U.S. Employment Rights Legislation and the Legal Theory of Co-Employment as Constraints on the Use of Contract Labor

Abstract

This article examines the implications of U.S. individual employment rights for secondary employment under the contract labor mechanism. Based on an analysis of common law and regulatory agency tests and the evolving legal theory of co-employment, it is argued that employment rights management is fundamentally problematic for firms using contract labor. Factors which make it difficult to externalize employment management through contract labor agencies include 1) moral hazard problems associated with such agen­ cies, 2) costs of monitoring rights compliance, 3) rights violations involving third-party liability and 4) related problems associated with the extension of contract labor to professional occupations. Anticipated managerial responses (in terms of refinements to contract labor practice) are discussed, together with their limitations. Also considered are the implications of such refine­ ments for dual labor market configurations involving primary workers under the human resources or "salaried" model. Historically, secondary employment, with its key characteristics of market-based pricing and tenuous attachment to the firm, has been the norm in America. Its counterpart—rule-based primary employment via internal labor markets—is a phenomenon of this century [1]. As Jacoby [2] has documented, the development of internal labor markets (and personnel/administrative control over employment) is best understood as a response to legal-institutional support for collective organization and individual employment rights rather than limitations of marketbased employment, per se. While market forces and direct efficiency incentives identified by Doeringer and Piore [3] and others certainly play a role in the