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Top labor and employment developments in June 2018

July 13th, 2018  |  Kathy Kapusta

In case you missed Employment Law Daily’s in-depth coverage, here’s a recap of just some of the key developments in the L&E community for June 2018.


Justice Kennedy announces retirement. Although the Court issued several major decisions in June, arguably the biggest news out of SCOTUS was Justice Kennedy’s announcement on June 27 that he will step down at the end of July. Kennedy, the regular swing vote on the High Court, submitted a formal notification to President Trump of his retirement, empowering the President to move the Court further rightward as he leaves an indelible mark on the federal judiciary. “It has been the greatest honor and privilege to serve our nation in the federal judiciary for 43 years, 30 of those years on the Supreme Court,” Kennedy said, noting in parting his “admiration for his colleagues on the Court.” Justice Kennedy was nominated by President Reagan and took his oath of office on February 18, 1988.

Court deals blow to public sector unions . . . On the same day Justice Kennedy announced his retirement, the U.S. Supreme Court issued its highly anticipated decision in Janus v. AFSCME, barring unions from imposing agency fees on public employees who are not union members and overturning High Court precedent that had persisted for four decades: its 1977 decision in Abood v. Detroit Board of Education, which found that levying “agency” fees to cover a union’s costs of collective bargaining, and other activities that advantaged members and nonmembers alike, did not unduly intrude upon the rights of nonmembers.Abood, said the Court, was inconsistent with other First Amendment cases and has been undermined by more recent decisions. The outcome, handed down in a sharply divided 5-4 decision, surprised no one.

The decision is an undisputedly critical blow to public employee unions—and to the labor movement as a whole—which now must redouble its efforts to bring new dues-paying members into the fold. And it will have to do so with union organizing coffers precipitously diminished. One day after this landmark decision, the Supreme Court issued an order directing the Seventh Circuit to reconsider a decision in which it affirmed a district court’s refusal to certify a class of caregivers seeking a refund on their “fair share” fees. The High Court granted certiorari in Riffey v. Rauner, Dkt. No. 17-981, vacated the appellate court’s opinion, and remanded for further consideration in light of Janus.

. . . hands Trump win in battle over ‘travel ban 3.0.’ And just a day before the Janus decision, the Trump Administration scored a big victory when the High Court, in another sharply divided 5-4 opinion, ruled in Trump v. Hawaii that the President lawfully exercised the broad discretion granted to him under the Immigration and Nationality Act when he suspended the entry of aliens into the United States under the third version of his controversial series of “travel bans.” The Court’s decision reversed the nationwide preliminary injunction affirmed by the Ninth Circuit. President Trump’s third iteration of the “travel ban,” Proclamation 9645, suspended and limited indefinitely the entry into the United States of foreign nationals of Chad, Iran, Libya, North Korea, Somalia, Syria, Venezuela, and Yemen. (It effectively removed Sudan from the second travel ban and added Chad, North Korea, and Venezuela). On April 10, 2018, Chad was dropped from the travel ban because the country had raised its security standards to meet U.S. national security requirements.

Mincing no words in her dissent, in which Justice Kagan joined, Justice Sotomayor wrote: “The United States of America is a Nation built upon the promise of religious liberty. Our Founders honored that core promise by embedding the principle of religious neutrality in the First Amendment. The Court’s decision today fails to safeguard that fundamental principle. It leaves undisturbed a policy first advertised openly and unequivocally as a ‘total and complete shutdown of Muslims entering the United States’ because the policy now masquerades behind a facade of national-security concerns.”

Will invalidating civil service appointments of ALJs reach beyond the SEC? On June 21, the Court in Lucia v. SEC held that the SEC’s administrative law judges are inferior officers of the U.S. government for purposes of the U.S. Constitution’s Appointments Clause, largely comparing the SEC’s ALJs to the Tax Court’s special trial judges whom the Court previously held were officers in its Freytag opinion. Authored by Justice Kagan, the decision is consistent with the Tenth Circuit’s Bandimere opinion, which held the SEC’s ALJs are officers. An open question of interest to employment lawyers is whether the Court’s opinion will be limited to the SEC or potentially impact OSHA or MSHA citations, or ALJs for the NLRB. According to Ogletree Deakins’ Arthur G. Sapper, who wrote a post about the case when the Court granted cert in January 2018, “The key fact in the SEC challenge is that the SEC ALJs were appointed by the SEC’s Chief Judge, who is not a ‘Head’ of the SEC. By contrast, Occupational Safety and Health Review Commission (OSHRC) ALJs are appointed by the OSHRC’s chairman, who is a ‘Head’ and thus satisfies the requirement of the Appointments Clause.”

