The Powerful Role of Unproven Economic Assumptions in Work Law

Abstract

Many rules and statutory interpretations in US work law that entrench employers' power over workers rely on unproven economic assumptions. This article explores three. First, courts assume that the individual employee and employer have relatively equal bargaining power, an assumption often framed and defended within the circular logic of "freedom of contract." Second, courts assume that the employer's authority over the enterprise-its managerial prerogative-must be near absolute to promote efficiency in the enterprise and economy. Third, courts assume that the costs of maintaining the status quo of managerial prerogative and an employer's at-will authority are less than the costs of altering it. Courts use these assumptions to give employers broad rights to terminate employees, to impose arbitration agreements, and to limit worker collective rights.

Turnover, Prices, and Reallocation: Why Minimum Wages Raise the Incomes of Low-Wage Workers

“…A common defense of the assumption that employers and workers have equal power in their relationship is that abandoning this framework necessarily restricts management's prerogatives, thereby causing adverse economic consequences, perhaps even challenging the free enterprise system itself (Mishel 2022;Tomassetti 2022;Cetty 2022). Such claims can be empirically examined, and the substantial research on government-mandated minimum wages, which restrict management's prerogative to set wages, provides an informative and well-grounded case study.…”