Regulating Self-Regulation

How can employment law guarantee fair wages and working conditions and foster employee democracy within the workplace? Cynthia Estlund offered answers to both questions in her inaugural lecture as the Catherine A. Rein Professor of Law, “Corporate SelfRegulation and the Future of Workplace Governance.” Regulation works best by encouraging effective self-regulation by firms, Estlund said, and for these internal self-regulatory systems to be effective, they must give employees a genuine collective voice in governance.

The New Deal model of “industrial democracy,” said Estlund, looked to unions and collective bargaining to improve wages and working conditions. But dwindling union membership and a 50-year standstill on reforms to American labor laws have left many workers unrepresented and vulnerable to lapses in the enforcement of employee rights and labor standards.

Employment law, Estlund said, can potentially fill this void by promoting new modes of governance within corporations. Unlike a simple deterrence model that penalizes corporations for wrongdoing regardless of their internal processes, a New Governance approach offers firms a more congenial enforcement regime as long as they can maintain effective internal systems for complying with laws designed to keep workplaces safe and fair. Some examples of regulated self-regulation, Estlund said, are the Federal Sentencing Guidelines for Organizations and federal anti-discrimination laws, which allow companies to avoid punitive damages for discrimination if they maintain effective compliance and complaint procedures.

“The law promotes self-regulation not by mandating it but by rewarding it,” Estlund said. “It is based on a quid pro quo: ‘If you put in place effective self-regulatory systems, we’ll give you a less punitive enforcement regime.’”

But whether we aim simply to deter violations of the law or, as the New Governance model would have it, to promote democratic responsiveness and internalization of public values, Estlund said, workers must have an independent voice within internal compliance structures—one that not only will protect them from employer reprisals, but also will overcome the collective action problems that workers frequently face in seeking compliance. “If employees become powerful enough to claim their rights under the law,” Estlund pointed out, “then they may also become powerful enough to demand more of what they want at work, and to claim a real role in firm governance.”

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