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A Free Market in Workplace Regulations

Mises Daily: Wednesday, February 09, 2005 by

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In a free economy, under what conditions may employees be hired and fired? And should discrimination be tolerated in the workplace? The answer to these questions depends upon who is the source of the discrimination.

From a free market perspective, the only factor that matters is whether or not the government is involved in the discrimination. If the government is the entity that forces a company to hire or fire somebody based on whatever criteria it sets forth as official policy, then that is an imposition, a violation of the rights of private property holders, an infraction against the freedom of association.

However, private businesses should have the right to use whatever criteria they want to discriminate against current and potential employees. It is a matter to be settled by contract and choice.

Let's apply this standard to a recent case. Weyco, Inc. has been on the news as an example of workplace discrimination. Located in Michigan, the company specializes in employee benefit plans and benefit management. Their new policy regarding the lifestyle of their employees has led to the firing of seven employees who did not want to quit their smoking habit. Supporters of the workers claim that this is a violation of personal freedom, that an employer has no business to tell its employees what they can or cannot do on their own time.

At first blush, this might seem to be the position of a supporter of free-markets—who favor the freedom of choice—but it is not. In a free-market, property rights come before any claims of "rights" that are said to trump the discretion of owners. A private firm has the right to hire or fire whomever they wish based on whatever criteria they wish. No one has the right to work for a private business under whatever conditions he or she chooses to make.

Lewis Maltby of The National Workrights Institute, an offshoot of the ACLU, is quoted as saying "Your boss has no legal business to tell you what to do in your private life." On their website they state, "Private employers are using the power of the paycheck to tell their employees what they can and cannot do in the privacy of their own homes."

It is true enough that an employer has no power over the lives of its employees. Employment is a voluntary exchange and it is axiomatic that in voluntary exchange both parties, ex ante, expect to be better off because of the exchange. In other words, if I know ahead of time what the terms of employment are, and I voluntarily choose to adhere to those policies, then my rights have not been violated. If one does not like the terms of employment, then he or she does not have to work there.

What is the position of Weyco, Inc.? The company has a policy statement entitled "Drug, Alcohol, and Tobacco Free Workplace." The statement reads, "This policy defines the Company's intent to maintain a drug, alcohol and tobacco free workplace in order to promote the health and safety of all employees, customers, and the general public." In addition it states that: "As a condition of employment each employee must comply with the Company's Drug, Alcohol and Tobacco Free Workplace Policy." And: "Any employee who violates this company policy is subject to disciplinary action including termination of employment in accordance with section 4.0 of this policy."

The actual prohibition that is the cause of the recent uproar over the firing of the seven employees is: "Prior to January 1, 2005, smoking or otherwise using tobacco products on company time or property. Effective January 1, 2005, smoking or otherwise using tobacco at any time." 

There it is: Weyco, Inc. clearly stated its rules and intentions regarding employee lifestyle behavior. There was no coercion or surprise termination of employment. There was a choice to be made by the employees.

In imposing this policy, the company itself takes a risk. The marketplace could punish it. Customers who view the new policy as tyrannical could take their business somewhere else, or a significant number of employees could have objected and left the company. Employees may favor more liberal workplace regulations. Obviously, Weyco, Inc. believes that the benefits of its policy outweigh the costs.

In a true free-market, employers would have the right to determine employee qualifications, whether it is physical appearance, religion, gender, intelligence, or, yes, lifestyle choices. If a potential employee does not like the terms of employment, then he or she has the freedom to look somewhere else.

If one company turns away smokers and those smokers are really good at what they do and can create value for a company, there will be another company that will hire them or there will be an entrepreneur who will take these workers and their potential value and create a new company.

The real outrage should be the government regulations regarding smoking in private bars and restaurants. These government enforced smoking bans are the real violations of freedom and property rights.

The typical justification for these regulations is that nonsmokers are forced to suffer the negative externalities of the smoker. This is clearly false reasoning. Nobody is forced to be around the smoke. If one does not want to be around smoke, then one simply should refrain from going to or working at a "smoking" bar or restaurant.

It is a very simple concept: one does not have the moral or Constitutional right to socialize, eat, or drink at another person's private establishment. One's place of business is his property; it is not a "public" place. (The distinction between commercial and private, however much it is part of our legal tradition, is wholly fallacious; because a person chooses to exchange goods for money on his property makes it no less private.)

In the Weyco, Inc. case, smokers are not even being forced to leave their jobs; in order to stay they just have to quit smoking. If they are too weak or undisciplined to quit smoking or if they just do not want to give up the pleasure they receive from smoking, then they have to live with the consequences.

Weyco, Inc. and other companies who might have lifestyle regulations are not violating anybody's rights. To violate a person's right means that you took something from him or denied him something that was truly his in the first place. If workers don't like it, Weyco will pay a price in the market for labor. Until then, the workers who don't like the rules should market their wares in some other firm that values their productivity regardless of their smoking.

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Ninos Malek studies economics at graduate school at George Mason University. (Mail). Comment on the blog.