American Pipe tolling does not preserve subsequent class actions. On June 11, the High Court, in China Agritech, Inc. v. Resh, ruled that American Pipe tolling does not allow a previously absent class member to bring a subsequent class action outside the limitations period. “The watchwords of American Pipe are efficiency and economy of litigation, a principal purpose of Rule 23 as well,” Justice Ginsburg wrote for the eight-member majority. “Extending American Pipe tolling to successive class actions does not serve that purpose.” Justice Sotomayor concurred in the judgment only for cases governed by the Private Securities Litigation Reform Act.

Cake show owner prevails over same-sex couple in wedding cake controversy . . . On June 4, the Court decided Masterpiece Cakeshop, Ltd. v. Colorado Civil Rights Commission, a nonemployment case that pitted a business owner’s personal beliefs against the rights of a gay couple. With Justice Kennedy writing for the majority, the Court ruled that a Colorado civil rights commission violated the cake shop owner/designer’s right to the free exercise of religion by failing to consider, with the constitutionally required neutrality, his religious objections to creating a wedding cake for a same-sex wedding. The “lack of neutrality” was evident to the Court from commissioners’ comments disparaging the shop owner’s faith and likening it to the defense of slavery, and from the disparate treatment his case received compared to cases of other bakers objecting to making cakes with anti-gay messages. Justice Kagan filed a concurring opinion joined by Justice Breyer, and Justice Gorsuch filed a concurring opinion in which Justice Alito joined. Justice Thomas concurred in part. Justice Ginsberg filed a dissenting opinion, joined by Justice Sotomayor.

. . . sending florist’s case back to state high court. On June 25, the Supreme Court sent the case of a florist who refused, on religious grounds, to provide flowers for a same-sex wedding—and was found to have violated her state’s antidiscrimination law as a result—back to the Washington Supreme Court to reconsider its decision in light of Masterpiece Cakeshop v. Colorado Civil Rights Commission. In Arlene’s Flowers, Inc. v. Washington, the Court granted the petition for review, vacated the state high court’s judgment, and remanded.

Challenges to Obama-era tip pooling regulation dropped from docket. Also in June, the Court denied the petitions for certiorari filed by Wynn Las Vegas and the National Restaurant Association (and others) in consolidated cases that challenged a controversial Obama-era tip pooling rule that has since been rescinded and replaced by new provisions. The tip pooling rule took a series of twists and turns that went beyond the Obama-era rule. A fresh controversy erupted when the DOL proposed a new tip rule that was said to permit employers to pocket tips, but that firestorm was squelched when Congress took action to address the concerns about the proposed rule in the Consolidated Appropriation Act, 2018 (CAA) (H.R. 1625).


5th Cir.: Administrative exhaustion is not a jurisdictional requirement; Title VII suit revived. Title VII’s administrative exhaustion requirement is not a jurisdictional bar to suit, the Fifth Circuit held, noting the circuit’s discordant case law on the question and citing the rule of orderliness to choose the line of precedent that finds exhaustion is merely a prudential prerequisite. Consequently, a county employer facing a Title VII action forfeited its exhaustion defense by not timely raising it, so a district court erred in disposing of the employee’s claim on exhaustion grounds. Reviving her suit for a second time, the appeals court reversed summary judgment and remanded (Davis v. Fort Bend County, June 20, 2018, Elrod, J.).

6th Cir.: CBAs clear; no lifetime healthcare benefits for Honeywell retirees. Reversing a district court’s conclusion that Honeywell retirees were entitled to lifetime healthcare benefits, the Sixth Circuit noted that general principles of contract interpretation applied and, because the language of the collective bargaining agreements was clear, there was no need to look to extrinsic evidence as the lower court had. While it might seem unusual, the CBAs specifically provided for lifetime healthcare benefits to surviving spouses and dependents, but did not provide such lifetime benefits to retirees themselves (Fletcher v. Honeywell International, Inc., June 8, 2018, Gibbons, J.).

