Topic: Regulatory Studies

Courts Smack Down Obama Workplace Regulators — Four More Times

Why are independent, strong-minded courts so important to a free society? One reason is that they – and often only they – are the ones who can stop government agencies from trampling on the rights of the citizens.

Consider, for example, the Obama Administration’s present aggressive campaign to push the bounds of federal employment and labor law far beyond anything Congress has been willing to pass. As I’ve noted before, judges have repeatedly found these administration power plays to overstep the law. See, for example, posts here (Equal Employment Opportunity Commission suffers epic Sixth Circuit loss in EEOC v. Kaplan), here (Breyer and liberal Supreme Court majority, even while siding with plaintiff in underlying case, smack around EEOC “guidance” ploy); see also here (many more examples, at Overlawyered).  

Now here are four more examples from recent months.

* The U.S. Department of Labor sued oil field contractor Gate Guard demanding it reclassify some independent contract workers as employees. As our friends at the Washington Legal Foundation recount, Judge Edith Jones ruled on behalf of a Fifth Circuit appeals panel that Gate Guard was entitled to fees under an unusual “bad faith” provision (footnotes omitted here and below): 

It is often better to acknowledge an obvious mistake than defend it. When the government acknowledges mistakes, it preserves public trust and confidence. It can start to repair the damage done by erroneously, indeed vindictively, attempting to sanction an innocent business. Rather than acknowledge its mistakes, however, the government here chose to defend the indefensible in an indefensible manner. As a result, we impose attorneys’ fees in favor of Gate Guard as a sanction for the government’s bad faith.

At nearly every turn, this Department of Labor investigation and prosecution violated the department’s internal procedures and ethical litigation practices. Even after the DOL discovered that its lead investigator conducted an investigation for which he was not trained, concluded Gate Guard was violating the Fair Labor Standards Act based on just three interviews, destroyed evidence, ambushed a low-level employee for an interview without counsel, and demanded a grossly inflated multi-million dollar penalty, the government pressed on. In litigation, the government opposed routine case administration motions, refused to produce relevant information, and stone-walled the deposition of its lead investigator.


* We commented one year ago on the amazing case of EEOC v. Freeman Cos., in which the Fourth Circuit found that the federal commission had relied on “pervasive errors and utterly unreliable analysis” in its attempt to go after a Maryland employer’s policies on criminal background checks of employees. The appeals court sent the case back for further proceedings to district judge Roger Titus, who had previously shredded the EEOC’s proffered expert evidence as “laughable” and “mind-boggling.” Then the EEOC – feeling that perhaps its luck was due to turn – resisted an award of attorneys’ fees to the defendant. As Alison Somin recounts for the Federalist Society, this was a sure loser bet. Somin quotes the resulting order in which Judge Titus wrote:

World-renowned poker expert Kenny Rogers once sagely advised, “You’ve got to know when to hold ‘em. Know when to fold ‘em. Know when to walk away.” In the Title VII context, the plaintiff who wishes to avoid paying a defendant’s attorneys’ fees must fold ‘em once its case becomes so groundless that continuing to litigate is unreasonable, i.e. once it is clear it cannot have a winning hand. In this case, once Defendant Freeman revealed the inexplicably shoddy work of the EEOC’s expert witness in its motion to exclude that expert, it was obvious Freeman held a royal flush, while the EEOC held nothing. Yet, instead of folding, the EEOC went all in and defended its expert through extensive briefing in this Court and on appeal. Like the unwise gambler, it did so at its peril. Because the EEOC insisted on playing a hand it could not win, it is liable for Freeman’s reasonable attorneys’ fees.”  

* That wasn’t the only bad news for the EEOC’s legal team recently. A Wisconsin federal judge in EEOC v. Flambeau has rejected the commission’s notion that employers violate the Americans with Disabilities Act when they ask employees to take medical exams as part of so-called wellness programs in their health insurance coverage (discussion, Littler and Proskauer; background here and here). 

* And in another widely watched case, the Seventh Circuit in EEOC v. CVS Pharmacy (via Jon Hyman) has rejected the commission’s position that employers violate the law when they proffer widely used garden-variety exit agreements to departing workers (on the theory that the language is not sufficiently encouraging of later legal action, which supposedly constitutes “retaliation”).

Imagine what these agencies and others would be getting away with were our judiciary someday reduced to a spirit of subservience to the executive branch of government.



