Topic: Regulatory Studies

“Hire Slow, Fire Fast”

I’ve often pointed out that the modern trend in America toward loading more and more legal risks and obligations onto employers tends to have the presumably unintended effect of creating a disincentive to employ people, especially when there is any hint that an employment relationship, even if productive otherwise, might take on elements of conflict. 

Don’t just take my word for it. Here’s an item I’ve been meaning to note for a while from the excellent lawyer-blogger Eric B. Meyer of Dilworth Paxson in Philadelphia, who represents employers. It’s no longer brand new but has lost none of its relevance: 

In the world of Human Resources, “hire slow, fire fast” generally holds true to avoid just about any lawsuit.

Meyer goes on to describe the case of a nursing assistant at a New Jersey senior living center who was written up for absenteeism, rules violations, and insubordination, and put on a series of supposedly final warnings and a “last chance” agreement.

Which is to say, the employer did not follow the maxim of “fire fast.” HR folks can probably guess what happened next: the worker filed a request under the Family and Medical Leave Act (FMLA), a federal law that 1) requires the employer to hold open a vacant job for an absentee under various circumstances and 2) lays out a minefield of ways the employer can incur liability if it then can be construed as having “discouraged” the request or “retaliated” against it. Much of the gamesmanship of employment law develops from doctrines like retaliation: an underlying claim of discriminatory treatment may be hopelessly weak, but retaliation will succeed in keeping the suit going. (When the Supreme Court very slightly narrowed liability for retaliation in this summer’s case of University of Texas Southwestern v. Nassar, the peals of anguish from the legal Left went on for weeks.) In this case the New Jersey senior center stepped on one of the mines: it proceeded to fire the worker based on a last-straw-on-the-camel further offense that others testified would normally not count as a firing matter by itself. 

If you’re an employer in some region or industry where employees seldom sue, you may be able to offer lenient discipline policies with multiple chances in hopes of breaking the bad habits of an otherwise wanted employee.  States like California and Massachusetts, which have laid out drastic legal consequences for employers whose workers do not get full lunch breaks, are also the states where you are likeliest to find seemingly draconian employer policies of firing or disciplining workers caught doing even a tiny bit of work over lunch.  

Most experienced HR people I’ve met seem to find it easy to grasp the legal logic of “Hire Slow, Fire Fast.”  Why is it so hard for elected lawmakers to grasp?

U.S. Policies Deter Inward and Encourage Outward Business Investment

This morning, Cato published a new study of mine titled, “Reversing Worrisome Trends: How to Attract and Retain Investment in a Competitive Global Economy.” The thrust of the paper is that, despite still being the world’s premiere destination for foreign direct investment, the U.S. share of the global stock of direct investment fell from 39% in 1999 to 17% today.

This downward trend is attributable to two broad factors. First, developing economies – many of which have achieved greater political stability, sustained economic growth, improved infrastructure and higher-quality worker skill sets – are now viable options for pulling in the kinds of FDI that was once untenable in those locales. Second, a deteriorating business and investment climate in the United States – owing to burgeoning, burdensome, and uncertain regulations; an antiquated, punitive corporate tax system; incoherent immigration, energy, and trade policies; a wayward tort system; cronyism and perceptions thereof; and other perverse incentives and disincentives of policy have pushed investment away.

The first trend should be welcomed and embraced; the second must be reversed. From the study:

Unlike ever before, the world’s producers have a wealth of options when it comes to where and how they organize product development, production, assembly, distribution, and other functions on the continuum from product conception to consumption. As businesses look to the most productive combinations of labor and capital, to the most efficient production processes, and to the best ways of getting products and services to market, perceptions about the business environment can be determinative. In a global economy, “offshoring” is an inevitable consequence of competition. And policy improvement should be the broad, beneficial result.

The capacity of the United States to continue to be a magnet for both foreign and domestic investment is largely a function of its advantages, many of which are shaped by public policy. Considerations of taxes, regulations, trade openness, access to skilled workers, infrastructure, energy policy, and dozens of other policy matters factor into decisions about whether, where, and how much to invest. It should be of major concern that inward FDI has been erratic and relatively downward trending in recent years, but why that is the case should not be a mystery. U.S. scores on a variety of renowned business surveys and investment indices measuring policy and perceptions of policy suggest that the U.S. business environment is becoming increasingly less hospitable.

Although some policymakers recognize the need for reform, others seem to be impervious to the investment-repelling effects of some of the laws and regulations they create. Some see the shale gas and oil booms as more than sufficient for overcoming policy shortcomings and attracting the necessary investment. The most naive consider “American” companies to be tethered to the U.S. economy and obligated to invest and hire in the United States, regardless of the quality of the business and policy environments. They fail to appreciate that increasingly transnational U.S.-based businesses are not obligated to invest, produce, or hire in the United States.

