Cyber-Working or Cyber-Shirking?: A First Principles Examination of Electronic Privacy in the Workplace

Abstract:     
This article begins by establishing the failure of statutory law or common law in the U.S. to guarantee a right of electronic privacy in the workplace. Unlike Europe, we do not recognize a universal right of privacy or human dignity, and it is unlikely that we will see a legally guaranteed, zone of privacy in the American workplace.

Proceeding on that basis, I then ask how this issue can be addressed through a market-based, contractarian framework, and what principles should inform employer-employee e-policies that are typically being developed by U.S. firms. To set the stage, I explicate the underlying concerns of employers and employees regarding access to e-mail and the Internet and electronic privacy at the workplace. Relying on insights from microeconomic, principal-agent theory, I show that in the modern computerized workplace, the difficulty in establishing supervision and control over the agent's activities, the difficulty in controlling the flow of information to and from the firm, together with the firm's need to employ the Internet to capitalize on the enhanced efficiencies resulting from an online presence, contributes to an overall loss in the principal's (i.e., the employer's) power and lessens her ability to take effective, unilateral action against the agent. As a result, it is possible to define an incentive-compatible, benefit-maximizing contract between employers and employees based on the following principles: employee participation in defining e-policies; full disclosure of all implementation schemes pursuant to these e-policies; and employer monitoring to ensure compliance with such e-policies.

Such an incentive-compatible contract is superior to other solutions based solely on self-interested behavior by either the principal or the agent. Further, it is not only a lower cost result, it also promotes mutual trust and cultivates the development of fairness norms, thereby, increasing productivity and contributing to higher profits. I also present some specific implementation details of e-policies designed along the lines described above. Finally, should Congress decide to act, the principles outlined above can serve as the basis for new legislation in this arena.

Accepted Paper Series