Uber Not to Blame for Kalamazoo Shooting

By Alexander Torrenegra from Secaucus, NJ (New York Metro), United States - On my first @Uber ride in Bogota heading to a Startup Weekend. Priceless easiness and safety. I love disruptive innovation., CC BY 2.0, Uber driver is accused of killing six people and wounding two others in a shooting rampage that took place in Kalamazoo, Michigan on Saturday. The victims seem to have been picked at random and were shot at three different locations. An unnamed source told CNN that the suspected killer, Jason Dalton, completed rides in between the shootings, which took place over a seven-hour period. It might be tempting to think in the wake of the Kalamazoo shooting that Uber should reform its background check system, but this would be an overreaction to a problem a different background check process wouldn’t have solved. 

Uber screens its drivers by checking county, state, and federal criminal records. As I explained in my Cato Institute paper on ridesharing safety, Uber is oftentimes stricter than taxi companies in major American cities when it comes to preventing felons and those with a recent history of dangerous driving from using its platform. And Dalton did pass Uber’s background check.

However, it’s important to keep in mind a disturbing detail: according to Kalamazoo Public Safety Chief Jeff Hadley, the suspected shooter did not have a criminal record and was not known to the authorities. In fact, Dalton, a married father of two, does not seem to have prompted many concerns from anyone. The Washington Post reports that Dalton’s neighbors noticed “nothing unusual” about him, although the son of one neighbor did say that he was sometimes a “hothead.”

That an apparently normal man with no criminal history can murder six people is troubling, but it’s hard to blame Uber for this. It’s not clear what changes Uber could make to its background check system in order to prevent incidents like the Kalamazoo shooting. What county court record, fingerprint scan, or criminal database would have been able to tell Uber that a man with no criminal record would one day go on a shooting rampage?

The Kalamazoo shooting is a tragedy, but it shouldn’t distract from the fact that Uber and other ridesharing companies like Lyft have features such as driver and passenger ratings as well as ETA (estimated time of arrival) sharing that make their rides safer than those offered by traditional competitors.

With the information we have it looks like Dalton could have passed a background check to have been a taxi driver or a teacher. While perhaps an unnerving fact, criminal background checks cannot predict the future, whether they are used to screen potential school bus drivers, police officers, or rideshare drivers. 

States Optimistic About Economic Futures Are More Economically Free

New data from Gallup suggests that residents in US states with freer markets are more optimistic about their state’s economic prospects. In their 50-State Poll, Gallup asked Americans what they thought about the current economic conditions in their own state as well as their economic expectations for the future. North Dakota (92%), Utah (84%), and Texas (82%) top the list as states with the highest share of residents who rate their current economic conditions as excellent or good.  In stark contrast, only 18% of Rhode Island residents, 23% of Illinois residents, and 28% of West Virginians rate their state’s economic conditions as excellent or good. Similarly Americans most optimistic about their state’s economic futures include Utah (83%) and Texas (77%) while states at the bottom include Illinois (34%) and West Virginia (36%).

What explains these stark differences in economic evaluations and expectations across US states? Could differences across states in economic freedom, such as government regulations on business, tax rates, government spending, and property rights protection, be part of the story?

Figure 1: Relationship Between State Economic Freedom Scores
and Residents’ Evaluations of Current Economic Conditions


 Source: Economic Freedom Index 2011, Freedom in the 50 States; Gallup 50-State Poll 2015

Scalia in the Pages of Regulation

As Walter Olson has noted, before Antonin Scalia became a federal judge and ultimately a Supreme Court justice, he spent part of his career working in public policy, including a stint as editor-in-chief (and other roles) of Regulation, which was then published by the American Enterprise Institute and now is published by Cato. Scalia wrote articles for the magazine himself and edited those written by others. The sharp analysis and rhetorical wit he would later display on the Court can be seen in Regulation’s pages.

For example, in this 1979 article he argued against the Legislative Veto, a proposal to give Congress the broad power to disapprove specific regulations through resolution (which could not be overturned by presidential veto). Though Scalia was often skeptical of federal regulatory policy, he was also skeptical of this effort to constrain it, because it further removed Congress from its constitutional duty to set policy. He wrote:

Has the difficulty really been that Congress has tried repeatedly to reverse the results of agency rulemaking through legislation but has been stymied by the President? I am not aware of a single instance. … The problem has been, quite simply, that both houses have had neither the time nor the inclination to review agency rulemaking, just as they have had neither the time nor the inclination to write more detailed legislation in the first place, which would render the most significant rulemaking unnecessary.

