Re-Thinking the Economics of Discrimination: Us Airways V. Barnett, the Ada, and the Application of Internal Labor Markets Theory

This article contributes to the current debate over the economic implications of the Americans with Disabilities Act. It argues that Justice Breyer's plurality opinion in US Airways v. Barnett interpreted the ADA using an economic theory of worker-management relations known as internal labor market theory and thereby invited a worthwhile break with a central orthodoxy in the debate over the economics of employment discrimination. The predominant view among law and economics scholars has been that mandates in discrimination laws requiring employers to alter their conduct are, at best, unnecessary to the efficient operation of labor markets or, at worst, inefficient government interventions that roil otherwise efficient markets. Rather than merely attacking this conclusion, Justice Breyer's Barnett opinion seems to reject the central economic assumption used to reach it. Law and economics analyses criticizing discrimination laws have typically assumed perfectly competitive labor markets. Internal labor market theory posits that some labor markets are competitive, but others are not. Specifically, internal labor markets create substantial barriers to competition. Thus, analyses of employment discrimination laws premised on the existence of perfectly competitive labor markets offer little insight into the effects of these laws in the internal labor market. Barnett held that a proposed accommodation of an employee with a disability would be ordinarily unreasonable and, therefore, not required by the ADA, if it violated the employer's seniority system. Although he did not expressly rely upon internal labor market theory, the article argues that the best explanation for Justice Breyer's Barnett opinion is that an employer's seniority system can play an important role in shaping and protecting an employer's efficient long-term relationships with its employees. As a result, an accommodation proposed by an employee with a disability that would violate the seniority system may threaten the efficiencies made possible by the internal labor market and, therefore, not be a reasonable accommodation. This article elaborates on Justice Breyer's opinion and its application of internal labor market theory. It concludes that internal labor market theory does not permit establishing a presumption, whether rebuttable or not, that accommodations which violate seniority systems necessarily result in losses to the disabled employee's co-workers. Using several leading theories of the internal labor market, this article shows that losses are not inevitable for the co-workers or the employer of an employee with a disability when an accommodation violates a seniority system. In addition, this article argues that, while seniority systems can promote and protect the efficiencies of the internal labor market, accommodations of employees with disabilities can also promote efficiency in the internal labor market. Thus, the balance between two important efficiency-enhancing tools - seniority systems and accommodations of employees with disabilities - must be struck carefully based on evidence rather than presumption. The article concludes that the employer/defendant and the employee/plaintiff with a disability should share a responsibility to offer the best available economic analysis of the employer's seniority system so that the reviewing court may assess the consequences of a proposed accommodation that might violate it.