Just the facts: the case for workplace transparency.

Author:Estlund, Cynthia

INTRODUCTION I. THE LAY OF THE LAND OF EMPLOYMENT: MARKETS, MANDATES, AND "BEST PRACTICES". II. A ROUGH SKETCH OF A MANDATORY DISCLOSURE REGIME FOR THE WORKPLACE III. WHAT IS INFORMATION GOOD FOR? A. Disclosure in Aid of Contract B. Disclosure in Aid of Compliance C. Disclosure in Aid of Reputational Rewards and Sanctions IV. WHY IS VOLUNTARY DISCLOSURE INADEQUATE? A. What Do Firms Voluntarily Disclose to the Public? Some Illustrations B. Filling the Information Gap Without Disclosure Mandates: Intermediaries, Interviews, Insiders, and Reputation V. SOME ISSUES OF SCOPE AND IMPLEMENTATION A. Disclosure vs. Confidentiality: When Is Secrecy Justified? B. Making Disclosure Useful C. Reducing Costs and Anticipating Unintended Consequences D. Liabilities, Sanctions, and Enforcement E. Transparency Writ Small: An Information Safety Net at the Bottom of the Labor Market CONCLUSION INTRODUCTION

Decisions about whether to take or to seek a new job are among the most consequential decisions that most individuals make in their lives. To make good decisions, individuals need information about working conditions and employer policies and practices--information that may not be available from outside, or even from inside, the particular workplace. The importance of information for individual employment decisions, and its limited availability, suggest the potential value of requiring employers to publicly disclose employment-related information. Yet mandatory disclosure is a largely unexplored concept in the employment field. Except in the contexts of health and benefit plans and occupational health and safety, (1) the idea of mandatory disclosure in the workplace has garnered little attention from scholars (2) or from policy-makers. (3)

That is surprising, for mandatory disclosure has become a growing part of the modern state's regulatory repertoire. (4) Disclosure mandates, either alongside or in lieu of substantive mandates, have become important tools in the regulation of securities markets, consumer product and credit markets, and in the regulation of environmental hazards, health care, food and drug safety, and education. (5) Think, for example, of food labeling and its evolution from the simple list of ingredients required by federal law since 1906 to the new and improved nutritional labels that many of us rely on daily. (6)

Scholarly enthusiasm for mandatory disclosure has grown in recent decades as the cost of gathering and disseminating information has fallen, and as scholars from across the political spectrum have sounded a steady drumbeat of doubt about the efficacy of "command-and-control" regulation through substantive mandates. (7) For many law and economics scholars, disclosure mandates are seen as a comparatively market-friendly form of state intervention. (8) From other quarters, the proponents of "New Governance" have made transparency and information disclosure central to their proposals for governance-based solutions to regulatory problems. (9) Mandating disclosure of information--information about risks, returns, costs, benefits, and other features of a firm's products, services, production processes, or shares--is said to improve the efficiency and rationality of market decisions, avoid fraud, and advance public policy goals, all without intruding significantly upon the autonomy of market actors. (10) It sometimes appears as a kind of magical minimalism that delivers significant rewards at little cost.

Indeed, because it is relatively painless, both politically and fiscally, mandatory disclosure may well be an overused regulatory tool--an easy substitute for substantive regulation when the latter is needed. (11) Both proponents and skeptics have recognized that regulating through information disclosure is a complicated business; it seems to work well only under certain conditions. (12) Given the difficulties that individuals face in processing information, the efficacy of mandatory disclosure as a regulatory intervention often depends on the role of savvy intermediaries with a superior capacity, and perhaps an incentive, to process, communicate, and act on information. (13)

Still, it is surprising that the idea of mandatory disclosure has made barely a cameo appearance in the field of labor and employment law. Instead, policy debates have focused mainly on markets versus mandates, especially as union representation, and the possibility of collective bargaining, has retreated to the margins. (14) Outside the shrinking domain of collective bargaining, the employment law landscape consists of outcroppings of public intervention in a field of private ordering. Substantive employment mandates are numerous and often justified. But for reasons of politics, practicality, or policy, many terms and conditions of employment that matter to employees and citizens are and will continue to be left to private ordering--above or beyond the reach of substantive mandates.

