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In Defense of the Contract at Will

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In Defense of the Contract at Will University of Chicago Law School Chicago Unbound Journal Articles Faculty Scholarship 1984 In Defense of the Contract at Will Richard A. Epstein Follow this and additional works at: https://chicagounbound.uchicago.edu/journal_articles Part of the Law Commons Recommended Citation Richard A. Epstein, "In Defense of the Contract at Will," 51 University of Chicago Law Review 947 (1984). This Article is brought to you for free and open access by the Faculty Scholarship at Chicago Unbound. It has been accepted for inclusion in Journal Articles by an authorized administrator of Chicago Unbound. For more information, please contact [email protected]. In Defense of the Contract at Will Richard A. Epsteint The persistent tension between private ordering and govern- ment regulation exists in virtually every area known to the law, and in none has that tension been more pronounced than in the law of employer and employee relations. During the last fifty years, the balance of power has shifted heavily in favor of direct public regulation, which has been thought strictly necessary to redress the perceived imbalance between the individual and the firm. In par- ticular the employment relationship has been the subject of at least two major statutory revolutions. The first, which culminated in the passage of the National Labor Relations Act in 1935,1 set the basic structure for collective bargaining that persists to the current time. The second, which is embodied in Title VII of the Civil Rights Act of 1964,2 offers extensive protection to all individ- uals against discrimination on the basis of race, sex, religion, or national origin. The effect of these two statutes is so pervasive that it is easy to forget that, even after their passage, large portions of the employment relation remain subject to the traditional common law rules, which when all was said and done set their face in sup- port of freedom of contract and the system of voluntary exchange. One manifestation of that position was the prominent place that the common law, especially as it developed in the nineteenth cen- tury, gave to the contract at will. The basic position was well set out in an oft-quoted passage from Payne v. Western & Atlantic Railroad: [M]en must be left, without interference to buy and sell where they please, and to discharge or retain employees at will for good cause or for no cause, or even for bad cause without thereby being guilty of an unlawful act per se. It is a right which an employe may exercise in the same way, to the same t James Parker Hall Professor of Law, University of Chicago. 1 Act of July 5, 1935, ch. 372, 49 Stat. 449 (codified as amended at 29 U.S.C. §§ 151-169 (1982)). 2 Pub. L. No. 88-352, 78 Stat. 253 (codified as amended at 42 U.S.C. §§ 2000e to 2000e- 17 (1982)). HeinOnline -- 51 U. Chi. L. Rev. 947 1984 The University of Chicago Law Review [51:947 extent, for the same cause or want of cause as the employer.' The survival of the contract at will, and the frequency of its use in private markets, might well be taken as a sign of its suitabil- ity for employment relations. But the contract at will has been in retreat even at common law, as the movement for public control of labor markets has now spilled over into the judicial arena. The ju- dicial erosion of the older position has been spurred on by aca- demic commentators, who have been almost unanimous in their condemnation of the at-will relationship, often treating it as an archaic relic that should be jettisoned along with other vestiges of nineteenth-century laissez-faire.' Thus it is commonly asserted 3 Payne v. Western & At. R.R., 81 Tenn. 507, 518-19 (1884), overruled on other grounds, Hutton v. Watters, 132 Tenn. 527, 544, 179 S.W. 134, 138 (1915). The passage continues as follows: He may refuse to work for a man or company, that trades with any obnoxious person, or does other things which he dislikes. He may persuade his fellows and the employer may lose all his hands and be compelled to close his doors; or he may yield to the demand and withdraw his custom or cease his dealings, and the obnoxious person be thus injured or wrecked in business. 