Common law exceptions to employment at will and U.S. labor markets

Abstract

Employment relationships in the United States were historically governed by the common law doctrine of employment at will. Under this rule, parties to an employment relationship could, in the absence of an explicit contract, unilaterally terminate the match at any time, for any reason, and without penalty. In recent decades, numerous state courts have recognized 'exceptions' to employment at will that limit the circumstances of worker dismissal. Using a panel of state labor market aggregates from 1965 to 1994, this article examines the effect of these exceptions on U.S. labor markets. These exceptions are seen to have no effect on aggregate employment nor unemployment. However, temporary employment is observed to increase by a statistically significant 15% following the adoption of an exception. The implied contract exception, in particular, appears to be responsible for this increase.

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