7th Cir.: No fee award in EEOC’s Sec. 707(a) severance agreement suit against CVS. Finding the EEOC’s Section 707(a) pattern or practice lawsuit against CVS Pharmacy over its use of a broad (and potentially chilling) severance agreement to be neither legally nor factually frivolous, the Seventh Circuit reversed an attorneys’ fee award to CVS of over $300K. Stressing that “it takes much more than a loss on the merits to warrant a fee award,” the appeals court found the EEOC’s novel legal distinction between Section 707(a) and Section 707(e) procedural requirements affecting conciliation to be a “colorable legal argument” with some basis in the text and with no precedent squarely against it. Plus, even the district court found the EEOC’s factual foundation for bringing the case was reasonable, and the appeals court agreed, concluding that the “district court’s decision impermissibly rested on hindsight” (EEOC v. CVS Pharmacy, Inc., June 8, 2018, Wood, D.).

7th Cir.: Disputed whether maintenance man was employee or independent contractor. Finding genuine disputes of fact material to the determination of a plaintiff’s employment status, the Seventh Circuit reversed a district court’s grant of summary judgment holding that the plaintiff was an independent contractor, rather than an employee. Not only did the appeals court find disputed facts as to the nature and degree of control the putative employer exercised over the manner in which the plaintiff performed his work, there was a fact dispute as to the origins of the tools, materials, and equipment the plaintiff required to perform his work. Finally, the appeals court found unanswered questions as to how long and to what extent the parties’ contracts actually governed their relationship (Simpkins v. DuPage Housing Authority, June 20, 2018, Bauer, W.).

9th Cir.: Hotel owner on constructive notice of predecessor’s pension plan liability. A corporate hotel owner incurred withdrawal liability for the predecessor owner’s unpaid employee pension payments because the new owner had constructive notice of the withdrawal liability, the Ninth Circuit ruled. The appeals court reversed the district court’s determination that the new owner had no actual notice and constructive notice didn’t apply, finding instead that constructive notice was consistent with the Multiemployer Pension Plan Amendment Act’s purpose and legislative history. The equity group purchaser reasonably should have discovered the withdrawal liability because it had previous experience with similar purchases and could have reviewed publicly available documents, required the predecessor company to produce the information, or contacted the pension plan directly (Heavenly Hanna LLC dba Travaasa Hotel Hana v. Hotel Union & Hotel Industry of Hawaii Pension Plan, June 1, 2018, Thomas, S.).

D.C. Cir.: Union gets second shot to contest regulations allowing student aliens to stay for STEM jobs. In a lawsuit stemming from regulations allowing certain nonimmigrant aliens on student visas to remain in the United States for up to three years after finishing a degree in order to pursue related work, the D.C. Circuit returned the case to the district court that had dismissed all of a union’s claims. Partially reversing the lower court’s decision, the appeals court instructed the lower court to reconsider one of the counts related to a rule promulgated in 2016 that allowed the students to remain for up to three years working in STEM jobs (Washington Alliance of Technology Workers v. U.S. Dept. of Homeland Security, June 8, 2018, Henderson, K.).


NLRB to issue ‘joint employer’ rule. Stymied in its efforts to undo its Obama-era Browning-Ferris decision, which expanded the definition of “joint employer” and thereby increased potential liability under the NLRA for companies that utilize contingent workforce and franchise arrangements, the NLRB on May 9 announced it was considering resolving the matter through issuance of a proposed rule. That news prompted a May 29 letter to NLRB Chairman John F. Ring from three senators, pushing back against the news that the agency was toying with formal rulemaking. In a June 5 letter to the senators, Ring responded: “Candor requires me to inform you that the NLRB is no longer merely considering joint-employer rulemaking. A majority of the Board is committed to engage in rulemaking, and the NLRB will do so. Internal preparations are underway, and we are working toward issuance of a Notice of Proposed Rulernaking (NPRM) as soon as possible, but certainly by this summer.”

“Rulemaking is appropriate for the joint-employer subject because it will permit the Board to consider and address the issues in a comprehensive manner and to provide the greatest guidance,” Ring wrote. “Although legal standards of general applicability can be announced in a decision of a specific case, case decisions are often limited to their facts. With rulemaking, by contrast, the Board will be able to consider and apply whatever standard it ultimately adopts to selected factual scenarios in the final rule itself. In this way, rulemaking on the joint-employer standard will enable the Board to provide unions and employers greater “certainty beforehand as to when [they] may proceed to reach decisions without fear of later evaluations labeling [their] conduct an unfair labor practice,” as the Supreme Court has instructed us to do.”

