Historical Musings on the Workplace: From Laissez-Faire to the Present

Ohio Matters

The early phase

The evolution of American employment law has progressed through at least two distinct phases. The first phase endured until the mid-1930s. This period was marked by a free market approach to employment. Parties—the employer and the employee— were free to contract on their own terms for the purchase and sale of labor. In theory, each side was free to determine the essential terms and conditions of the employment relationship, including wages, benefits, workplace conditions and termination of the relationship. If one party was not happy with the arrangement, they were free to move on and contract with someone else. The flaw in the theory, of little legal significance at the time, was the imbalance of bargaining power between some employers and some individual employees.

The second phase

The early 20th century brought automation, expanded distribution schemes, larger and more complex production processes, and the disappearance of the individual craftsman. The existing Darwinian employment model fell prey to a new approach, heralded by the enactment of the Wagner Act in 1935 and the Taft-Hartley Act of 1947. Terms and conditions of employment remained a matter of contract, but now the contract was to be forged in the crucible of union organization and union representation of groups of workers in collective bargaining. Thus, while workers were permitted to band together to equalize bargaining strength vis-à-vis their employer, the essential concept persisted, where the terms of the employment agreement were still a matter of contract and agreement between the parties. Notably, only two significant federal laws influenced the workplace: the Fair Labor Standards Act of 1938 (minimum wage, overtime and child labor) and the Wagner and Taft-Hartley Acts of 1935 and 1947 (union organization and bargaining).

A new paradigm

Many believe that we still function in the evolved second phase, at least in the area of traditional labor law. However, a more enlightened view is that we entered a new and distinct phase of employment law in the late 1960s and early 1970s, a phase marked by increasing external regulation of the workplace by the legislatures and courts, with diminished observance of freedom of contract to shape the employment relationship. In short, government has either been forced or allowed, depending upon how you view it, to usurp the traditional role of contract, with the result that government is now the most pervasive and omnipotent force in the workplace.

Consider the concept of at-will employment, a mainstay ingredient of the laissez-faire phase. Unless the parties struck a different agreement between themselves, either party to an employment relationship was free to end the relationship at any time and for any lawful reason. While the concept persists in theory, the legislatures and courts have developed an overwhelming list of exceptions, encompassing discrimination on the basis of ever-expanding physical, mental, and genetic characteristics, whistleblowers, retaliation, and the ubiquitous but ill-defined violation of public policy. We now have new legislation that arguably defines virtually every American as disabled in some fashion. In theory, it is only unlawful for an employer to discharge an employee for one of these specific externally mandated reasons. In practice, however, an employer often must be able to prove that an employee was not fired for one of these reasons, often in a forum that is both very expensive, antagonistic and distrustful of employers.

Government regulation of the workplace, and abandonment of the contract or mutual agreement by the parties model, has steadily increased since the enactment of the first discrimination laws in the 1960s. ERISA, regulating benefit and retirement plans, and OSHA, prescribing workplace safety, appeared in the 1970s. The trend continued unabated, moving to Equal Pay, polygraph prohibitions, plant closings and layoffs (WARN), health care continuation (COBRA) and mandatory leave from work (FMLA). A cursory look at new legislation introduced at both the state and federal levels confirms that the trend toward external regulation of the workplace will increase, not decrease. All of these subjects had formerly been the mainstay and grist of collective bargaining or, in non-union settings, an employer’s own policies. Whether this external regulation is viewed as progressive and benevolent, or misguided and meddlesome, the undeniable reality is that the workplace is no longer shaped by the parties themselves. Instead, its terms and conditions are largely the product of regulation by the legislatures and the courts.

Whether by design or benign neglect, labor unions have ceded to the government the authority and responsibility for forging the most fundamental terms and conditions of everyday employment. Much of what previously was negotiated at the bargaining table is now negotiated in conference committee. It is not really surprising that union membership has steadily declined, from 35 percent of the private workforce in the 1950s, to less than 8 percent today. One explanation for this stark decline may lie in the simple fact that the workplace today is shaped and defined more by the government, not the parties to the employment relationship.