Labor Policy Developments to Watch in the New Year

Labor policy reform was a fast-moving issue during in the past year. At the federal level, labor policy became more tilted in favor of union organizing, while state reform was a mixed bag.

The National Labor Relations Board changed how union elections are conducted, made determining who your employer is a tough question, and made company email systems a union organizing tool.

Outside the Beltway, Wisconsin became the 25^th right-to-work state, giving workers the right to forgo paying union dues to a union they disagree with. Major cities around the country approved $15 minimum wages, including Seattle and Los Angeles.

The coming year looks to continue rapid pace of labor policy changes. While 2015 was the NLRB’s year, it looks like the DOL is going to take the reins in 2016.

The Department of Labor (DOL) is expected to drastically change who is eligible for overtime. The Department’s proposed rule would raise the salary threshold for overtime eligibility to $50,440 annually or less, up from the current $23,660. Upon announcing the rule, Secretary of Labor Thomas Perez estimated that the rule will affect the wages of nearly 5 million employees and could add as much as $1.3 billion to workers pay in just the first year.

But the government cannot force employers to pay overtime. And employers have options to avoid overtime payments in order to keep labor costs under control.

Overtime is a poor means to supply workers with a sizable wage increase. Even if employers kept these newly eligible overtime employee hours constant, workers would not see a sizable wage spike. Spread across the economy, workers would see a wage increase of only $260 per year.

What the proposed overtime rule would do is force employers to adjust work schedules, reclassify workers, hire more part-time workers, and increase employer compliance obligations. Most likely employers would control labor costs by reducing base pay. U.S Bureau of Labor Statistics economist Anthony Barkume finds that cutting wages would make up for 80 percent of overtime costs.

Earlier this week, the Department of Labor suddenly released an “Administrator’s Interpretation” of joint employment under the Fair Labor Standards Act. DOL Wage and Hour Division Administrator David Weil made it known that the agency will hold more employers liable for wage violations against employees they do not directly employ. The enforcement effort will focus on the construction, hospitality, janitorial, staffing agencies, and warehousing and logistics. Essentially, the DOL will use this new, extremely broad joint employment standard to penalize any industry that utilizes contractors and labor suppliers.

Similar to the NLRB, the DOL purports that this is to ensure worker rights are protected and large employers are not taking advantage of loopholes in the law. However, holding large companies liable for Fair Labor Standards Act violations—overtime, minimum wage and employee misclassification—for the actions of contractors they use will have adverse impact on the economy.

In a statement, I explain, “The new regulator-imposed liabilities will have a ripple effect nationwide. Businesses will be less able to outsource and use contractors and thus less able to quickly adjust labor needs up or down. They will be forced to bring non-core functions in-house and make other changes to account for invariably higher labor costs. That means less time and resources devoted to a business’s core functions. The end result will be fewer jobs created and fewer opportunities for entrepreneurs.”

Equally troublesome is the process the DOL took to institute this new policy. The administrator’s interpretation is not subject to the normal regulatory process, which would have required a public notice and comment period where impacted parties could have warned the agency of the harmful consequences of its new enforcement method.

Beyond federal labor regulations, U.S. Supreme Court could dramatically reform how public-sector unions operate.

On January 11, the U.S. Supreme Court will heard oral arguments in Friedrichs v. California Teachers Association, a case that could give public sector employees in 25 states the freedom to not have to pay money to an organization they disagree with in order to keep their job. Since the 1977 Supreme Court decision in Abood v. Detroit Board of Education, state and local government employee unions have been able to charge all employees working under a union contract to pay dues.

The First Amendment to the Constitution protects workers from having to become members, but unions may charge what is known as “agency fees” to cover the cost of collective bargaining—normally 70 percent or more of full-fledged dues. 

However, agency fees should be deemed unconstitutional is because collective bargaining in the public sector is inherently political and workers should not have to support politics they don’t believe in. Many of the outcomes of collective bargaining—wages, benefits, teacher evaluations, and class size—are important political issues that should be left to elected officials. But they are not, and workers should not have to financially support collective bargaining that determines public policy.

Significantly, 2016 could be the year when, for the first time ever, right-to-work states make up a majority. West Virginia seems the most likely state to free private-sector workers from paying union dues as a condition of employment.

In January, West Virginia legislators plan to introduce a right-to-work bill. Although Democratic Governor Earl Ray Tomblin will almost certainly veto the bill, West Virginia Senate President Bill Cole is confident that supporters have the votes to override the veto. Yesterday, the West Virginia Senate took the first step by passing right-to-work by a 17-16 margin.

Passage of right-to-work would be beneficial for workers on two fronts. First, workers would no longer have to pay tribute to a union they don’t support and for which they probably didn’t even vote. Second, worker wages would increase and the economy would grow.

As I told Michigan Capitol Confidential, Competitive Enterprise Institute research shows “a significant and positive relationship between economic growth in a state and the presence of a right to work law.” Further, CEI research found that “In West Virginia, workers lost an estimated $2,623 from not having a right to work law.”

Major change is on the horizon in 2016. Hopefully, that means worker freedom will win out over laws and regulations that benefit the special interests of labor unions at the expense of pro-growth policy, job creation, and worker choice.