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OpenMarket: Labor and Employment

  • Voters Approve Minimum Wage Hikes

    November 5, 2014 11:47 AM

    As pollsters predicted, voters approved increases in state-level minimum wages in four states (Alaska, Arkansas, Nebraska, and South Dakota), although to levels less than the increase in the minimum wage proposed by Congressional Democrats (to $9.75 in Alaska, $9 in Nebraska, and $8.50 in Arkansas and South Dakota). Voters in the City of San Francisco voted to raise the minimum wage to a whopping $15 per hour from the current $10.74.

    As National Review notes, “In February, the Congressional Budget Office concluded that a higher wage floor would have significant disemployment effects” by increasing unemployment.

    As economics professor Mark J. Perry notes, minimum wage increases drive up unemployment among teens, knocking some of them off the bottom rung of the economic ladder. Quoting economist Kevin Erdmann, he notes that “In every episode” in which the minimum wage increased over the last 60 years, “except 1996 (which is the smallest hike relative to average wages), there was a distinct decline in the trend of teen employment, over the period of time covering from a few months before the initial hike until a few months after the follow-up hike.” Recent research published by the National Bureau of Economic Research arrives at similar conclusions.

  • Volunteering Violation Vignettes

    November 4, 2014 3:59 PM

    Did you know it is against the law to volunteer for a for-profit business?

    The issue has surfaced in a trio of varied settings recently.

    Let’s begin in mid-America.

    Congressman Tim Griffin and Senator John Boozman have introduced federal legislation, H.R. 3173 and S. 1656, to help women, predominantly, who volunteer at used-children’s-clothing consignment sales. The consignment sales are a small business that helps reduce waste by promoting the re-use of clothing that might otherwise be tossed in the garbage, were a marketplace not fostered. People selling the children’s clothes make some money, and purchasers save some money, rather than have to shell out bigger dollars for new outfits for their kids. It seems win-win-win, right?

    Well, the supposedly dastardly aspect to it is that people commonly volunteer on the day of the consignment sale to organize the clothes and put them on racks. Volunteers are there early to arrange the clothes, and as a benefit, these volunteers get first pick of the used clothes. Again, seemingly win-win, right?

    Ahhh, there’s the rub. These volunteers, commonly women, are volunteering against the law. “In 2013, the U.S. Department of Labor ruled that the business model, as represented by Rhea Lana’s, violated the Fair Labor Standards Act,” reports the Kansas City Star. The proprietor of the business was cited for failing to employ all of the volunteers. The Star continues, “Rhea Lana Riner, the founder and CEO of Rhea Lana’s…calls it a social business model that has grown in popularity because times have been tough and money tight for a lot of families. ‘We feel moms are co-venturing with us because they have a desire to use their personal time for their benefit.’”

    The Children’s Consignment Event Recognition Act seems sensible and would allow children’s consignment events to continue by specifically exempting them from the Fair Labor Standards Act. The bill has been cosponsored by other Midwestern legislators.

  • Joint Employer Action Anxiously Anticipated

    November 3, 2014 8:59 AM

    On July 29, 2014, the National Labor Relations Board’s Office of the General Counsel set the labor and employment world on fire by authorized complaints against McDonald’s, determining that the franchisor McDonald’s is a joint employer with McDonald’s franchisees and thus liable for the actions of the franchisees.

    Were franchisors typically held liable for the actions of their franchisees, as the NLRB General Counsel has proposed in an amicus brief, the franchise system as we know it would implode.

    With October now past, it has been over three months. Yet, despite the General Counsel’s determination, no formal complaint has been filed by the full National Labor Relations Board (NLRB) against franchisor McDonald’s as a joint employer.

    This lack of action from the Board comes as something of a surprise, given the time and high-profile attention paid to the matter and given that the norm is for the Board to follow the advice of General Counsel Richard Griffin, himself a former Board Member.

  • Minimum Wages Have Tradeoffs

    October 27, 2014 12:51 PM

    Minimum wages help some workers, which is why they are so popular. But they aren’t a free lunch. There are tradeoffs. They aren’t always easy to see, but they exist just the same. My colleague Iain Murray has a piece about those tradeoffs in the Washington Examiner, to which I contributed. As Iain summarizes:

    Breaking out of poverty is difficult for many people, and the evidence is that a minimum wage adds to the difficulty. Workers are fired, hours are cut, jobs are not created, non-wage perks, including insurance, free parking, free meals, and vacation days evaporate, annual bonuses shrink, prices rise, (squeezing minimum wage earners themselves), big businesses gain an artificial competitive advantage over their smaller competitors, and crime rates rise. It is a bleak litany.

