Governance of the Workplace: The Contemporary Regime of Individual Contract

39 Pages Posted: 7 Mar 2007 Last revised: 27 Jun 2013

See all articles by Kenneth Glenn Dau-Schmidt

Kenneth Glenn Dau-Schmidt

Indiana University, Maurer School of Law

Timothy A. Haley

Barnes & Thornburg

Date Written: 2007


In the last three decades, the American labor market has undergone a dramatic transformation that has heralded enormous change in the governance of the workplace. The development of new information technology and the rise of the global economy have decentralized firm decision-making and brought the market into the firm in ways that have not previously been experienced. These changes have made possible a new flexibility in many production methods which allows the vertical disintegration of firms, compartmentalization of production and the out-sourcing of work on the global market. Firms can now organize production on a global scale, coordinating parts production with suppliers from across the globe, assembling engines and transmissions in Asia, and doing final assembly in consumer countries, using subcontracted or temporary labor. As a result, the paradigmatic employment relationship in the United States, and other developed countries, has moved away from a long-term relationship governed by internal labor market rules within a centralized managerial structure, toward a short-term relationship governed by international labor markets in a decentralized managerial structure.

This transformation in the labor market has contributed to the decline of union representation in America. The decline of hierarchical management and the role of internal labor market rules has robbed unions of some of their traditional function of representing employees within this hierarchy. Indeed, the new systems of decentralized management, employee involvement and subcontracting, combined with same very generous Supreme Court interpretations of the managerial and supervisory exemptions under the National Labor Relations Act (NLRA) have left from 31- 40% of employees uncovered by the Act. At the same time, the rise of the global labor market and the movement of manufacturing jobs overseas has undermined unions' bargaining power. American unions are representing less and less people, and bringing less clout to bear at the bargaining table. As a result, more and more American workers find themselves in a system of workplace governance based on individual contract within a context of common law rules and state and federal legislation rather than collective bargaining.

Moreover, the development of the new information technology, the rise of the global economy and the corresponding decline of unions has lead employers to negotiate or impose different terms in individual employment contracts. With the decline of long-term employment, employers have sought to protect their investments in training and intellectual property by requiring covenants not to compete and follow-on clauses, while attaining greater flexibility in the employment relationship by reducing expectations of job tenure and deferred benefits. Additionally, as union representation has declined in the private sector, employee litigation has come to loom large in the minds of employers and they have turned to alternative methods of dispute resolution to avoid litigation and communicate with their employees even in the absence of a union. In particular, the practice of arbitration pursuant to individual employment contracts, or employment arbitration, has grown, encouraged by legislation and court decisions favoring the procedure.

Finally, perhaps in response to the decline of employee rights in the new economic regime, in recent years there has been a modest erosion of the traditional common law doctrine of employment-at-will that undergirds the American system of individual contract. In the last three decades, courts in many jurisdictions have developed common law exceptions to the employment-at-will doctrine for discharges in violation of public policy, public duty, implied contract and the implied covenant of good faith and fair dealing. At the same time, many state legislatures have passed statutes protecting employees from discharge in certain cases. These common law and statutory exceptions have circumscribed an outline of basic common law protection against the worst abuses of employer power in the system of individual contract.

In this essay, we will set forth an empirical outline of the contemporary individual contract regime of workplace governance regime in the United States. Because of the breadth and diversity of the individual contract regime, this description cannot be exhaustive. We focus almost exclusively on what is known about the contents of individual contracts for employment and recent common law and statutory restrictions on the employment at-will doctrine. Where appropriate we will make comparisons with the employee rights and procedures that exist under workplace governance through collective bargaining. In this way we hope to provide a brief description of what is currently known about the contours of this regime and how it varies from the regime of collective bargaining in order to provide a basis for further research.

Keywords: Economics, Employment, Employment Contract, Employment Law, Employment-at-will, Arbitration

Suggested Citation

Dau-Schmidt, Kenneth Glenn and Haley, Timothy A., Governance of the Workplace: The Contemporary Regime of Individual Contract (2007). 28 Comparative Labor Law and Policy Journal 313 (2007), Indiana Legal Studies Research Paper No. 73, Available at SSRN:

Kenneth Glenn Dau-Schmidt (Contact Author)

Indiana University, Maurer School of Law ( email )

211 S. Indiana Avenue
Bloomington, IN 47405
United States
812-855-0697 (Phone)
812-855-0555 (Fax)

Timothy A. Haley

Barnes & Thornburg ( email )

Chicago, IL
United States

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