Exploding Myths: An Empirical and Economic Reassessment of the Rise of Employment At-Will

Like many other types of contracts, employment contracts are frequently incomplete, with important terms missing or unclear. Courts have created a variety of rules to assist in filling these gaps. One of these rules, the employment at-will rule, specifies a default rule which governs in cases where the parties to an employment contract fail to explicitly state the contract's duration. The at-will rule is straightforward, providing that where the term of the contract is indefinite, both the employer and employee are free to terminate the contract without liability at any time.

This paper takes a new approach to the history of the at-will rule. By exploiting the interstate variation in adoption, I econometrically test some of the explanations for the rule. After showing the inadequacy of the existing theories and the importance of court structure, I present a qualitative analysis that explains the rule as a response of the courts as institutions to the problems of nineteenth century employment law cases. Finally, I briefly examine two issues not addressed by the econometrics: The existence of United States exceptionalism and the interpretation of Wood's treatise.