It is the responsibility of policymakers, however, to create an environment that is more attractive to prospective investors. Current laws, regulations, and other conditions affecting the U.S. business environment are conspiring to deter inward investment and to encourage companies to offshore operations that could otherwise be performed competitively in the United States.

A proper accounting of these policies, followed by implementation of reforms to remedy shortcomings, will be necessary if the United States is going to compete effectively for the investment required to fuel economic growth and higher living standards.

Details, charts, and analysis, and citations are all included here.

You Shouldn’t Have to Ask Your Competitors for Permission to Start a Business

Occupational licensing laws make it harder and more expensive for people to get jobs or to create innovative businesses that might not fit into to conceptual box designed by last generation’s regulators. Worse, while these laws are supposed to be about protecting consumers against dangerous or inept practitioners, they’re often exploited by existing businesses to bar newcomers from competing against them.

But these problems are nothing compared to “Certificate of Public Convenience and Necessity” laws, also called “Certificate of Need” or CON laws. Unlike typical licensing rules, CON laws don’t have anything to do with whether a person is educated or qualified. Instead, they prohibit you from going into business unless you first prove to bureaucrats that a new business is “needed.” And these laws rarely define “need,” or explain how to prove it. Still worse, such laws usually allow existing firms to block a newcomer from staring a competing business. In short, CON laws bar you from going into business until you get permission from your own competitors. (It sounds like something from an Ayn Rand novel, right?)

Last week, Cato adjunct scholar Timothy Sandefur and his colleagues at the Pacific Legal Foundation filed a motion with a federal judge in Kentucky asking the court to strike down that state’s CON law for moving companies. The details are here, and they’re telling.

There have been 39 applications for new moving licenses since 2007. Those that were not “protested” by existing moving companies were approved without incident. But in 19 cases,  existing firms did object. And in all of those cases, one of two things happened: either the applicant gave up and abandoned the application, or the government denied it on the grounds that existing moving services were “adequate.” The state never approved an application that was protested by existing firms, no matter what. In one case, an applicant who’d been working for moving companies for 39 years was denied a license in a decision that declared him fully qualified–but said existing companies didn’t need the competition. No wonder Sandefur calls the law “the Competitor’s Veto.”

Government Can’t Simply Ignore Judicial Rulings It Doesn’t Like

By design, the federal judiciary is the weakest of the three branches of government. While the executive wields the sword, and Congress holds the purse strings, the courts have no temporal power.

To give effect to their decisions and orders, courts depend on popular legitimacy and the cooperation of the other branches. While that cooperation is normally forthcoming when needed to enforce judicial decisions against private citizens, when the subject of a court’s order is the government itself, there’s always a risk that it will be ignored or avoided.

Such is the case in Hornbeck Offshore Services v. Jewell, which began when the Interior Department (DOI) chose to put itself above the courts and above the law. Following the Deepwater Horizon disaster in April 2010, DOI issued a total ban on drilling activity in the Gulf of Mexico. A district court judge held that this drilling moratorium was irrational and not supported by scientific research or other credible evidence. The judge issued an injunction prohibiting DOI from enforcing its ban.

Instead of obeying the injunction — or appealing it — DOI ignored it. The Secretary of the Interior told Congress that as far as he was concerned, the drilling ban was still in effect. DOI then issued a second ban on drilling that was identical to the first. The district judge held DOI in contempt of court, noting that “each step the government took following the Court’s imposition of a preliminary injunction showcase[d] its defiance” of the court’s authority.

On appeal, a panel of the New Orleans-based U.S. Court of Appeals for the Fifth Circuit sided 2-1 with the DOI’s position that the contempt finding was improper because the issuance of a second (identical) drilling ban was not technically disallowed by the text of the injunction — which explicitly prohibited only enforcement of the initial ban. Cato has filed an amicus brief urging the Supreme Court to hear the case because the appellate court’s ruling undermines the rule of law and the judiciary’s independent authority.

Under the Fifth Circuit’s rule, government agencies will be able to legally avoid court orders with bureaucratic trickery. If only the explicit text of an injunction — and not any of its spirit or clear purpose — binds the federal government, Congress or the executive could simply rename whatever statute or regulation has been declared unconstitutional and continue enforcing the substantively unconstitutional rule. Such an overly technical rule would force district court judges into the role of mind-readers, trying to predict how the government could weasel its way out of a ruling.

Without an effective contempt power to punish the violation of its orders, even the Supreme Court would be unable to enforce its important rulings, such as ending the District of Columbia’s unconstitutional ban on handguns, and striking down section 3 of DOMA. In both of those recent cases, the sort of semantic game-playing endorsed by the Fifth Circuit here would have resulted in hollow victories for liberty and an evisceration of the idea that in our constitutional republic, the government is bound by the same (if not stricter) rules as the rest of us.

