numerous myths about the virtues of publicly-controlled employment contracts – myths which upon closer examination have little reality to support them.
Myth: The labor market is a system of supreme employer power in which unfairly terminated employees have their economic lives devastated, with nowhere to turn. Employees are at the whim of all-powerful employers who determine the conditions and existence of employment. In fact, the American labor market is extremely mobile, exhibiting constant, vibrant bargaining between employees and employers. Employees exhibit great bargaining power to establish their pay and conditions of employment.
Myth: Employees need legal assurances of security in the employment setting in order to receive "fair" treatment from employers. Replacing employment-at-will with "good cause" rights ensures such "fair" treatment. In fact, the shift from private determination of the employment relationship to public determination simply shifts the power to decide the employment contract from the parties to judges, juries, administrators and legislators. There is no more assurance of "fairness" from these latter sources than can be achieved one-on-one between the employee and his/her employer.
Myth: Extensive employee access to the judicial system is essential in order for employees to have effective "rights" in the employment setting. Employees need the courts in order to have equal power with employers. In fact, judicial resolution of employment disputes dissipates employee power by imposing high transaction costs, great uncertainty about employment rights, and total dependence an attorneys. The supposed tyranny of the employer is replaced with the certain tyranny of the expensive lawyer. Judicial resolution of disputes also results in formalized, rigidly-adhered-to employment procedures and manuals which eliminate flexibility for either the employee or the employer, to the detriment of both.
Myth: The entire civilized world, with the exception of the United States, has established good cause employment rights. The good cause standard for employment must therefore finally be established in this country just to keep pace with the rest of the world. In fact, comparison to other industrial nations is misplaced. Remedies are extremely limited in most nations, and the context for employment dispute resolution is not oriented toward extensive litigation, but to quick determination of rights. For a comparison to be accurate, a complete change in the American system of dispute resolution would have to be accomplished first.
The recurring image conjured up by advocates for the demise of employment-at-will comes straight out of the fictional world of Sinclair Lewis and John Steinbeck. In this world, the brutal, mischievous boss is a callous monster, mistreating employees out of sheer personal spite. The employee is a virgin-pure hardworking saint, trying his/her best despite the many obstacles of low pay, unsafe work, and constant mistreatment in his/her path. There is no bargaining, no mobility, and no freedom of contract – there is only the master and the servant.
But this image does not comport with the reality of the American marketplace. The American economy is robust and growing. It has made American workers the best paid, most productive, economically well-off citizens in the world. Of course there are abusive employers. Of course there are limits on mobility and the ability to bargain. But these are the fringes of the system, the exceptions to the rule. One does not destroy an entire system of contract, with all of the resulting loss of freedom, just to address these aberrations.
This paper will argue that the abandonment of employment-at-will is a mistake. We will trace the history of employment-at-will law, with particular emphasis on Michigan's departure from the traditional path. We will examine a few of the statutory proposals and models that advocates have forwarded to replace employment-at-will, including the proposal of the National Conference of Commissioners on Uniform State Laws. We will also examine the financial and managerial consequences of departing from employment-at-will and discuss the pros and cons of replacing the traditional doctrine.
It is the ultimate goal of this paper to suggest that Michigan has erred by abandoning employment-at-will. It will propose a return to traditional free contract law, for the sake not just of employers, but also of employees. This paper is designed to join the debate about the future of employment contract law and suggest that the academic and judicial plunge toward publicly-controlled employment contracts is not the inevitable consensus path good public policy demands. This debate is not just a theoretical exercise. At stake are real business opportunities, real jobs, and the very future of Michigan's economy.