A Legal Basis for Workers as Agents: Employment Contracts, Common Law, and the Theory of the Firm

Harvey James ()

Law and Economics from EconWPA

Abstract: The purpose of this paper is to show that the common law governing the employment of labor makes the distinction not only between employee and independent contractor but also between managerial control and agency. The idea is that common law precedents govern workers who are employed and managerially controlled without the requirement that formal, written contracts be established, and that these defaults support the authority of management to direct their activities within the firm. However, many firm owners voluntarily restrict their ability to control workers by making them agents. Workers who are agents differ from workers who are managerially controlled in that in the former caseworkers are treated differently in the eyes of the common law and they often sign detailed, formal employment contracts. The typical features of formal employment contracts are examined. The principal conclusion is that formal employment contracts facilitate the granting of discretion to workers by superseding many of the legal defaults that define the relationship between the worker and firm owner.

Keywords: Employment contracts; managerial control; agency relations; common law; transaction cost economics (search for similar items in EconPapers)
JEL-codes: K31 D23 (search for similar items in EconPapers)
Date: 1997-05-01, Revised 2002-02-04
Note: Type of Document - Microsoft Word 2000; prepared on IBM PC pentium running WindowsNT; to print on HP; pages: 30; figures: none
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwple:9705001

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