1. Plagiarism most certainly is illegal, it is called "copyright infringement". One very famous plagiarism case involves the song "My Sweet Lord" by George Harrison. (see Bright Songs Music v. Harrisongs Music). There are many others.
2. Contract law only applies to people who have a contract. Yes, an employer may be able to punish an employee who plagiarizes, as your academic example shows. But this case is EMPLOYER v. PLAGIARIST. Contract law cannot address AUTHOR v. PLAGIARIST.
Mr. Levine, why to you ignore the AUTHOR?
The issue is whether the crime is punished not who punishes it. If somebody robs our house we do not deliver our own justice. Why does the author need to in the case of plagiarism?
@ Alexander Baker: So basically, if I copy parts of 'Titus Andronicus' to a webpage without attribution and someone who has never heard of it believes that I'm the author, I've committed copyright infringement even though the actual author of that play died 93 years before the world's first copyright law received Royal Assent? How does that even make sense?