Distilling the Essence of Contract Terms: An Anti-antiformalist Approach to Contract and Employment Law

Abstract

Recently, a number of commentators have questioned the validity of the use of default rules in contract law, by challenging the assumptions that lead, in the first place, to the wide use of default rules. (See e.g., the University of Chicago Law Review Symposium on Formalism Revisited, 1999). Motivated in part by this debate, this article challenges one of the most basic assumptions in employment law: that employers and employees are silent about a number of important issues concerning the employment relationship, and thus, that courts are justified in developing default rules to apply to employment law disputes. This assumption has been used to develop default rules in a number of areas, but has been particularly relevant in the development of the law regarding privacy rights and employment security (the Employment-at-Will debate). In the article I argue that the parties to employment contracts have been telling us more than what conventionally we have recognized. In particular, I argue that by carefully analyzing aspects of the employment contract which the parties normally specify (such as the form and the basis of compensation), very specific, non trivial, understandings on other important issues are made apparent. I rely on recent developments in labor economics theory to explore the exchanges employers and employees make, and to analyze how these exchanges are reflected in the compensation provisions of their employment contracts. I argue that the information embedded in the compensation provisions of employment contracts provides valuable insights for the resolution of disputes regarding privacy rights and job security. The article advances an alternative approach to the use of default rules in the employment area, similar to the attempts to advance alternative approaches to the use of default rules in commercial law.