Confronting the Myth that Workers Know What They are Signing Up For

Sinclair Broadcasting Group has recently been forcing news anchors at its stations across the country to broadcast statements that echo President Trump’s attacks on the news media as propagating “fake news.” These anchors have then been criticized for following along rather than quitting. But they signed employment contracts in which they can be assessed sizable monetary penalties for quitting, and they also signed non-compete agreements preventing them from working at another TV or radio station for six months. Coincidentally, last week, Professor Evan Starr visited my department to present his research on non-compete agreements in the U.S. labor force. Among many important findings are these: the use of non-competes and their effects on outcomes are unrelated to the extent to which non-compete agreements are legally enforceable in each worker’s state. Moreover, a third of non-compete agreements are forced on workers after they have already accepted the job, and less than 20 percent consulting family, friends, or a lawyer before signing it. What emerges from this, among other things, is a picture of workers who don’t really understand the legal parameters under which they are agreeing to work.

The economists in the audience had a hard time accepting this picture. Economists are trained to think that rational agents make informed choices based on good information. But there is a lot of evidence that workers don’t have great information about their own employment conditions. Two years after the Family and Medical Leave Act (FMLA) was enacted, not even 50% of nonunion hourly workers had heard of it and barely one-third thought they were eligible (Budd and Brey, “Unions and Family Leave: Early Experience under the Family and Medical Leave Act,” Labor Studies Journal, 2003). In Britain, I’ve found that it’s common for two-thirds of workers to not know that some types of employer-provided family-friendly policies are available to them (Budd and Mumford, “Family-Friendly Work Practices in Britain: Availability and Perceived Accessibility,” Human Resource Management, 2006). In a survey of U.S. companies emphasizing “shared capitalism,” 20-25% of employees’ responses to questions about whether they were covered by profit-sharing, gainsharing, or individual incentive plans didn’t match what their employer reported (Budd, “Does Employee Ignorance Undermine Shared Capitalism?” in Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-Based Stock Options, 2010).

You can try out your own knowledge. Consider the following scenario: 

An employee (in the United States) is accused of dishonesty. The supervisor knows that this employee is not dishonest but fires him anyway because she dislikes the employee personally. The employee’s job performance has been satisfactory.

Is this termination legal or illegal? Did you say "illegal"? If you did, you're not alone, but you're WRONG. Except for a minority of workers (those covered by a union contract with unjust dismissal protections or similar civil service protections, or those working in Montana where this is an unjust dismissal law), this termination would be legal because of employment-at-will. But Pauline Kim found that over 90% people think this is illegal (“Bargaining with Imperfect Information: A Study of Worker Perceptions of Legal Protection in an At-Will World,” Cornell Law Review, 1997). Other research also finds high rates of employee ignorance about workplace law violations and how to remedy them (e.g., Alexander and Prasad, “Bottom-Up Workplace Law Enforcement: An Empirical Analysis,” Indiana Law Journal, 2014).

Why is this lack of understanding such a problem? Because our laissez-faire labor market is premised on fully informed workers making wise choices such that the employment relationship is an equal one among consenting parties. When workers lack a true understanding of what they are signing up for, then the employment relationship looks more like an unequal one in which workers are disadvantaged, if not exploited. Steve Befort and I have therefore argued that U.S. employers should be required to provide a written statement to all employees disclosing all terms and conditions of employment, including being subject to employment-at-will (Befort and Budd, Invisible Hands, Invisible Objectives: Bringing Workplace Law and Public Policy Into Focus, 2009). By itself, this might not change the actual terms and conditions of employment, but it would at least paint a truer picture of what workers are signing up for. 

It must also be said that another pictures emerges from the Sinclair Broadcasting mandate and from research on non-compete agreements--namely, workers lacking options which would allow them to refuse to sign these contracts. Fighting the myth that workers know what they are signing up for and creating ways to facilitate a better understanding of the true nature of the employment relationship probably won’t solve this imbalance, but it’s a good place to start.