This Article seeks to make the case for expanding the use of mandatory disclosure in employment law. Mandatory disclosure can play a useful role both within the wide domain of private ordering and among the many aspects of employment that are subject to mandatory rights or minimum terms. It can improve the operation of labor markets and the satisfaction of worker preferences by supplying the information workers need to choose among employers. It can help to improve compliance with employment mandates, which are chronically underenforced in many workplaces. And where neither markets nor mandates meet public aspirations for more socially responsive, fair, and egalitarian workplaces, mandatory disclosure may help to equip stakeholders and advocates to push firms to reach beyond compliance and beyond the minimum that the market will bear.

The virtues and limitations of mandatory disclosure have been explored in a wide range of regulatory settings, and especially within capital markets. (15) But markets for human labor are different from capital markets or product markets, and relations between firms and their employees are different from relations between firms and their shareholders or their customers. Those differences will affect the consequences and value of mandatory disclosure, and will be my focus here.

What is perhaps most distinctive about employment, and what may help to explain the surprisingly limited use of mandatory disclosure in this context, is that employees--unlike consumers, shareholders, or members of the public who are affected by a firm's products, services, processes, and decisions--are located within the boundaries of the firm itself (once they are hired). (16) As insiders to the firm, employees have access to information that may make mandatory disclosure seem unnecessary, and they are subject to organizational demands of loyalty and confidentiality that may make public disclosure seem inappropriate. At the same time, employees' status as insiders subject to employers' economic power may make mandatory disclosure seem insufficient (as compared to substantive mandates) on any matters that are important enough to warrant public intervention.

Hypothesizing about the explanation for a negative--for the paucity of proposals for mandatory disclosure of terms and conditions of employment--is a perilous business, and I do not want to stake too much on that hypothesis. The main point of this Article is to begin to fill the gap, and to show that mandatory disclosure in the workplace context is sometimes necessary, appropriate, and useful. But along the way we will excavate and examine some assumptions about the nature of employment relations.

For some purposes, employees are insiders, bound by contractual obligations of loyalty and confidentiality and subject to employers' legitimate authority. But in choosing whether to take or quit a job, employees are more akin to investors (of their own human capital) or consumers (of a package of "goods" associated with a job). (17) As such, they have a recognizable stake in information about the job that may be hidden from them. All the while, it is crucial to keep in mind that employees are members of society and a majority of the voting citizenry. (18) Their terms and conditions of employment, in the aggregate and in the staggering disparities of wealth and opportunities that they create, shape society and give the public a large stake in learning about what goes on at work.

Part I sketches the existing landscape of workplace regulation, with its still-dominant background regime of private ordering, its many-faceted overlay of employment rights and labor standards, and its notable neglect of information disclosure as a regulatory strategy. Part II offers a brief outline of a mandatory disclosure regime for the workplace as a point of reference for the discussion that follows. (A conspicuous omission, explained below, is wage and salary information, which raises distinct and difficult issues that are better dealt with separately.)

Part III explores the overlapping benefits of information disclosure along three dimensions: improving the efficiency of employment contracts and labor markets, improving compliance with existing substantive mandates, and inducing employers to reach "beyond compliance" toward evolving norms of good employment practices and standards of social responsibility. Part IV turns to the crucial question of whether and why mandatory disclosure by employers is needed given the existing incentives and mechanisms for voluntary disclosure of work-related information. It turns out that, while there is a good deal of information available to prospective employees and especially current employees, at least regarding large employers, there are also significant information gaps, and hurdles to securing information, that could be usefully addressed by a disclosure mandate.

Part V takes up in a very preliminary way some issues of scope and of institutional design: What...

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