The Unjustified Absence of Federal Fraud Protection in the Labor Market Kent Greenfield Federal law offers vigorous protection against fraud in the capital market but no comparable safeguard in the labor market. This difference, Professor Greenfield argues, cannot be justified. The antifraud provisions of federal securities laws reflect the recognition that accurate information facilitates intelligent investment decisions, promoting the efficiency of securities markets in allocating financial capital to real capital. Likewise, information is vital for efficient allocation of human capital. When workers are informed about the characteristics of the various jobs available to them, they are able to make intelligent decisions as to where to dedicate their labor.
Fraud thus inhibits efficiency in both capital and labor markets.
Indeed, fraud may be even more harmful in the labor market because workers cannot easily diversify their human capital. The absence of federal fraud protection thus cannot be justified on economic grounds. Nor are common law remedies, Professor Greenfield shows, adequate substitutes for a federal antifraud statute. Not only do workers face meddlesome procedural obstacles in bringing common law fraud actions, but when courts do reach the merits of such actions, some appear to apply what amounts to a presumption against such claims. Even if the common law evolved to embrace labor fraud claims, federal statutory protection offers a superior solution, whose net benefits are at least as high in the labor context as in the securities one.