The Pernicious Effect of Employment Relationships on the Law of Contracts Academic Article uri icon


  • The relationship between employment and contract law is peculiar. On the one hand, employment in modern American society seems to be a classic voluntary agreement among consenting adults. It is a "promise or a set of promises," in the wooden but circular language of the Restatement, "for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty." Thus, employment relationships figure prominently in a great many landmark contract law decisions, in areas like capacity, duress, certainty, consideration, promissory estoppel, illegality and public policy, anticipatory repudiation, mitigation of damages, and specific performance. On the other hand, many of these same cases fit uneasily into the larger theoretical framework of contract law. They are important, not as the decisions that created the broad principles of contract law, but often for the opposite reason: they limit the application of contract rules in employment contexts, create variant forms of the established rules, or act as cautionary tales about the ability of abstract doctrine to yield unjust results. Often, contract law seems to be applied differently in employment cases than in cases involving commercial transactions. My thesis is that this uneasy relationship exists because employment is not really a contractual relationship at all; it is, and always has been, one of status. I am not arguing that it should be a status relationship, merely that it has been one since time immemorial and continues to be treated so today, regardless of the legal theories applied. In many respects, employment is more analogous to a family relationship than it is to a contract between a widget manufacturer and a retail distributor. It is not a simple commercial transaction, but instead, as explained by Rachel Arnow-Richman, it is a "fundamental, life-ordering institution[ ]. As such, it is regulated by law in a host of ways entirely unrelated to the agreement of the parties, dependent solely upon the relative status of parties as employer and employee. As a result, contract law frequently does a poor job of dealing with employment law issues. The decision in Alaska Packers' Ass'n v. Domenico, for example, is a kind of poster child for the problems that arise when we try to analyze employment issues under the framework of classical contract theory. As Debora Threedy has shown, Alaska Packers is all about workers using concerted economic power to gain wage increases from a consortium of employers. The real question is whether workers who have agreed to a given wage can legitimately strike for a higher wage, although this issue plays little or no role in the decision. Rather, the court treats the case as one involving the arcane contract doctrine of "consideration," specifically one small part of the doctrine known as the "pre-existing duty rule." If Alaska Packers arose today, it would be seen as a labor dispute. The issue would be whether the striking workers who signed the contract are violating their obligations under the labor laws. Specifically, are they engaging in appropriate collective action using appropriate economic weapons? We would view it as a problem of collective bargaining and apply the body of law that, over the past hundred years, has come to be called labor law. It is highly unlikely that doctrines like "offer and acceptance," "bargained-for exchange," and "pre-existing duty" would play any role in our analysis. This disconnect between contract theory and the reality of employment cuts both ways. While contract law frequently does a poor job of handling employment issues, as discussed below, the fact is that trying to force employment issues into a contracts framework has unfortunate effects on contract doctrine. The valuable role of contract law in structuring wealth-maximizing commercial relations are destabilized and made less effective by doctrines developed to protect employees and solve perceived social problems in the workplace. As noted below, attempts to deal with the issues that arise from this particular institution with tools designed for commercial transactions are unlikely to be successful. We are trying, as it were, to fill a round hole with a square peg. It is true that in any particular case we can get the peg to go in if we get a big enough hammer and pound long enough. But, it is unlikely that it will ever do a good job of filling that particular hole. More important, for my present purposes, this does not do the square peg much good, either, because it gets so dented and deformed in the process that it no longer fits well even into its original square hole. Using contract law to solve problems in a status relationship like employment has been as harmful to contract law as it has been to employment law. To make this point, Part II of this article begins with a brief discussion of both contract and employment law, specifically focusing on their origins, their relationship to each other, and the role of status in each. Part III examines three areas of contract law-consideration, capacity, and promissory estoppel-focusing on the influence that employment issues have had on contract law. Part IV concludes with a brief investigation of how courts continue to grab the tools of contract in an unsuccessful attempt to deal with the problems in a status relationship.

published proceedings

  • Texas Wesleyan Law Review

author list (cited authors)

  • Snyder, F. G

complete list of authors

  • Snyder, Franklin G

publication date

  • October 2003