Employee privacy and the “theory of the firm”

Bruce Kobayashi and Larry Ribstein apply the “theory of the firm” to worker privacy with specific application to the employer’s ability to monitor employee performance and behavior. They take the theory to drive toward a much reduced role for law in favor of regulation by contract. This essay unpacks their theory. It faults the theory for its failure to come to grips with the possibility of monopsony in the labor market, its failure to appreciate the “public goods” nature of privacy policies and the related assumption that the employer’s ability to adopt and apply privacyinvasive policies is invariably a product of a consensual armslength bargain. This essay is revised and expanded from the author’s Introduction to the 2003 Supplement to Matthew Finkin, Privacy in Employment Law (2d ed. 2003) 2003 Supplement.