The Evolution of Unjust-Dismissal Legislation in the United States


In the last decade, state courts in many areas of the United States have
ruled in favor of employees alleging they were improperly dismissed. Many
economists have contended that any judicial or legislative departure from the
employment-at—will doctrine is regressive and inefficient because it restricts
employment flexibility and freedom of contract. This paper advances an
evolutionary theory of unjust-dismissal legislation in which employer groups
eventually support unjust-dismissal legislation in response to the threat of
large and variable damage awards imposed by the judicial system. Legislation
is sought to clearly define property rights and to limit employer liability.
In comparison to the common law, the unjust-dismissal laws that have been proposed are likely to result in smaller awards, reduce uncertainty, resolve disputes rapidly, and reduce legal and other transactions costs. An
institutional and empirical analysis supports the conclusion that the proposal
of unjust-dismissal legislation is a response to court rulings that weaken and
obfuscate the employers’ right to dismiss employees at will. This evidence is
inconsistent with the conventional political-economy view of unjust-dismissal

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Industrial and Labor Relations Review, vol 44, no. 4, July 1991
Working Papers