CPSC Sues Defiant CEO Individually in Buckyball Case

A year ago I wrote: “It’s rare for a regulated company to mount open and disrespectful resistance to a federal regulatory agency, but that’s what the maker of BuckyBalls, the popular desktop magnetic toy, is doing in response to the Consumer Product Safety Commission’s effort to ban its product.” The maker in question had devised cheeky, sarcastic ads asking why other products with injurious potential (coconuts, hot dogs) weren’t banned on the CPSC’s logic. 

One reason it’s rare to mount open and disrespectful resistance to a federal agency is that agencies have so many ways to make businesspeople’s lives unhappy. This spring, breaking new legal ground, the CPSC reached out and named CEO Craig Zucker personally as a respondent in its recall proceeding. According to a Gibson Dunn commentary,

For the first time, the CPSC is pursuing individual and personal liability against an executive for a company’s alleged violations of the Consumer Product Safety Act. Although it remains to be seen whether the CPSC will adopt this approach in other cases, at minimum, this demonstrates just how far the CPSC is willing to push the envelope.

It’s just the latest example, the law firm says, of a pattern in which “the CPSC has aggressively enforced its governing statute and regulations, repeatedly pushing the limits of its expanded authority.” If the move succeeds, Zucker could be ordered to foot the bill personally for offering consumers full refunds for all products sold, reimbursing retailers for recall costs, and various other expenses potentially reaching into the millions.

Guess Who’s One of the Hill’s ‘100 People to Watch This Fall’

I guess I’ll have to tout this myself. Last week, the Hill newspaper put me on its list of “the 100 people you can’t ignore this fall if you’re wondering how events in Congress and the White House will play out.” Here’s the write-up

Michael Cannon Director of health policy studies at the Cato Institute
 
Think the Supreme Court has settled the question of ObamaCare’s legality? Not if Cannon has anything to say about it. Cannon is a tireless advocate for the argument that the IRS has illegally implemented the healthcare law’s insurance subsidies, which will help low-income households cover the cost of their premiums. 
 
His argument is that healthcare law, as written, does not allow for the subsidies to be used in healthcare marketplaces that are set up by the federal government.
 
He helped the state of Oklahoma file a lawsuit against the subsidies, and a group of small businesses filed a separate suit on the same grounds, in case Cannon’s runs into procedural roadblocks.
 
If the lawsuits Cannon has spearheaded are successful, they could have a devastating impact on the healthcare law. A final decision in favor would stop the flow of tax subsidies to people in more than half of the states, making ObamaCare far less attractive to consumers and stripping away much of the law’s promise of affordability.

Corrections and amplifications. The argument is as much Jonathan Adler’s as mine; we develop it together in this law-journal article. The argument is not that the IRS is illegally implementing otherwise lawful subsidies; it is that the IRS is trying to dispense some $700 billion in illegal subsidies that Congress expressly did not authorize, and impose illegal taxes on millions of employers and individual Americans starting in 2014; that the Obama administration is attempting to tax, borrow, and spend nearly $1 trillion without congressional authorization. Finally, I am neither a party nor counsel nor financier to either Pruitt v. Sebelius or Halbig v. Sebelius.

Imaginary Squabbles Part 5: Comparing Krugman’s 2005 Housing Bubble Forecasts to Mine

New York Times columnist Paul Krugman has recycled another phony argument about something I wrote many years ago. 

He begins by citing Matt O’Brien who found that Fed governor Janet Yellen in October 2005 was predicting there would be no great impact on the economy “were the house-price bubble to deflate.” O’Brien concludes that, “Back in 2005, she didn’t appreciate how much shadow banks relied on AAA-rated mortgage-backed-securities (MBS) as collateral to fund their day-to-day operations—or how much even this supposedly high-quality collateral could go bust if housing did.” But that is “What Janet Yellen and Everyone Else Got Wrong,” as Krugman’s column is rightly titiled. Nobody in 2005 grasped what a precarious house-of-cards was being built, worldwide, on U.S. mortgage-backed securities. 

O’Brien found another quote suggesting Yellen did get it right by December 2007. Yet the recession had already started by then, and blogger Bill McBride and others were worrying that rising unemployment would cause mass foreclosures (not the other way around).

“We had a monstrous housing bubble,” writes Krugman, “and Janet Yellen recognized it in real time [December 2007]…. It’s important to notice that just being willing to see the obvious here puts Janet Yellen way ahead of a lot of people who still presume to give us advice on the economy.”   

He links to a 2008 list of 28 people who were supposedly way behind Yellen in “being willing to see” that house prices had fallen 21.6 percent by December 2007, even though nearly all of those 28 references were from 2003–2005. My name is at the top of that list, of course. But why am I on it while Krugman and Yellen are not?

The “Unofficial List of Pundits/Experts Who Were Wrong on the Housing Bubble,” was compiled by a finance lawyer who blogs as “Economics of Contempt.” He worked as a legislative aide to a House Democrat and dealt with derivatives at Lehman Brothers. The list of 28 could find no investment bankers who got it wrong, even at Lehman or Bear Stearns, but it did find a lot of conservatives and libertartians.