The Evolution of Unjust-Dismissal Legislation in the United States
Alan B. Krueger
In the last decade, state courts in many areas of the United States have
ruled in favor of employees alleqing they were improperly dismissed. Many
economists have contended that any judical or legislative departure from the
employment-at-will doctrine is regressive and inefficient because it restricts
employment flexibility and freedom of contact. This paper advances an
evolutionary theory of unjust-dismissal leqislation in which employer groups
eventually support unjust-dismissal leqislation 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
displtes rapidly, and reduce legal and other transaction costs. An
institutional and empirical analysis supports the conclusion that the proposal
of unjust-dismissal leqislation 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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