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. Professor Greenfield thus
concludes by proposing a federal statute for protecting workers
from fraud.
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