ALM Properties, Inc.
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Laboring for the Advantage
Well, that didn't take long. In the lead-up to this fall's elections, corporate America took a wait-and-see approach when it came to employment policy. Many businesses put long-term hiring and other labor and employment plans on hold, unsure of how the outcome might alter tax policy, the regulatory landscape, and the fate of President Barack Obama's controversial Affordable Care Act (ACA).
It was a "choice election," said pundits, and for many employers, the clear choice was Mitt Romney. The GOP candidate promised to fight for right-to-work legislation, waive state requirements under "Obamacare," and remove what he said were "crippling" uncertainties that prevented businesses from hiring.
But after Obama was reelected, employers had to begin planning in earnest for four more years of what they saw as a hostile environment. By the end of November, ominous signs, at least for employers, started to appear. On Black Friday, some workers at Wal-Mart Stores Inc., the nation's largest private employer, went on strike. The walkouts capped off a week of more than 1,200 such actions carried out in stores throughout 48 states. Fast-food workers walked out of dozens of restaurants across New York a week later. Members of the Fast Food Forward campaign came from a sampling of chains. They asked for union representation and wages of $15 an hour, or more than double the federal minimum.
What are employers fretting about most in the president's second term? A binder full of issuesthe health care law, and stepped up activity at both the National Labor Relations Board and the U.S. Equal Employment Opportunity Commissionto name some of the big ones. Employers expect to see a wave of agency guidance defining their responsibilities under the ACA, increased NLRB efforts to facilitate union formation, and heightened EEOC scrutiny of discrimination, particularly at the hiring stage.
All of the unknowns are making it difficult for businesses to budget. Michael Lotito, a partner in the San Francisco office of Littler Mendelson, says, "The biggest problem that business has today is that over the next four years they don't know what their unit labor costs are going to be." Those numbers are a key component of any company's overall cost structure. In certain industries, says Lotito, labor costs can exceed 50 percent of total business expenditures. "Once you can budget that number," he says, "then you can figure out how you're going to survive in a competitive environment."
One of the most contentious issues during the presidential campaign was the health care law. In the beginning of 2014, so-called exchanges will be up and running and large and midsize employers will be required to offer health care to full-time workers. Under what's known as the "Pay-or-Play" provision, businesses with 50 or more employees will be charged an excise tax if they don't offer coverage. The tax will be waived for the first 30 workers, above which the employer will pay $2,000 a head.
That penalty may be lower than the cost of providing coverage, but for many employers, deciding how they'll implement the law is far from an easy decision. During a panel at the 2012 NLJ Regulatory Summit, hosted in early December by Corporate Counsel sibling publication The National Law Journal in Washington, D.C., employment lawyers discussed the penalty. Panelist Ilyse Schuman from Littler Mendelson said employers have a great deal of anxiety and uncertainty about how they'll implement the law.
During the session, titled "Impact of the 2012 Elections on Labor, Employment and Benefits Law," she said that terms in the law such as "affordable" and "minimum value" need to be fleshed out. "All of those terms mean a lot to employers, not just with respect to their benefits strategy, but to their business strategy and their basic workforce structure," said Schuman. "Unfortunately," she said, "employers are really up against a wall, absent clear guidance."
To avoid triggering the requirement for employer-sponsored coverage, some businesses are cutting back on staff. Panelist Ed Gilroy, director of workforce policy for the House Education and Labor Committee, said employers are looking for ways to get under the 50-worker thresholdeither by holding down employment or by scaling back employee hours. Last October, for example, Darden Restaurants Inc., parent company of popular chains Olive Garden and Red Lobster, began analyzing the potential effects of the ACA by eliminating full-time positions at some restaurants. From his committee's perspective, Gilroy said, "That's absolutely the last thing we'd want employers to be doing in this current economy."
Such measures aren't likely to be confined to retail and hospitality sectors, where part-time work is often the norm. Panelist Joseph Trauger, vice president of human resources policy for the National Association of Manufacturers, said that although he hasn't heard any members indicate that they're planning to cut hours or staff, he isn't ruling out the provision's potential effect on NAM. "I don't think it's going to be isolated to any particular industry or sector of business," said Trauger. "I think it's going to have to be a matter of what makes sense from a business standpoint."
As employers try to maintain their competitive posture, the balance of power within the government will likely affect how employment policy develops. Obama's first term was plagued by partisan gridlock, and he starts his second term still flanked by a divided Congress. For at least the next two years, until the midterm elections, management-side lawyers anticipate that any big changes to workplace policy will be made by federal agencies.
And that means employers may not get off easy. On December 21, the Office of Management and Budget published its Unified Agenda of Federal Regulatory and Deregulatory Actions, a semiannual compilation of agency intentions for the coming year. Released two months late, Lotito says, "The finally published regulatory agenda confirms that the regulatory agencies will aggressively attempt to significantly remake the law of the workplace in a variety of ways."
At the NLJ conference, Littler's Schuman asked the audience rhetorically, "Who needs Congress?" Take, for example, the Employee Free Choice Act (EFCA). It was supposed to facilitate union organizing, but it was never enacted. So the NLRB has tried to accomplish "bit by bit" many of the act's same objectives, she said. Rules speeding up elections and requiring posting of National Labor Relations Act rights, taken together with a decision to recognize small bargaining units within a business, could do just that.