In the same vein, this 1980 Scalia article examined the judicial implications of congressional delegation of authority to executive agencies. Such delegation is worrisome and constitutionally dubious, he acknowledged; lawmakers dodge the difficult policy questions, leaving them to agency staff. However, the proposed remedy for this delegation—having the courts settle such issues when discerning legislative intent—is even more worrisome and dubious, he argued. Rather, Congress should fulfill its duties under the Constitution:

The sorts of judgments alluded to above—how great is the need for prompt action, how extensive is the social consensus on the vague legislated objective, and so forth—are much more appropriate for a representative assembly than for a hermetically sealed committee of nine lawyers. In earlier times heated constitutional debate did take place at the congressional level.

A Libertarian Argument for Bernie Sanders?

Will Wilkinson notes that there is a libertarian argument for Bernie Sanders. I’m not sure I buy the precise point Wilkinson is making. Sanders says he wants to make the United States more like Finland, Sweden, and Denmark. And those countries do indeed rank higher than the United States in the Cato Institute’s Human Freedom Index, compiled by my colleagues Ian Vásquez and Tanja Porčnik. But Sanders wants to emulate those countries in the ways they are less free than the United States (i.e., expanding government transfers), not in the ways they are more free (taxes and regulation). I think this powerful Sanders ad featuring Eric Garner’s daughter Erica is a much better libertarian argument for Sanders.

Obamacare’s Low Enrollment Numbers Also Show Why Exchange Coverage Will Get Worse

The Obama administration has released the numbers from the 2016 open enrollment period for Obamacare’s health insurance exchanges. The Congressional Budget Office had already downgraded its enrollment projection for 2016 from 21 million to 13 million. The news is actually just slightly worse: only 12.7 million enrollments, a number that is likely to shrink over the course of the year. Naturally, the administration declared success because enrollments exceeded the 10 million it had predicted back in October (thereby confirming speculation it had deliberately low-balled that prediction so it could later declare victory in spite of what it knew would be terrible enrollment numbers). Yet most observers overlooked what may be the worst news of all: evidence suggesting significant adverse selection in the Exchanges.

The administration reported that 70% of those who re-enrolled for 2016 shopped for a better plan, while 43% switched plans. The administration spun this as a positive, as evidence that Obamacare is expanding choice.

In reality, those numbers mean the vast majority of enrollees were dissatisfied enough with their Obamacare coverage to look for a better option , and a near-majority were so dissatisfied with their premiums or their coverage that they switched to what they hope will be a better plan. Most importantly, such widespread plan-switching is strong evidence of the type of adverse selection that is already eroding Obamacare’s promise to the sick , and could cause the exchanges to collapse.

Unintended Consequences of Proffer Reform in Virginia

The Virginia legislature is moving forward with so-called “proffer” reform.  Proffers are local amenities such as parks, computers for schools, architectural changes and other benefits provided by housing developers to local governments in exchange for a relaxation of zoning restrictions on new housing development.  A bill to restrict these deals has passed the state’s House of Representatives and is moving through its Senate. While this prohibition on a “gray market” may appear to be good policy reform, the result will likely be less development and higher housing prices.  The reform seeks to ban all proffers that do not address “an impact that is specifically attributable to a proposed new residential development…”.

Local groups are famously resistant to housing development. This makes sense to some extent, because new development can impose external costs on existing residents in the form of traffic congestion and overutilized municipal infrastructure.  An ideal resolution of such external costs would be an explicit market for zoning change.  Such a market would allow developers to explicitly negotiate with relevant community groups and homeowners associations.  The consent of existing residents for new denser more urban development would be obtained in exchange for cash and/or home buyouts.  The payments would compensate existing residents for change.

Given that such explicit markets for zoning change do not exist, how should municipalities negotiate with housing developers? Some, such as Steve Teles from Johns Hopkins University and Jonathan Rauch from the Brookings Institution have argued that allowing a broad scope of for negotiation with less transparency can yield better political outcomes. Inability to accept community demands for ancillary benefits can prevent new developments from ever getting off the ground. Similarly, William Fischel of Dartmouth has long argued that allowing highly-specific tradeoffs for community support can make sense in many cases.

The Virginia bill would restrict local powers to negotiate highly specific development agreements without adding any mechanism that facilitates either an explicit or an alternative “gray” market to ensure that restrictions would encourage development. While it may seem sleazy to allow communities to demand computers for schools in exchange for denser development, if cash were exchanged for denser development, the cash recipients might very well use the cash for computers rather than a park or wider roads.  While the gray market is imperfect, putting more restrictions on it will make development less rather than more likely.

This blog post was coauthored with Cato research assistant Nick Zaiac.