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

Author

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  • Harvey S. James Jr.

    (University of Missouri)

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.

Suggested Citation

  • Harvey S. James Jr., 1997. "A Legal Basis for Workers as Agents: Employment Contracts, Common Law, and the Theory of the Firm," Law and Economics 9705001, EconWPA, revised 04 Feb 2002.
  • Handle: RePEc:wpa:wuwple:9705001 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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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Employment contracts; managerial control; agency relations; common law; transaction cost economics;

    JEL classification:

    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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