Board upholds Member Emanuel’s disqualification from participation in Hy-Brand II . . . Finding that an employer had not identified any material error or extraordinary circumstances warranting reconsideration under Section 102.48(d)(1) of the Board’s Rules and Regulations, a four-member panel of the NLRB denied its motion for reconsideration of Hy-Brand II, 366 NLRB No. 26. The Board rejected challenges by the employer and General Counsel to the determination by the NLRB’s Designated Agency Ethics Official that Member Emanuel was disqualified from participating in the case. Chairman Ring and Member Kaplan filed a concurring opinion. Members Pearce and McFerran filed a separate concurring opinion. Member Emanuel was disqualified from participating in the case (Hy-Brand Industrial Contractors, Ltd., June 6, 2018).

. . . will conduct ethics and recusal process review. The Board subsequently announced that it would undertake what it called “a comprehensive review of its policies and procedures governing ethics and recusal requirements for Board Members.” The initiative is intended to ensure that the agency’s stakeholders and the American people generally can have full confidence in the Board’s integrity and its recusal processes. The move comes in the aftermath of concerns raised by the Board’s December 2017 Hy-Brand Industrial Contractors decision, which would have overturned the controversial Browning-Ferris joint-employment standard had the decision not later been vacated in response to ethical concerns raised over Board Member William Emanuel’s participation in that ruling. The decision was rendered during a narrow window of a Republican majority on the Board, before the departure of Republican Chair Philip Miscimarra closed that window, albeit temporarily.

New memo talks permissible vs. impermissible handbook rules in light of Boeing. In the aftermath of its December 2017 Boeing Company decision, the NLRB issued new guidance on handbook rules. The June 7 General Counsel memorandum provides general guidance for Regions about the placement of various types of rules into the three categories set out in Boeing, as well as the Section 7 interests, business justifications, and other considerations that Regions should take into account in arguing to the Board that specific Category 2 rules are unlawful. Not only did the Board in Boeing add a balancing test, it also significantly altered its jurisprudence on the reasonable interpretation of handbook rules. The Trump Board “severely criticized” Lutheran Heritage and its progeny for prohibiting any rule that could be interpreted as covering Section 7 activity, as opposed to only prohibiting rules that would be so interpreted. The new memo states that ambiguities in rules are no longer interpreted against the drafter (upending any traditional contract interpretation approach), and generalized provisions should not be interpreted as banning all activity that could conceivably be included.


Proposed Executive Branch reorg plan would merge labor and education departments . . . On June 21, the White House announced a proposed reform and reorganization plan that President Trump contends will make the federal government “more responsive and accountable to the American people.” That plan includes a proposed merger of the Departments of Education and Labor into a single Cabinet agency which, according to the Trump Administration, would better meet the needs of American workers and students. The move follows Trump’s earlier Executive Order 13781, directing the Office of Management and Budget to work on a comprehensive plan to reorganize the Executive Branch. The reform proposal came after a year of planning about how the Trump Administration believes the federal government could be made more efficient, effective, and accountable. The White House said that the planning included input from stakeholders, agencies, and the public. Conspicuously missing in the aftermath of the merger announcement was any official statement by Secretary of Labor Alexander Acosta, who has previously been vocal in his support of Trump Administration policies.


CSX Transportation to pay $3.2M to settle EEOC disparate impact suit over pre-employment testing. CSX Transportation, Inc. (CSXT), one of the nation’s leading transportation suppliers, will pay $3.2 million and furnish other relief to settle a companywide sex discrimination lawsuit filed by the EEOC, the federal agency announced on June 13. According to the EEOC, CSXT conducted isokinetic strength testing as a requirement for workers to be hired for various jobs. The EEOC said that the strength test used by CSXT, known as the “IPCS Biodex” test, caused an unlawful discriminatory impact on female workers seeking jobs as conductors, material handler/clerks, and a number of other job categories. The EEOC also charged that CSXT used two other employment tests, a three-minute step test seeking to measure aerobic capacity and a discontinued arm endurance test, as a requirement for selection into certain jobs, and that those tests also caused an unlawful discriminatory effect on female workers.

