Empirical Studies of Contract

Since the mid 2000s, a cottage industry has slowly blossomed of empirical research dedicated to advancing accounts of contracts on the books --accounting for what contracts tend to purportedly obligate signers to do, and contracts in action --accounting for how contracting parties tend to behave. This article reviews this literature, which spans several disciplines, most notably law, economics, and management, identifying eight categories of empirical questions in common across all disciplines, highlighting key findings, points of consensus, and noting areas most pressingly in need of additional research

The behavioral theory of contract

Thesis (Ph. D.)--Massachusetts Institute of Technology, Sloan School of Management, 2009.Includes bibliographical references (leaves [162]-174).This work develops a theory of contract grounded in empirical analysis of individuals' experience with and interpretations of form-adhesive contracts. Form-adhesive contracts are unilaterally drafted, typically by organizations, intended for multiple signers. They are offered on a take-it-or-leave-it basis, with no opportunity afforded to negotiate in the traditional sense during the pre-agreement phase. This type of contract dominates the way in which exchange relationships between organizations and individuals are governed in many areas of contemporary life-including, but not limited to, employment, medical treatment, intellectual property licensure, telecommunications, and social networking. The theory poses the question, "how do individuals experience and interpret these agreements?" and explores the relationship between the answer on one hand, and two other elements on the other: (1) socio-economic exchange between the drafting organizations and signers, and (2) trust in the rule of law. The first part of the dissertation explains the theory. The second part explores the theory's empirical basis in an employment relationship. Employees' interpretations of a mandatory-arbitration agreement they signed as a condition of their employment are compared to MBA students' interpretations of the enforceability of a similar clause. MBA students with considerably greater educational attainment and employment opportunities are found to be significantly more likely to believe that they could escape the contract's terms to which they consented than employees of a large, national electronics retailer with consistently less education and fewer job opportunities. For both MBAs and employees, regarding the signed agreement as unenforceable is correlated with a greater likelihood of viewing the employment relationship as one devoid of trust or loyalty. In the third part, a large-scale web experiment is used to measure the behavior of signers of a form-adhesive contract. Both pre-agreement conditions varying the adhesiveness of the contract and post-agreement prompts (legal, moral, social and instrumental) urging signers to continue to perform as the contract purportedly requires are tested as competing determinants of contract performance. Results suggest that when subjects see and choose the contract term during the pre-agreement consent phase, they are more likely to perform as that term purportedly requires in the postagreement performance phase, and that prompting contractual performance based on an appeal to morality generates the greatest rate of performance. Consistent with the behavioral theory advanced in this research, a legal threat is associated with a level of contractual performance no better than a control condition in which subjects were requested to perform the same task, except without signing any contract requiring performance of that task.by Zev J. Eigen.Ph.D

Experimental Evidence that Retaliation Claims Are Unlike Other Employment Discrimination Claims

The type of discrimination claim that strikes fear in the hearts of all employers is the dreaded retaliation claim. While employers contend, and plaintiffs admit, that retaliation is different from other discrimination complaints, employee advocates have put forth legislation that would equalize retaliation with the other types of discrimination. This bill, Protecting Older Workers against Discrimination Act (POWADA), would expand the so-called mixed-motive jury instruction to age, and disability, as well as retaliation. Moreover, it would allow plaintiffs, not judges, to decide which types of instruction the jury would receive. In this article, the authors argue that retaliation claims should not receive the same treatment as other discrimination claims (including age and disability), because it’s easy for juries to believe that retaliation is a factor, regardless of other facts. Once a fact-finding jury checks the box to indicate that an employer’s motive might include retaliation, the employer will likely have to pay fees and costs, at minimum, regardless of the claim’s final resolution

A Moral Contractual Approach to Labor Law Reform: A Template for Using Ethical Principles to Regulate Behavior Where Law Failed to do so Effectively

If laws cease to work as they should or as intended, legislators and scholars propose new laws to replace or amend them. This paper posits an alternative—offering regulated parties the opportunity to contractually bind themselves to behave ethically. The perfect test-case for this proposal is labor law, because (1) labor law has not been amended for decades, (2) proposals to amend it have failed for political reasons, and are focused on union election win rates, and less on the election process itself, (3) it is an area of law already statutorily regulating parties\u27 reciprocal contractual obligations, and (4) moral means of self-regulation derived from contract are more likely to be effective when parties have ongoing relationships like those between management and labor organizations. The paper explains how the current law and proposed amendments fail because they focus on fairness as a function of union win rates, and then outlines a plan to leverage strong moral contractual obligations and related norms of behavior to create as fair a process as possible for employees to vote unions up or down

Using the Ethical Principles of Union Organizing to Avoid Card-Check Neutrality and Corporate Campaigns

In the summer of 2013, after protracted negotiations, Hyatt Hotels and unite/here reached a landmark labor agreement. Of note in this agreement is the commitment by both parties to a process that leads to what they term “fair elections” for future labor representation. The concept of what represents a “fair agreement” has been a subject of debate, proposed legislation, and litigation for decades. In this paper, we explore a different concept of fairness. Rather than allow years of discord to limit the parties’ options, the proposal is to have both parties communicate under consistent standards, without intimidation and unrest. Our goal in presenting this proposal is to create an environment where all parties to a union representation decision have the opportunity to be heard fairly and, most critically, the employees are able to choose whether they wish to be represented in a free and fair election. That is, those employee groups who wish to be represented have the opportunity for collective bargaining, while those who do not want to be organized are not forced into representation

Ducks and Decoys: Revisiting the Exit-Voice-Loyalty Framework in Assessing the Impact of a Workplace Dispute Resolution System

Until now, empirical research has been unable to reliably identify the impact of organizational dispute resolution systems (DRSs) on the workforce at large, in part because of the dearth of data tracking employee perceptions pre- and post- implementation. This study begins to fill this major gap by exploiting survey data from a single, geographically-expansive, US firm with well over 100,000 employees in over a thousand locations. The research design allows us to examine employment relations and human resource (HR) measures, namely, perceptions of justice, organizational commitment, and perceived legal compliance, in the same locations before and after the implementation of a typical, multistep DRS that begins with informal reporting to local managers and culminates with mandatory arbitration. Even after holding all time-constant, location-level variables in place, we find that introduction of the DRS is associated with elevated perceptions of informal procedural justice and interactive justice, but diminished perceptions of formal procedural justice. We also find no discernible effect on organizational commitment, but a significant boost to perceived legal compliance by the company, raising important questions about the tradeoff between voice and exit and formal versus informal aspects of dispute resolution mechanisms.

A Moral Contractual Approach to Labor Law Reform: A Template for Using Ethical Principles to Regulate Behavior Where Law Failed to do so Effectively

If laws cease to work as they should or as intended, legislators and scholars propose new laws to replace or amend them. This paper posits an alternative—offering regulated parties the opportunity to contractually bind themselves to behave ethically. The perfect test-case for this proposal is labor law, because (1) labor law has not been amended for decades, (2) proposals to amend it have failed for political reasons, and are focused on union election win rates, and less on the election process itself, (3) it is an area of law already statutorily regulating parties\u27 reciprocal contractual obligations, and (4) moral means of self-regulation derived from contract are more likely to be effective when parties have ongoing relationships like those between management and labor organizations. The paper explains how the current law and proposed amendments fail because they focus on fairness as a function of union win rates, and then outlines a plan to leverage strong moral contractual obligations and related norms of behavior to create as fair a process as possible for employees to vote unions up or down