By Chris Avcollie
All employment relationships are based on a contract. A lot of people don’t know that. Its easy to forget. Most of us get a job. We work a job. We get paid. Not much time or reason to contemplate the legal metaphysics of our relationship to our employer. In the landmark Connecticut case called Torosyan v. Boehringer Ingelheim Pharmaceuticals, Inc. the Connecticut Supreme Court held that: “At the outset, we note that all employer-employee relationships not governed by express contracts involve some type of implied ‘contract’ of employment. There cannot be any serious dispute that there is a bargain of some kind; otherwise, the employee would not be working.”
What would we find if we took a few minutes to examine the fundamental nature of that contract which we all depend upon for our livelihood? As it happens, I have some thoughts on that subject…
Post Pandemic Recovery – Employees Market
In our current “almost but not quite post-pandemic” economic climate the dominant employment story is the dire shortage of workers. Recent economic reports reveal that employers in various sectors of the economy including transportation, construction, hospitality, manufacturing, and retail are experiencing an unprecedented difficulty in finding workers to staff up for the rapidly re-opening economy. “Despite unemployment numbers in the millions, some 8.1 million job vacancies remain.” The business press reports that demand for employees is at an all-time record high and is likely to remain so for the balance of 2021.
Further, major social movements including Black Lives Matter and #MeToo are (finally) shining a spotlight on social justice in the workplace. The issue of fair wages is also being re-considered as large companies like Amazon raise wages to attract the workers they need to operate. Indeed the push for a $15 federal minimum wage has become a movement in itself. “Our country may treat wage workers as disposable automatons, but if the past year has taught us anything, it should be how much we need the folks who deliver our food, stock our grocery shelves, care for our children and tend to our ill and aging.”
This rare confluence of social, economic, and biological forces may offer a rare opportunity to re-think the fundamentals of the American employment contract. Employees are more in demand than ever before. Whether they realize it or not, these in-demand workers have unprecedented bargaining power in the employment marketplace. If all employment is a “contract,” the newly empowered workers of today can and should demand a fair, just, and reasonable contract of employment.
You Have An Employment Contract But You Just Don’t Know It – Yet!
So, if all employment is a contract then what kind of contract is it? Even in situations where there is no written agreement the basic employment relationship, (i.e. “You work for me doing ‘x’ and I will pay you ‘y’”) creates, at a minimum, what is known as an implied contract. While an express contract is usually in writing with more or less clearly defined terms spelled out, an implied contract is created by the words, actions, or conduct of the parties which manifest an intent to undertake an actual contractual commitment. Contracts may be created by the initial offer letter. Oral promises of employment along with the terms of that agreement implied through the publication of company policies set forth in handbooks and manuals may also form the required agreements. The important take-away here is that even where an employment arrangement does not involve a formal written agreement, a contractual relationship is still created. The terms and conditions of that agreement are to be determined by the words and actions of the parties.
So why does it matter if my employment is technically a legal contract? What difference does it make to me? The significance of the contractual nature of the employment relationship lies in the fundamentals of contract law. Over the centuries, Anglo-American judges have created rules that govern the interpretation of contracts. This process of judicial rule making is known as the “common law” of contracts. These rules, either through codifications of the common law such as the Uniform Commercial Code or directly through common law case precedent govern the interpretation of all contracts from commercial sales to union labor contracts. Indeed, these rules apply directly to employment contracts as well. These rules of contract can and should be used to the advantage of workers who traditionally occupy a subordinate position in the economic caste of our society.
Case in point. There is a doctrine in the common law of contracts called “unconscionability.” This doctrine was developed to prevent the formation and enforcement of agreements that were so fundamentally unfair, that they cannot reasonably be considered “agreements” at all. “[A] bargain was said to be unconscionable in an action at law if it was ‘such as no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other…’” When a court finds that an agreement is “unconscionable” the contract is or may be held to be unenforceable or legally “void.”
One of the primary examples of an unconscionable contract may be found where there is a huge disparity in the relative bargaining power of the parties to the contract. Where one party holds all of the power, influence, money, and other social and economic advantages while the other party holds (in comparison) almost none, the bargain between these two parties may be found to be void based in part on the fundamental inequity in their positions. The idea here is that the more powerful party may force its will on the less powerful, thereby removing the essential element of “voluntary acceptance” of a contractual offer. Where there is a vast power disparity between contracting parties, coercion is expected.