Florist gets chance to show she was victim of ‘religious hostility’ after declining to provide wedding flowers for same-sex couple

June 26th, 2018  |  Joy Waltemath

By Joy P. Waltemath, J.D.

On June 25, the Supreme Court sent the case of a florist who refused, on religious grounds, to provide flowers for a same-sex wedding—and was found to have violated her state’s antidiscrimination law as a result—back to the Washington Supreme Court to reconsider its decision in light of Masterpiece Cakeshop v. Colorado Civil Rights Commission. In Arlene’s Flowers, Inc. v. Washington, the Court granted the petition for review, vacated the state high court’s judgment, and remanded.

Washington Supreme Court decision. In February 2017, the state supreme court had found in State of Washington v. Arlene’s Flowers, Inc. that the business’s refusal to sell wedding flowers to a same-sex couple was not protected by the state or federal constitutions. It was undisputed that the florist, who had sold flowers to the couple for years, is a Southern Baptist and her sincerely held religious beliefs include that marriage can exist only between one man and one woman. She said she could not sell flowers for the wedding because of “her relationship with Jesus Christ” and providing the arrangements would be tantamount to endorsing marriage equality for same-sex couples. Deeply hurt, one of the plaintiffs posted on Facebook that his favorite flower shop refused their business. The post drew media attention, resulting in offers of free flowers to the plaintiffs and threats against the defendant’s business.

The Washington Law Against Discrimination bars discrimination in “public … accommodation[s]” based on “sexual orientation.” The couple sued, as did the state attorney general’s office. The florist raised defenses, including that her actions were protected by constitutional guarantees of free exercise, free speech, and free association. Affirming judgment for the plaintiffs, the state high court explained, among other things, that the WLAD has no mandate to balance religious rights against rights of protected class members; the refusal to provide flowers did not express a message about the wedding, so was not protected speech; and the WLAD, as applied, did not violate her right to religious free exercise or to free association.

Masterpiece Cakeshop. Earlier this month, the U.S. Supreme Court decided Masterpiece Cakeshop, Ltd. v. Colorado Civil Rights Commission, in which it found the Colorado civil rights commission violated the right of a cake shop owner/designer to the free exercise of religion by failing to consider, with the constitutionally required neutrality, his religious objections to creating a wedding cake for a same-sex wedding. The lack of neutrality was evident to the Court from commissioners’ comments disparaging the shop owner’s faith and likening it to the defense of slavery, and from the disparate treatment his case received compared to cases of other bakers objecting to making cakes with anti-gay messages. The 7-2 opinion was authored by Justice Kennedy.

Reversing the state court of appeals, the Supreme Court pointed out that our society has recognized that gay persons and gay couples cannot be treated as inferior, and “the laws and the Constitution can, and in some instances must, protect them in the exercise of their civil rights. The exercise of their freedom on terms equal to others must be given great weight and respect by the courts. At the same time, the religious and philosophical objections to gay marriage are protected views and in some instances protected forms of expression.” Here, the Commission’s actions violated the cake shop owner’s constitutional rights. The majority explained that while Colorado law can protect gay persons in acquiring products and services on the same terms and conditions offered to other members of the public, the law must be applied in a manner that is neutral toward religion. The Commission’s treatment of the cake designer’s case showed elements of impermissible hostility toward the sincere religious beliefs motivating his objection to creating a cake celebrating a same-sex marriage.

Reaction. Following the Supreme Court’s order in Arlene’s Flowers, the Human Rights Commission, a national LGBTQ civil rights organization, released a statement: “The Supreme Court has simply asked the lower court to take another look at this case in light of their recent decision in Masterpiece, but they did not indicate there was anything wrong with the ruling,” said HRC Legal Director Sarah Warbelow.

“In Masterpiece, the Supreme Court found that the state of Colorado’s enforcement of its civil rights law was flawed due to perceived bias in the process; however, there is no indication that there were flaws in the application of civil rights law in Arlene’s Flowers. We view this decision as encouraging news that justice will prevail and the Washington State Supreme Court will again uphold the state’s non-discrimination laws ensuring LGBTQ people cannot be turned away from a business open to the public.”

