In capitalist economies employers must ‘buy’ the labour available in the market in order to utilise their capital and make profit. Those who do not have capital of their own need to offer their labour to employers. In any advanced, industrial economy the legal system must regulate the employment relationship and this is usually achieved through the concept of an employment contract. In theory this is supposed to be because there is some form of bargaining followed by an agreemnet between the employer and the employee. However, in reality this viewed by many as a legal fiction. The reason for this is that there is almost never, in reality, an equal bargaining position between the employer and employee at the time of the negotiation of the contract. Critics of the rationale of the employment contract also refer to the system of the common law which seemed to have developed very artificial rules which always favoured the interests of employers.

One of the main ways that societies have addressed the power imbalance between employers and individual workers. From a cursory observation of history it is possible to see that the activities of labour unions and other forms of organised labour can be extremely disruptive to the economy, the political system and the society in general. In some circumstances unregulated industrial conflict can even cause the destruction of the state itself as in the case of the polish soldiarity movement.

In the 20th century, unions and labour organisations became an accepted form of organisation in most advanced industrial societies. This led to the creation of a legal framework which facilitated union advocacy in relation to workers rights. Although the law does exist as a background to the context of labour law, there is wide scope for employers and employees to negotiate the terms of employment between one another. This is now accepted as a practice in the UK, Australia, Canada, the United States and most other developed countries. In the late 20th Century there was a system of tribunals of employment matters in most of these countries which meant that labour organisations had easy access to the legal system. However, conservative political movements in these countries which gained ascendancy in the late 20th century emphasised the need for flexibility in the bargaining process. Conservative political movements dismantled the system of labour regulation which had been in existence up until that point and the balance of power relations returned to a state in favour of employers compared to what it had been up until that point.