Another basis for a finding of unconscionability by a court in a contracts case where there is a huge disparity in the relative values to be exchanged by the parties under the agreement. “Inadequacy of consideration does not of itself invalidate a bargain, but gross disparity in the values exchanged may be an important factor in a determination that a contract is unconscionable and may be sufficient ground, without more, for denying specific performance.” In other words where one party is trading a large consideration in order to obtain a very small consideration, it is probable that one of the parties is dealing unfairly with the other.
At-Will Employment is Abusive Because It Is Unconscionable!
So…is the basic employment contract unconscionable? I contend that it is. First, the default rule of employment is the “employment at will” doctrine. This is the doctrine that holds that barring a specific agreement to the contrary, all employers may terminate their employees at any time and for any reason or for no reason at all. In other words, the employer has no particular obligation to its employees to continue their employment or to treat them fairly regardless of the circumstances. The only caveat to this default rule is that an employer cannot terminate a worker for an illegal reason such as race or gender-based discrimination for example. We have written extensively about the fundamental inequity of the employment at will doctrine. As long as employers are not technically breaking a law, they can do whatever they please.
Why is the employment at will doctrine so unfair? One reason is that in most cases, the disparity in the economic bargaining power between an employer like Amazon, McDonald’s, or Wal-Mart, and the average employee is staggering. A worker applying to Amazon has absolutely no leverage to bring against such a global financial giant. Even a high-level management employee is an insignificant cog in the global machine. Whatever terms of employment these huge employers are offering is what the worker can get. Period.
Disparity In Employee Bargaining Power vs Employers
While the disparity in economic power is more dramatic in the Amazon example, it is also true in the small business context. A person who owns a restaurant is likely to have vastly greater resources than the employees applying to wait tables and wash dishes at the restaurant. In most employment scenarios, the resources of the business owners are going to be vastly superior to those of the employees seeking to work there. The economic power of the employer nearly always overshadows the economic power of the worker.
One might suggest that if an employee does not like the terms of employment offered by a given employer the worker is free to seek employment elsewhere. While this is true in some sense, it ignores the economic reality facing most workers, i.e. the need to work is an economic and social imperative. All those who are not independently wealthy must work in order to survive. Most workers must accept any suitable employment available or risk dire financial consequences for themselves and their families. Very few workers can remain out of the workforce and await more favorable terms of employment with another employer. Further, the fact that nearly all employers follow the “rule” of employment at will means employees generally find themselves in similar conditions with any employer for whom they work.
Our economic system depends upon employers having a large pool of available workers in such desperate need of employment that they will work under almost any conditions or for almost any wages. Indeed, the current shortage of workers has been roundly attributed to the provision of federal subsidies to unemployment benefits. These benefits are apparently keeping low-wage workers temporarily out of the workforce and causing the employee shortages discussed above. The U.S. Chamber of Commerce has recently stated the following about the federal $300 weekly supplement to unemployment benefits: “[T]he $300 benefit results in approximately one in four recipients taking home more in unemployment than they earned working.” To the extent this statement is valid, there is a serious problem here. If $300 per week is enough to surpass the wages of one quarter of the workforce, then a quarter of our workers are working for almost nothing! This statement shows that our business community essentially needs an available slave labor force in order to function! This dynamic illustrates the vast superiority of the employer’s position and the extreme vulnerability of the average worker.
When one considers the relative value of the goods exchanged between a worker and an employer the unconscionability of many employment relationships becomes apparent. When a worker agrees to accept a full-time job, that individual is usually giving almost all of their available waking time to that employer. A recent Gallup survey revealed that the average work week for U.S. full-time employees consists of around 47 hours. Some 21 percent of full-time workers surveyed work as much as 59 hours every week. Thus, a full-time job requires most or all of the productive waking time a person has available. So a full-time worker is required to give almost all of his or her energy and time resources to the employer. That is a huge percentage of one’s personal resources. So is the employer likewise required to give most of its resources to the worker? Not at all. The wages and benefits of one employee is not only a fraction of the employer’s overall resources, it is usually a fraction of the productive value the employee brings to the enterprise.
The fact that a meagre $300 per week extra unemployment benefit is enough to keep one quarter of workers out of the workforce illustrates the unconscionable nature of many employment relationships. Why would anyone not under extreme duress voluntarily agree to give most of his or her time and energy (i.e., most of his or her life) to an enterprise that offers so little in return? Further, why would the employee agree to that arrangement when he or she can be terminated at will for no reason, no matter their seniority, their dedication to the company or how hard they work? That is a bargain, “…such as no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other…’”
So the employment at will doctrine leaves workers in the position of making an agreement that one would have to be “under delusion” to agree to while the employer is placed in the position of requiring a bargain that no “fair” person would accept. Even in situations where an employer pays fair and reasonable wages, there are other ways in which the unequal bargaining power between employer and employee is manifest in the modern marketplace.