Religious hostility? After Masterpiece was decided, UCLA law professor Eugene Volokh expressed some disappointment that the Supreme Court’s decision left almost all the “big questions” unresolved, including whether bakers have a First Amendment right to refuse to bake cakes for same-sex weddings, even if state law bans sexual orientation discrimination by such businesses. Volokh also posed a question echoed by others, pondering: “Does all this talk about government officials’ statements showing religious bias foreshadow the result in the so-called (rightly or wrongly) ‘Trump Travel Ban’ case, where the challengers are arguing that various statements by candidate Trump or President Trump show that the restrictions on travel from certain countries were motivated by religious hostility?”

However, on June 26, the High Court appeared less concerned about questions of “religious hostility” when it upheld the Trump administration’s third iteration of a travel ban in Trump v. Hawaii. In that case, one of the assertions by the challengers was that the primary basis for the ban was religious animus against Muslims. At the heart of the case was a series of statements made by President Trump and his advisersm both during the campaign and since the president took office. But the Court found that the issue was not whether to denounce Trump’s statements, but the significance of those statements in reviewing his presidential directive, “neutral on its face,” addressing a matter within the core of executive responsibility. In so doing, the Court said it must consider not just the statements of a particular president, but also the authority of the presidency itself.

So, as to those comments expressing impermissible religious hostility: We really don’t care, do we?

The Court’s order granting certiorari, vacating, and remanding is Dkt. No. 17-108, Arlene’s Flowers, Inc. v. Washington, June 25, 2018.

Check out our Check-in!

May 30th, 2018  |  Pamela Wolf

Please consider this a personal invitation to join me on June 6 at 1 PM Central (2 PM Eastern) as I moderate a panel of labor and employment law experts who will share their insights on how the EEOC, the DOL, and the NLRB currently are handling their enforcement mandates, and what employers need to know about this state of affairs.

The one-hour webinar, Check-In: EEOC, DOL, and NLRB Compliance—A Labor and Employment Law Roundtable, will explore:

• The current compliance environment
• Federal agency enforcement priorities
• Practical guidance for navigating tricky compliance issues
• Best practices for avoiding common pitfalls

We’ll also be going through three scenarios that take a “real life” look at some of the issues that employers may be facing. Tune in to find out what Eric Meyer, Partner, FisherBroyles, LLP; Tasos C. Paindiris, Principal, Jackson Lewis P.C.; and Jonathon Watson, Associate, Sherman & Howard L.L.C., have to say about these scenarios and what practical guidance they have to offer.

To learn more about the free webinar that offers 1 CLE credit, click here.

An Epic infringement on the ‘right to work’

May 25th, 2018  |  Lisa Milam

This is gnawing at me, as we sit here sandwiched between two significant Supreme Court labor decisions.

The Epic Systems Corp. v. Lewis decision issued earlier this week emphatically allows employers to impose mandatory, individual-and-not-class arbitration as a condition of employment, notwithstanding any NLRA-endowed right of employees to engage in protected, concerted activity.

The impending Janus v. AFSCME, Council 31 decision, most prognosticators expect, will hasten the demise of “fair share” fees, if not the demise of the public employee unions that rely upon them. These fees have been prohibited by 27 states already under the guise of “right to work” legislation (in August, Missouri may become the 28th).

These “right to work” laws are premised on the notion that no worker should be compelled to join a union as a condition of employment–or to pay a union for the services they are compelled to provide to non-members. As a matter of scope, the problem is fairly limited—as of 2017, only 6.5 percent of private-sector workers are unionized, whether by choice or compulsion, and the number of unionized workplaces decreases steadily every year.

By comparison, 53 percent of employers require their employees to consent to mandatory arbitration, take-it-or-leave-it, and as Justice Ginsburg quite reasonably predicts in her Epic Systems dissent, that number will now rise sharply.

These arbitration provisions are framed as “agreements,” of course, two equal parties mutually deciding to resolve their disputes outside of court. If the employee doesn’t wish to “agree,” he or she is free to work elsewhere, as one management attorney reminded me this week.

But where are they to work, if a majority of employers compel them to give up their day in court?

If a worker wishes to avoid unionization, the overwhelming majority of workplaces remain open to him. For a worker wishing to preserve her right of access to the courts, more than half the nation’s workplaces are foreclosed. And she will have far fewer options, soon enough.

Compulsory unionism or compulsory arbitration? Which is the bigger deprivation of the “right to work”?

