Human Behavior and the Law of Work

Abstract

The most fundamental issues in labor and employment law involve the choice among three alternatives: waivable employers' rights, waivable employees' rights, and nonwaivable employees' rights. By combining standard contract analysis with a perspective informed by behavioral economics, it is possible to obtain a much better understanding of the underlying issues. Contrary to the conventional view: workers are especially averse to losses, and not so much concerned with obtaining gains; workers often do not know about legal rules, including key rules denying them rights; workers may well suffer from excessive optimism; workers care a great deal about fairness, and are willing to punish employers who have treated them unfairly, even at workers' own expense; many workers greatly discount the future; and workers often care about relative economic position, not absolute economic position. These points suggest the advantages, in many cases, of relying on waivable employees' rights, an approach designed to inform workers without providing the rigidity and inefficiency associated with nonwaivable terms. At the same time, these points suggest, though more ambiguously, the hazards of allowing workers to waive their rights in accordance with standard contract principles. Procedural constraints (e.g., cooling off periods) and substantive constraints (e.g., “floors”) on waiver may be appropriate. Norm change and preference change are also discussed. Applications include job security; parental leave; vacation time; health care; unionization; occupational safety and health; discrimination on the basis of age, race, and sex; waivers by unions; and workers' compensation. The basic conclusion is that waivable employees' rights are a promising and insufficiently explored option in many areas of labor and employment law.