Research Handbooks in Law and Economics series
Edited by Claire A. Hill and Brett H. McDonnell
Chapter 6: Employees and the Boundaries of the Corporation
Matthew T. Bodie 1. INTRODUCTION United States corporate law has little to say about employees.1 Employees are simply one category of the many parties who form contracts with the corporation. Although individual states have their own separate sets of corporate law, states uniformly delineate the roles of directors, officers, and shareholders in governing the entity. The relationships between these three groups constitute the purpose and function of corporate law (Clark 1986; Smith & Williams 2008). The ‘employee’ category is not a meaningful one when it comes to creating, sustaining, or dissolving the corporation (Greenfield 1998). When it comes to the firm, however, as opposed to the corporation, employees take on a much more central role. In The Nature of the Firm, Ronald Coase singled out the relationship between the firm and its employees as the firm’s defining feature (Coase 1937). This relationship has continued to be a focal point in the development of the theory of the firm – particularly in differentiating between firms and market transactions (Greenfield 1998). In subject areas such as tort law, intellectual property law, and tax law, the employer–employee relationship provides the necessary contours in separating the firm from the market. And when it comes to other business organizations, especially partnerships, the providers of labor can have a critical role in the ownership and governance of the firm.2 Corporate law stands out in its exclusion of employees in defining and establishing the legal shape of the firm.3 This result is somewhat ironic, since corporate law is...
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