Employers Are Delusional – What Were They Thinking?
Employers frequently use their superior bargaining position to insist on making other agreements part of the at-will employment contract which only someone “under delusion” would accept. Non-competition agreements, forced arbitration provisions, and other restrictive covenants are often forced on workers as a condition of employment.(See related articles: When Can Non-Competition Agreements Be Enforced Against Independent Contractors? ; Free Yourself From Forced Arbitration). These pernicious and inequitable covenants can impair an employee’s ability to earn a living after the employment relationship ends. So an employer is free to extract a non-compete from an employee by offering the consideration of employment, then terminate the employment for no reason and thereby withdraw the consideration previously offered and then nonetheless prevent the employee from finding another job in the same industry. Indeed “delusion” backed by economic coercion is the only explanation for such an agreement.
The fact that the fundamental legal principles of the employment relationship are outrageously inequitable is evident to anyone who has had a serious dispute with an employer. As an employment lawyer representing employees and executives, I am frequently in a position where I need to educate my clients on their employment rights and guide them through all manner of disputes with their employers. Without fail, clients are shocked and outraged when they are apprised of the limited rights they have to resist the unchecked hegemony of their employers. Employees sign non-competes because they feel they are required to in order to get a job. Then when their employment ends, often through no fault of their own, they are shocked to realize they cannot work in their industry because the employer has extracted an inequitable yet enforceable promise from them not to work for a competing business. They signed away their right to work in exchange for a job they can be fired from for no reason whatsoever and for a wage which is in no way worth the time and effort they sacrificed!
I have spoken to thousands of employees who were unfairly treated at work during my career. Invariably in these situations, the employee assumes there is some fundamental legal principle of equity or “fairness” that would work to right the outrageous wrong they suffer. This confusion regarding the rules governing employment contracts is essentially being “under delusion.” My contention is simply that if principles of contract law were actually fairly and logically applied to the employment contract, the unequal bargaining power between employer and employee, as well as the relative disparity in consideration offered between the parties to the employment contract should make patently unjust results such as the one outlined above all but impossible. The fact that these outrageous default rules like “employment at will” have ben normalized in our society and in our jurisprudence makes them a self-fulfilling prophecy. Questioning those default rules and resisting the presumption that they are even remotely fair is a first step in changing them.
Aside from the inherent imbalance of power between employer and employee and the relatively disproportionate value of the consideration exchanged, the dynamics of the legal process itself reinforce the unconscionability of the standard at-will employment agreement. All employment agreements are contracts. When the rights of parties to contracts are in dispute the results are determined by our civil court system. They are determined usually by judges. When employees seek to engage the legal system to resolve disputes with their employers, they are stepping into an arena so dominated by employers that the process itself is designed to reject their claims.
The Losers Rules Favor Employers – Employees Need to Finally Wake Up
In her seminal article in the Yale Law Journal called “Loser’s Rules,” former Federal District Judge and Harvard Law Professor, the Honorable Nancy Gertner observes that because employers are repeat players in the judicial system, they have the power (as a group and over time) to settle employee’s cases when they are strong and to litigate the cases that are weak. The power to accomplish this strategic settlement is itself born of the economic disparity between the players.
While an employer has the money to buy off a plaintiff employee with a strong case, individual employees who cannot afford protracted litigation costs are forced by economic necessity to accept these settlements rather than push their case to trial. This power to choose which cases settle results in an overwhelming majority of judicially determined employment cases favoring the employer. These decisions become the body of legal precedent which shapes future decisions on employment cases. This, like the blind acceptance of the employment at will rule also becomes a self-fulfilling prophecy. Judge Gertner notes: “Over time, strategic settlement practices produce judicial interpretations of rights that favor the repeat players’ interests.“ This dynamic illustrates the often unseen ways that the social, economic, and political power of employers as a group dominates the individual employee in the employment relationship.
The rules currently governing the employment relationship are not written on stone tablets. Legislators, employers, workers, judges, and juries have created these rules and they can also be changed. The first step is the awareness that there are fundamental problems with them and more importantly that those problems can be addressed by rethinking some the principles at work behind them. No one needs to accept that “employment at will” is the default rule. No one needs to accept a non-compete. No one needs to work for unfair wages or in adverse conditions. No one needs to accept that bullying or harassment at work by an aggressive employer or co-worker is just, “the way it is.”