81 Tenn. at 519. It should be noted that Payne did not itself involve the discharge of an employee for a bad reason or no reason at all. As the last two quoted sentences indicate, the question of the status of the contract arose obliquely, in a defamation suit by a merchant against a railroad. The railroad's yard master had posted a sign that read: "Any employe of this company on Chattanooga pay-roll who trades with L. Payne from this date will be discharged. Notify all in your department." Payne, 81 Tenn. at 510. The plaintiff Payne claimed that his business, which had been heavily dependent upon the trade of railroad workers, had thereby been ruined. The court held for the defendant on the grounds that (a) there was no defamation implicit in the announcement and (b) the employer's notice to its employees was within its rights because all the contracts with its workers were terminable at will. Hutton overruled Payne, not on the ground that contracts at will were against public policy, but on an abuse-of-rights theory according to which an employer cannot use his right to discharge employees for the sole purpose of harming third- party interests. The propriety of the Hutton theory is a difficult question, but my views tend toward those of the Payne court. See Epstein, A Common Law for Labor Relations: A Critique of the New Deal Labor Legislation, 92 YALE L.J. 1357, 1367-69, 1381 (1983). 4 E.g., Blackburn, Restricted Employer DischargeRights: A Changing Concept of Em- ployment at Will, 17 AM. Bus. L.J. 467, 491-92 (1980); Blades, Employment at Will v. Indi- vidual Freedom: On Limiting the Abusive Exercise of Employer Power, 67 COLUM. L. REv. 1404, 1405-06, 1413-14, 1435 (1967); Blumrosen, Employer Discipline: United States Re- port, 18 RuTGERs L. REV. 428, 428-34 (1964); Feinman, The Development of the Employ- ment at Will Rule, 20 Am. J. LEGAL HIST. 118, 131-35 (1976); Murg & Scharman, Employ- ment at Will: Do the Exceptions Overwhelm the Rule2, 23 B.C.L. REV. 329, 338-40, 383-84 (1982); Peck, Unjust Dischargesfrom Employment: A Necessary Change in the Law, 40 Omo ST. L.J. 1, 1-10 (1979); Summers, Individual Protection Against Unjust Dismissal: Time for a Statute, 62 VA. L. Rav. 481, 484 (1976); Weynard, Present Status of Individual Employee Rights, PROC. N.Y.U. 22D ANN. CON. ON LAB. 171, 214-16 (1970); Note, Guide- lines for a PublicPolicy Exception to the Employment at Will Rule, 13 CONN. L. REV. 617, 641-42 (1980); Note, ProtectingEmployees at Will Against Wrongful Discharge: The Pub- lic Policy Exception, 96 HARv. L. REv. 1931, 1931-35 (1983); Note, Protecting At Will Em- ployees Against Wrongful Discharge: The Duty to Terminate Only in Good Faith, 93 HeinOnline -- 51 U. Chi. L. Rev. 948 1984 1984] In Defense of the Contract at Will that, however congenial the contract at will might have been to the conditions of earlier times, major transformations in firm organiza- tion and industrial production have rendered it anachronistic to- day. One early and influential attack on the contract at will shows the importance of the issues that it raises: It is a widely accepted proposition that large corporations now pose a threat to individual freedom comparable to that which would be posed if governmental power were unchecked. The proposition need not, however, be limited to the mammoth business corporation, for the freedom of the individual is threatened whenever he becomes dependent upon a private entity possessing greater power than himself. Foremost among the relationships of which this generality is true is that of em- ployer and employee.5 The contract at will is thus thought to be particularly unwise because it invites the exercise of arbitrary power by persons with a dominant economic position against individuals whose mobility is said to be limited by the structure of labor markets. The absence of viable alternative employment opportunities is thought to leave employees vulnerable to coercion and exploitation. In the extreme situation, employers (or their managers) are said to fire workers out of personal animosity; the animosity may stem from the worker's refusal to grant personal or sexual favors or from a simple and irrational dislike of the personal characteristics or habits of the employee.6 Once the outcomes of these market imperfections are identified, the conclusion is said to follow swiftly: where dis- charges from employment are not made for sound economic rea- sons, or to advance the financial interest of the firm, the power of the law must be used to redress the perceived imbalance. The courts have been heavily influenced by these arguments, HARV. L. Rzv. 1816, 1824-28 (1980) [hereinafter cited as Note, Wrongful Discharge];Note, A Common Law Action for the Abusively Discharged Employee, 26 HASTINGs L.J. 1435, 1443-46 (1975); Note, Implied Contract Rights to Job Security, 26 STAN. L. REv. 335, 337-40 (1974); Note, California's Controls on Employer Abuse of Employee PoliticalRights, 22 STAN. L. REV. 1015, 1015-20 (1970). 5 Blades, supra note 4, at 1404 (footnotes omitted). Examples of the subsequent litera- ture on the point are cited supra note 4. 1 Such allegations were made in Alcorn v.
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