    On the flip side, minimum wages do give some workers a raise. Are the tradeoffs that others have to endure worth it? Read the whole thing here (or here for a facsimile of the print edition, starting at p. 24).

  • CalPERS: It Came from Sacramento

    October 7, 2014 9:41 AM

    “Heads I win; tails you lose.” That essentially sums up the relationship the California Public Employee Retirement System (CalPERS) has long enjoyed vis-à-vis the Golden State’s elected officials. Now it is finally facing a serious challenge.

    Last week, a federal bankruptcy judge ruled that cities must treat bondholders and pensions in like fashion. Judge Christopher Klein of the Eastern District of California said he would decide by the end of October how to apply the ruling to the bankruptcy of the City of Stockton, but it seems unlikely that pensions will escape cuts altogether, while bondholders are forced to take haircuts. 

    As The New York Times reported on the case:

    Calpers is a powerful arm of the state, with statutory powers that include liens allowing it to foreclose on the assets of a city that fails to pay its pension bills.

    Calpers had argued that if Stockton stopped making payments and dropped out of the state pension system, the lien would let it claim $1.6 billion of its assets. But Judge Klein said those statutory powers were suspended once a California city received federal bankruptcy protection.

    “Why should I take that lien seriously?” he asked a lawyer for Calpers, Michael Gearin. “I may avoid it as a black-letter matter of bankruptcy law,” he said, referring to well-established legal principles.

    He did not dispute that Stockton would be billed $1.6 billion to leave Calpers and said such a termination fee “can be seen as a golden handcuff.” But in bankruptcy, he said, Stockton could legally refuse to pay the bill because it arose from the city’s contract with Calpers, and contracts are broken routinely in bankruptcy.

    “The bankruptcy code provides that the lien can be avoided and be treated as an unsecured claim,” Judge Klein said.

    Judge Klein also said that Stockton had many options other than Calpers for retirement benefits: a private provider, like an insurance company; a multiemployer pension plan affiliated with a union; one of California’s county-run pension plans; or it could even offer no pensions at all.

  • Moody’s $2 Trillion Public Pension Shortfall Estimate Highlights Need for Better Pension Accounting Practices

    October 1, 2014 11:12 AM

    In a new report, Moody’s estimates the nation’s largest pension funds face a $2 trillion taken together. That’s a lot of money. But as significant as the size of the deficit is Moody’s criticism of how many pension funds have been managed, and pension fund’s reporting of their own liabilities. Bloomberg reports:

    “Despite the robust investment returns since 2004, annual growth in unfunded pension liabilities has outstripped these returns,” Moody’s said. “This growth is due to inadequate pension contributions, stemming from a variety of actuarial and funding practices, as well as the sheer growth of pension liabilities as benefit accruals accelerate with the passage of time, salary increases and additional years of service.”

    In other words, for years, many public pension plans have determined their contribution levels using discount rates based on overly optimistic projection on investment returns. That in turn, has led to pension plans using riskier investment strategies in search of higher yields—a strategy the California Public Employee Retirement System recently abandoned in the case of hedge funds.

  • CalPERS Abandons “Hail Mary” Investment Strategy – About Time

    September 22, 2014 2:12 PM

    CalPERS knows when to fold ‘em. The California Public Employee Retirement System, the nation’s largest public pension fund (and one of the world’s largest), announced last week that it would no longer invest in hedge funds, where it had sought larger returns in the hopes of gaining greater investment returns. It’s the right move. But it’s really only correcting a mistake, for CalPERS should have never held ‘em in the first place.

  • Will the NLRB’s McDonald’s Decision Destroy Franchise System or Make Companies More Accountable?

    September 15, 2014 10:56 AM

    That was the question at the center of a September 9 House Health, Employment, Labor, and Pensions Subcommittee hearing, which was held in response to the National Labor Relations Board’s (NLRB) July 29 decision declaring McDonald’s to be a “joint employer” with all of its local franchisees across the country.

    Subcommittee Chairman Rep. Phil Roe (R-Md.) warned that the decision would diminish business opportunities for Americans by destroying the franchisee model that allows entrepreneurial people to use an established brand name to start a business instead of starting on their own from scratch.

