Employers Good Deeds Punished by Administrative State

Progressives—Democratic elected officials, community organizers, and labor unions—incessantly disparage employers for failing to provide employees with a living wage, adequate time off, and quality health benefits. They claim corporate greed is the cause of the eroding middle class.

This rhetoric, however, conflicts with reality. While the U.S. middle class is shrinking, it is because these families are getting richer, not falling into poverty. Further, unemployment levels are extremely low and there are “about 1 million more open jobs than unemployed workers.” Andy Pudzer, former CEO of CKE Restaurants, persuasively argues raising the minimum wage is superfluous because “so many major employers across the country are already raising wages and the paychecks of lower-income Americans are showing significant gains.”

But left-leaning organizations never let a manufactured crisis go to waste. Organizations have even been formed with the exclusive goal in mind to disparage job creators. For example, the union-funded Fight for $15 organizes protests against employers who are the target of union drives and advocates for legislation to raise the minimum wage to $15 per hour at the local, state, and federal levels.

But employers would be smart to realize that no matter how much they try to appease these activists, nothing will ever be enough for them. The founder of the Competitive Enterprise Institute, Fred Smith, has long urged entrepreneurs and businessmen—rather than apologizing and giving in to activist demands—to defend themselves and communicate how capitalism has not only “expanded our freedom and increased our wealth, it has done more than any government program to democratize privileges that were once reserved for elites.”

Yet, businesses frequently fail, or do not even try, to fend off political attacks on capitalism or their companies. And, too often, they submit to political pressures and apologize for creating jobs and wealth.

In a prime example McDonald’s released a statement last month that it would no longer lobby against legislation that increases the minimum wage. As my colleague Ryan Young noted, McDonald’s was “just trying to get good PR.”

Yet McDonald’s political maneuver failed to even muster positive press. The Fight for $15 viewed McDonald’s choice as insufficient. In response, as Politico reported, Fight for $15 will organize protests at McDonald’s locations across the country during the lunchtime rush. At the protest, workers will demand McDonald’s lobby in favor of minimum wage increases.  

McDonald’s could have taken a principled stance, and explained how minimum wages are a poor mechanism to lift the poor out of poverty. An analysis of Seattle’s minimum wage ordinance, which required employers to pay at least $15 per hour by January 1, 2019, determined the high wage mandate primarily harmed inexperienced workers who saw their work hours reduced, which, in turn, led to less take home pay.

Big Tech companies have also become a target of public pressure campaigns. They similarly have chosen to take the path of least resistance.

At Google, over 900 employees recently signed a letter that demanded the company provide certain wages and benefits to temporary and contract workers. On April 2, Google announced that it will require its contractors to pay “health benefits, sick leave, a $15 minimum wage, paid parental leave, and $5,000 a year for education,” the Hill reports. These types of requirements on contractors are frequently referred to as “supplier codes of conduct.”

While implementing supplier codes of conduct may be met with public approval, federal labor regulations ensure “no good deed goes unpunished.”

As I’ve noted previously, placing these types of requirements on contractors could trigger joint employment liability for companies. This is due to an Obama administration rule change. In a 2015 decision, the National Labor Relations Board (NLRB) radically altered when one employer is legally responsible for the actions of another employer. A survey conducted by the International Franchise Association found that the Obama joint-employer standard already costs businesses between $17 billion and $33.3 billion annually. It also represents a roadblock to job creation, with between 194,000 and 376,000 potential jobs eliminated.

For decades prior, multiple employers would be considered joint employers if they both exercised direct and immediate control over employees’ essential work conditions—like pay, supervising, and hiring and firing. Suddenly, however, a joint employer determination could be made when one company merely exercises “indirect” control or possesses “unexercised potential control.”

The NLRB’s joint employer decision was not only overly broad, but extremely vague. It left open-ended what constitutes joint employment. In the ruling, the NLRB brushed aside concerns of uncertainty, explaining that they will look at the facts on a case-by-case basis and would not “address the facts in every hypothetical situation in which the Board might be called on to make a joint-employer determination.” An area left unaddressed by the decision is whether supplier codes of conduct could trigger joint employer status.

This new and broad joint employer standard created immense uncertainty for employers, especially when they tried to do right by employees and contractors. As I previously wrote:

Companies like Microsoft that had recently adopted policies requiring suppliers to offer certain wages or paid leave suddenly had to worry about whether that amounted to indirect control.

Never before would a business placing general standards on suppliers establish a joint employer relationship, but the Obama standard made it a real concern and a do-gooder deterrent. Microsoft discovered its prized supplier code of conduct, which President Obama praised at the time, led “to substantial and growing legal expenses and great uncertainty.”

That sort of unpredictable liability takes a big toll on contractors, too. Understandably, big companies would be more inclined to keep their distance from contractors. That means less work for contractors and less assistance from larger businesses they work with.

Fortunately, the current administration is working to clear up the joint employer confusion. The NLRB and Department of Labor have issued proposed rules to develop a commonsense joint employer standard, one where employers may put requirements on contractors without assuming liability.

Yet, despite positive developments on joint employment, employers must acknowledge they need to vigorously defend their businesses and free markets. Businesspeople cannot be reluctant to speak out in defense of economic liberty. If businesses always seek compromise or give in to opposition, attacks on capitalism will only grow stronger.