These actions are occurring against a backdrop of continued difficulties for organized labor. According to the U.S. Bureau of Labor Statistics, just under 12 percent of American workers belonged to unions in 2011. In 1983, the first year for which federal data is available, union membership was 20 percent. Today most unionized workers are found in the public sector, 37 percent. Less than 7 percent of private-sector employees are part of a union.
Experts on both sides of the issue agree that labor's traditional role of obtaining majority representation and negotiating and enforcing collective bargaining agreements is changing. Richard Hurd, a labor relations professor at Cornell University, says that if unions are going to increase their membership, they'll need to appeal to a younger and more diverse workforce. "And so far," he says, "they haven't been able to do that so well."
Groups like OUR Walmart could come as a breath of fresh air for organized labor. Formally named the Organization United for Respect at Walmart, the group is pushing for better working conditions and higher pay, just like a union would. But although the group is funded by the United Food Commercial Workers Association International Union, says Hurd, its members haven't yet sought to form a union. If OUR Walmart has some success through its public campaign, Hurd suggests the group might provide a model for what labor scholars call "minority unionism."
Through this method, employees form unions without the majority vote of members of a bargaining unit. Minority unions represent only those employees in the workplace who decide to join. The NLRB doesn't require employers to engage in collective bargaining with minority unions, but that level of recognition has been proposed in recent years.
New ways of organizing can't come too soon for unions. On the state level, "right-to-work" laws continue to flourish and are in effect in nearly half the country. In December, Michiganthe birthplace of the organized labor movementbecame the nation's 24th right-to-work state. Few would have predicted the shift that occurred in Michigan, at least not before both Wisconsin and Indiana adopted similar legislation. Similar shake-ups could soon be in store in other states, including Missouri and Montana.
Throughout his 40-year career, Lotito has seen the influence of unions decline. For much of that period, he says, people have been predicting the end of the organized movement. "I would say that organized labor is sick," says Lotito, "but it certainly ain't dead." In light of recent events, Lotito does think that labor could use a shot in the arm. "And about the only people prepared to give it to them," he says, "are those on the labor board."
If labor is having trouble, it isn't because of a hostile federal government. Help from the NLRB has been threefold: expedited representation elections and the notice-posting ruleboth of which have been held up by the courtsand a 2011 decision allowing "micro-bargaining units."
Legal battles over the rules aren't over. In May 2012, the U.S. District Court for the District of Columbia found the so-called ambush or quickie election rule invalid because the board lacked a quorum when it issued the rule. Lotito expects that the board will reissue the rule, and that when that happens, the new rule will have more teeth. Employers say the rule, which reduces the time period for elections, doesn't give them enough time to advise employees about what they see as the pitfalls of unionizing.
Preventing the formation of unions is also a lot more difficult since the board's decision in Kindred Nursing Centers East f/k/a Specialty Healthcare and Rehabilitation Center of Mobile v. NLRB . The board adopted a new standard for determining bargaining units, making it harder for employers to prevent small segments of the workplace from unionizing, even if a majority opposes doing so. Schuman said that "small, gerrymandered units" would proliferate, which for employers would be "a nightmare from an operational standpoint."
Some companies are already seeing the effects. On three separate occasions, elections to form a unit of maintenance and operational workers failed at a Nestle Dreyer's Ice Cream Company facility in Bakersfield, California. But a fourth attempt to unionize just the maintenance employees succeeded. An NLRB regional director rejected the employer's argument for a more inclusive bargaining unit, citing Specialty Healthcare . Under the new standard, employers have to prove there's "no rational basis" for excluding the employees from the unit.
The NLRB's newfound activism hasn't gone unnoticed. The agency has garnered more scrutiny from GOPled House committees than any other. The Committee on Oversight and Government Reform's Darrell Issa (R-California) publicly battled acting GC Lafe Solomon over his decision to file an unfair labor practices complaint against the Boeing Company. In the view of several panelists, the current NLRB is the most activist of any labor board in decades. But the one thing the board can't do, says Lotito, is demand that workers organize. "They can only change the ground rules," he says. "And this NLRB is doing a very good job of that."
The Board won't be the only agency whose actions will keep employers up at night during the president's second term. The EEOC has also been attracting attention for aggressive enforcement, and companies can expect to see more of the same. Based on its draft 2012-1016 Strategic Enforcement Plan (SEP), released last fall, the agency will continue to focus on investigations and litigation of issues affecting 20 or more employees. Settlement costs quadrupled in those types of cases between fiscal years 2011 and 2012.
Given the sputtering economy, experts also expect to see the agency continue to home in on discriminatory hiring practices. Last year the EEOC issued guidance on employer use of criminal background checks when considering job applicants. Lotito expects additional theories of hiring discrimination are on the horizon, including employer bans on hiring the long-term unemployed.
Just as the employer community was in a holding pattern ahead of the election, agencies to some degree held off on issuing rules and regulations during that period as well.
But now that Obama has been sworn in for a second term, employers expect that those agencies will be making up for lost time. Lotito, citing historical trends, says Republicans could pick up seats in the midterm elections, and says that the Obama administration is likely to be most active in the two years between now and November 2014. "There's a moment in time," he says, "and that moment is now."