    The first witness, Catherine Monson, CEO of a franchise who has been in the business for 30 years, warned that the NLRB decision would impact many lines of business in addition to hotels and restaurants, including accounting and home improvement services. Monson said that, “I have seen franchising allow people to achieve the American dream of business ownership.” She expressed strong disagreement with the ruling, because franchisees pay their own taxes and hire, fire, manage, schedule, and train their own employees. The franchisor sets overarching standards to protect the brand name but has no input on franchisees’ labor relations.

    But if franchisors were required to have direct input over labor relations, they would be liable for any charges of unfair labor practices. The potential for significant legal costs would force franchisors to enhance their oversight of the franchisee. Monson said this enhanced oversight would reduce franchisees’ autonomy, thus effectively ending the franchisee system. When asked about the costs to franchisees from this decision, Monson said there would have to be “cuts.”

    Jagruti Panwala, a first generation immigrant from India and a franchisee, said that she would not have started her own business without the franchise system. Panwala said that franchising helped her business grow by attracting new customers and that, “Ultimately, franchising appealed to us because we still controlled our own business and simply paid fees for the use of a brand name.” Panwala, who employs roughly 200 people at a hotel, said that the impact of a decision forcing her franchisor to be involved in labor relations would hurt morale of her employees, some of whom have worked for her for over a decade. She described the potential restructuring of the franchise system as “devastating” to her business and said that it would make her an employee of the parent company instead of a business owner.

  • Feds Apply Double Standards against Private Employers

    September 4, 2014 3:13 PM

    Government contractors could face a financial death sentence over labor law, civil-rights law, or wage-and-hour law violations under a recent Obama executive order I discussed earlier, EO #13673. By contrast, Federal agencies like the Consumer Financial Protection Bureau often face little penalty for violating the law. 

    Minority employees at the CFPB allege pervasive discrimination there, reports the Washington Times. The discrimination itself is unproven, but it seems clear that minority employees have been subjected to retaliation for speaking out about what they perceive as discrimination. Such retaliation is typically illegal even when the employee’s complaint of discrimination turns out to be mistaken.

    The CFPB responded to allegations of discrimination in pay by essentially raising employee salaries in general, at taxpayer expense (the agency funds itself out of money it takes from the Federal Reserve): minority “employees say the pay increases are just restitution, but because almost everyone got bonuses and promotions, it just raised the playing field instead of equalizing it.” The net result was to reward the agency for its own wrongdoing.

    Federal agencies explicitly receive preferential treatment compared to private companies in federal labor and employment laws. Federal agencies are completely exempt from punitive damages under federal employment and civil-rights laws. And a deadline for suing that is 300 days against a private employer may be only 30 days against a federal agency.

  • Judge: NLRB Acting as "Litigation Arm" of SEIU

    August 28, 2014 11:00 AM

    A federal judge in Pittsburgh has reprimanded the National Labor Relations Board for its heavy-handed and questionable treatment of University of Pittsburgh Medical Center (UPMC) in a labor dispute between the healthcare giant and the SEIU.

    A UPMC hospital is undergoing a two-part trial over SEIU’s allegations that the company committed unfair labor practices. The first case involves the charge that UPMC management conducted interrogations and surveillance of organizing activity and made implied threats of discipline and arrest. NLRB judges have not yet issued a ruling for that case. The second case involves SEIU’s claim that UPMC is one entity, and therefore vulnerable to unionization, which the UPMC denies because it claims that each hospital is its own entity.

    U.S. District Judge Arthur J. Schwab weighed in and said,

    The Court does not see how these requests have any legitimate relationship or relevance to the underlying alleged unfair labor practices; instead, the requests seek highly confidential and proprietary information (except for a few public documents); the requests have no proportionality to the underlying charges; and, the requests seek information that a union would not be entitled to receive as part of a normal organization effort.

    Judge Schwab also said,

    Indeed, the scope and nature of the requests, coupled with the NLRB’s efforts to obtain said documents for, and on behalf of the SEIU, arguably moves the NLRB from its investigatory function and enforcer of federal labor law, to serving as the litigation arm of the union, and a co-participant in the ongoing organization effort of the union…

    In the end Judge Schwab unfortunately decided to let the NLRB get away with the excessive barrage of subpoenas.

    If the NLRB is indeed stepping out of its investigatory function and acting as air support for the SEIU’s organizing effort of UPMC, it would not be the first time the federal bureaucracy has played favorites under President Obama’s watch.

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