Too many regulations? Burdens and costs vs. protections and net economic benefits

May 23rd, 2018  |  Pamela Wolf

On May 23, the House Education and the Workforce Subcommittee on Workforce Protections held a hearing on “Regulatory Reform: Unleashing Economic Opportunity for Workers and Employers.” Most of the invited witnesses tended to see regulations as costly and burdensome to employers. However, one witness cited the worker safety and the economic upsides of federal regulations.

“Not all regulations are bad, but today’s hearing will explore the benefits of responsible regulatory reform, how regulatory costs can be controlled to allow for the continued growth of the nation’s economy, and the importance of Congress and the administration continuing to collaborate on a regulatory reform agenda,” Chairman Bradley Byrne (R-Ala.) said in his opening statement.

Small businesses say they are hit hardest. In a press release, the Subcommittee noted that according to the National Federation of Independent Business (NFIB), nearly half of small businesses view regulation as a “very serious” or “somewhat serious” problem.

Echoing that sentiment, Karen R. Harned, Executive Director of the NFIB Small Business Legal Center said, “Overzealous regulation is a continuous concern for small business. The uncertainty caused by future regulation effectively acts as a ‘boot on the neck’ of small business—negatively impacting a small business owner’s ability to plan for future growth, including hiring new workers.”

Harned also observed, “When it comes to regulations, small businesses bear a disproportionate amount of the regulatory burden . . . The small business owner is the compliance officer for her business, and every hour that she spends understanding and complying with federal regulation is one less hour she has available to service customers and plan for future growth.”

Compliance costs. Dr. Douglas Holtz-Eakin, President of the American Action Forum, contrasted the Obama Administration’s regulatory regime with the Trump Administration’s efforts to remove the compliance costs suffered by American businesses large and small. “The Obama Administration finalized a costly regulation at the average rate of 1.1 per day, and the cost of complying with those regulations added up to $890 billion—according to the agencies themselves that issued the regulations, he said. “That cost is an average stealth tax increase of over $110 billion a year.” Holtz-Eakin said.

“New regulatory cost burdens fell by more than two-thirds—from an average $110 billion per year during the Obama Administration to $30.6 billion in 2017,” Holtz-Eakin observed. “And the vast majority of those costs originated from rules published in the last few days of the Obama Administration.”

Correcting workplace safety culture. “Burdensome and confusing obligations on our employers often do nothing to improve jobsite safety, but instead stifle our workforce and ignore insightful input from our industry experts,” Ryan Odendahl, Chairman of the Associated Builders and Contractors National Safety Committee and President of the construction firm Kwest Group, told the Subcommittee. “Congress and this administration have already taken important steps toward correcting the workplace safety culture, including this Committee’s important work to repeal the controversial ‘Volks’ Rule.”

“The construction industry continues to see the benefits that have come from a common-sense regulatory agenda and pro-growth tax policies that have allowed us to hire and train more workers and reinvest in our businesses and communities,” Odendahl concluded.

What about protecting workers? Heidi Shierholz, Director of Policy at the Economic Policy Institute, previously the Chief Economist at the U.S. Department of Labor, explained how regulations “play an essential role in protecting workers—ensuring safe workplaces and fair pay and protecting workers’ rights to organize and join a union so they can bargain collectively with their employers.”

Shierholz explained that while safety regulations may require substantial upfront investments in safety equipment, “those investments pay off over the long term through a reduction in illnesses like lung cancer and through lives saved over decades.” She also noted that “the need for the safety equipment creates jobs for the people producing the equipment.”

Net benefit to the economy. In addition, research shows that federal regulations provide a large net benefit to the economy, according to Shierholz. “Rhetoric attacking regulations generally alleges that regulations are overly burdensome for employers and cost jobs, and opponents of regulations routinely emphasize the costs associated with regulations while ignoring their benefits. However, research shows that federal regulations in fact provide an overall net economic benefit and that they have a modestly positive or neutral effect on employment.”

Shierholz pointed to an Office of Management and Budget (OMB) report finding that during the Obama administration, from January 21, 2009, to September 20, 2015, the estimated annual net benefit (benefits minus costs) of major federal regulations was between $103 and $393 billion. “In other words, federal regulations are providing a net benefit to society of over $100 billion per year,” she said. “And these numbers are consistent with prior OMB reports. OMB reviewed major regulations from 2000 to 2010 and estimated that the average annual benefit of major regulations is about seven times the cost.” Shierholz said these findings are even more significant in light of studies showing that government regulators generally overestimate costs, and many benefits are never monetized, but almost all costs are.