Today, House Speaker Paul Ryan (R-Wisc.) released his plan for how to modernize our federal regulatory system in order to jumpstart the economy. This is the third installment in his six-part “A Better Way,” agenda for Congress. Ryan announced the anti-poverty and national security plans last week, and will roll out proposals on the Constitution, tax reform, and health care going forward.
One of the sections focuses on federal labor agency overreach. Under the Obama administration, a bevy of expansive regulations have been implemented which greatly change how employers do business and restricts what terms and conditions an employee may agree to work under, despite an individual’s personal needs. A result of such great changes to rules of work, increased uncertainty, immense costs, less worker flexibility and decreased opportunity for workers. These burdensome workplace rules may partially explain workers staying on the sidelines and businesses’ wait and see approach on creating jobs.
The Speaker’s report highlights the sweeping changes that have been made to workplaces via executive actions, regulation and sub-regulatory action (i.e., “guidance documents” and other dictates that are unencumbered by the Administrative Procedure Act), then offers solutions.
Below are several recent federal actions covered by the report that have either unduly burdened employers and employees or unnecessarily favored labor unions.
Last summer, an “Administrator’s Interpretation” document from the Department of Labor (DOL) discussed when workers are classified as employees and when they are considered independent contractor under the Fair Labor Standards Act (FLSA). In effect, this sub-regulatory action defines nearly all work arrangements as falling into the category of a traditional employer-employee relationship. Attempting to eliminate a form of work is poor policy at any time, especially in a time of tepid economic growth.
As Speaker Ryan’s report notes, “Despite the desire of independent contractors to be self-employed and the benefits to employers and consumers of utilizing independent contractors, this sub-regulatory action confines the American workforce to an employer-employee relationship that is not suited for the 21st century.”
Hiring contractors serves an important business function. Many businesses, like the construction industry, have peak seasons where they may need extra workers to complete projects for a short duration. Utilizing independent contractors allows residential builders, for example, to scale-up and perform more jobs during the summer without having to take on permanent staff that it will not be able to afford during the winter.
As I wrote previously, another sub-regulatory action taken by the DOL involves joint employer status under the FLSA:
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.
Similar to the DOL’s efforts to crackdown on independent contractor classification, the new interpretation of joint employer restricts a business’s ability to adjust labor needs up or down. In addition, increasing liability on employers for the actions of companies they contract with means that outsourcing non-core business functions may happen less often. That means less time and fewer resources devoted to a business’s core functions. The end result will be fewer jobs created and fewer opportunities for entrepreneurs.
Both policies avoid Administrative Procedure Act safeguards like public notice and comment periods where stakeholders could inform the agency of the negative impact of the rule and hardships it imposes.
The Speaker’s task force solutions to sub-regulatory actions include limiting federal agency guidance documents to ones that “truly clarify confusion with the regulations and not create new requirements or policies.”
Last month, the DOL finalized its long anticipated overtime rule. The regulation dramatically raises the salary threshold for overtime eligible employees from $23,660 to $47,476. Previously, I’ve noted the rule is rife with unintended consequences:
…as regulators seem to tacitly acknowledge, employers will face pressure to avoid those huge cost increases. In fact, employers can take various measures to comply with the rule other than increasing wages. They can reduce salaries to offset the cost of overtime or demote workers to hourly status and reduce workers’ hours. People who remain salaried employees and qualify for overtime may see benefits disappear. To control costs, employers will likely cut back on health care benefits, paid leave, and restrict flexibility work schedules since more employees’ hours will need to be tracked and recorded.
Bloomberg BNA reports that lawyers are already salivating over the new rule and reaching out to plaintiffs. One could call the new overtime rule a full-employment regulation for attorneys.
Much of the criticism of the rule focuses on the lack of analysis performed to determine the impact on small businesses, universities, and non-profits that operate on thin margins. Any additional regulatory costs could put these institutions out of business or, in the case of universities, raise already high tuition costs.
Another section of Speaker Ryan’s report lambasts the National Labor Relations Board (NLRB). As the taskforce writes:
It is hard to imagine a federal agency that imposed more radical change on America’s workplaces than the political appointees at the National Labor Relations Board (board or NLRB). This partisan federal agency is made up of unelected board members who have significant power to determine and implement policies impacting workers and privately-owned business.”
One regulation, in search of a problem that does not exist, is the NLRB “ambush election” rule, which was finalized in 2014. The purpose of the rule is to speed up the union election process so that workers have less time to contemplate whether or not they want a union. The less time workers spend educating themselves on the issue, the more likely unions are to win an election. Generally, however, union elections are completed in a reasonable amount of time and unions win at a nice clip:
Specifically, the rule would shorten the time frame between the filing of a petition and the date on which an election is conducted to as little as 14 days. This is unnecessary. In FY 2013, the median time frame from the petition to when the election was conducted was 38 days, with unions winning 60 percent of all organizing elections, according to the NLRB.
But speeding up the time frame is only one poor result of the rule. As I wrote in The Detroit News:
Perhaps the greatest threat from the new rule is to worker privacy. Employers are compelled to provide employee contact information to union organizers, including personal cellphone numbers, email addresses and work schedules — without an opt-out provision for those who prefer not to share personal data or have a third party know when they are home or at work.
The task force suggests restoration of the many longstanding workplace policies that the NLRB and DOL have overturned under the Obama administration.
In the past several years, the administration has done everything in its power to increase the costs of work and burden job creators. One only needs to look at the low labor force participation rate and poor GDP growth rate to see that these policies are not helping. Removing unneeded, onerous regulatory burdens would go a long way toward improving the economic landscape. Speaker Ryan’s task force solutions would be a good place to start.