Topic: Regulatory Studies

Cato Scholars Respond to the 2014 State of the Union

Cato Institute scholars Alex Nowrasteh, Aaron Ross Powell, Trevor Burrus, Benjamin H. Friedman, Simon Lester, Neal McCluskey, Mark Calabria, Dan Mitchell, Justin Logan, Patrick J. Michaels, Walter Olson and Jim Harper respond to President Obama’s 2014 State of the Union Address.

Video produced by Caleb O. Brown, Austin Bragg and Lester Romero.

SCOTUS: Unions Can Waive Don/Doff Pay

Earlier this month I noted that despite sporadic attacks on the present Supreme Court as supposedly gripped by a result-oriented and pro-business majority, “much of its work [in business law] consists simply of trying to keep the law on a logically coherent and predictable course,” often by unanimous vote. Today we can add another example: a unanimous Court (with Justice Sotomayor withholding consent from one footnote) ruled that U.S. Steel does not owe workers back pay for time spent donning and doffing protective gear in a context where the union representing the workers had specifically bargained away any right for them to be paid for that time. 

If it seems bizarre for employees to claim a right to pay that their union has elected to waive during contract negotiations, read on. Like some others before it, this case illustrates a tension I described in my book The Excuse Factory between the old and mostly stagnant field of labor law – in which unions and their strike threat had been envisaged as the driving and potent force, and progress is measured by contracts for future higher pay – and the newer, perennially self-energizing employment law, in which private attorneys and their lawsuits act as the driving force, with the goal being big backward-looking settlements and the associated attorneys’ fees. So the first point about Sandifer v. U.S. Steel Corp. is that the steelworkers’ union was not the plaintiff, and that we shouldn’t assume unions necessarily wish suits of this kind to succeed.

Private employment-law attorneys do well enough from discrimination and harassment law, but their fastest-growing field of activity in recent years has been wage-and-hour law. Together with several associated statutes, the New Deal-era Fair Labor Standards Act (FLSA) creates many openings to sue in class or collective actions over large retroactive pots of pay for allegedly mischaracterized work – salary vs. hourly-wage, tipped vs. off-tip, employee vs. independent-contractor, and many others. That a particular company policy was well explained to workers at the time, and met with no objection, is no defense, since contracting around the rules is mostly not allowed. For example, an up-and-coming theme in wage-hour lawsuits is that employees should be able to claim retroactive on-the-clock pay for time spent away from the workplace using (or simply being available for) company cellphones, pagers, or email – a form of liability to which many employers have begun reacting by forbidding use of company cellphones or email outside work hours. 

While many of the dictates of wage-hour law are appallingly obscure – a quarter century ago Judge Frank Easterbrook eloquently decried the high cost of its tendency to leave the fact of liability uncertain until long after employers have acted – Congress had actually come very near addressing the question at issue in 1949 when it enacted a relatively narrow legislative fix declaring that it would be up to unions to decide whether to seek or waive pay for time spent “changing clothes.”  

This still left a crack of ambiguity wide enough to try to slip a suit through (the legal, if not the apparel, kind). Lawyers for Sandifer argued that the task of donning metal-tipped boots, flame-retardant jackets and leggings, and other steel-mill gear did not qualify as “changing clothing” because, among other reasons, many of the protective garments were donned on top of (rather than substituting for) street clothes. That meant, they argued, that the union had no power to bargain away the entitlement to the time, and Sandifer and others could seek back pay. The Court unanimously disagreed. It conceded that some types of technical gear, such as safety goggles and wearable electronics, will not qualify as “clothing,” but the overall activity of donning steel-mill protection still more closely resembles “changing clothes” than anything else. 

So there’s a bit of clarity for the law, at long last. Now if only Congress felt any responsibility to clarify – or better yet, move to repeal – the hundred other ambiguous demands of wage-hour law. 

Free America’s Energy Future: Drop Washington’s Misguided Export Ban

For years people have been told to expect a dismal energy future.  But because of rapid market innovation Americans now can look forward to an abundant energy future.  The U.S. could even become a leading exporter—if Washington gets out of the way. 

An energy revolution currently is underway, with increasing supplies and falling prices.  Even more could be done if Washington expanded access to federal lands and waters and freed producers to make best use of what they extract.

Arbitrary restrictions bedevil energy exports.  For instance, natural gas licenses are granted automatically for nations with free trade agreements—in this case Canada and Mexico—but otherwise the review process is lengthy and approval is rare.  Last year Energy Secretary Ernest Moniz announced that he was delaying decisions on a score of applications for political reasons even though the department had already concluded that such exports would benefit the U.S. economy. 

The ban on oil is even tougher, with only small amounts being shipped to Canada.  Few licenses have been issued under the law’s “national interest” exception, and none since 2000.

As I point out in my latest Forbes online column:

Forbidding petroleum exports does not make additional oil available to Americans.  Rather, the ban prevents energy companies from saving money.  For instance, it would be cheaper to sell Alaskan crude to Asia and purchase more oil from Latin America.

Meet the Kronies!

If you want to get something done (or, just as often, not done) in Washington, you might just need … the Kronies.

Take, for example, Kaptain Korn:

Kaptain Korn is a mutant hero who can change shape at will. One minute he’s coating your corn flakes; another minute he’s bootleg liquor in your gas tank. Though he’s powerless without G-force, subsidies and mandates give Kaptain Korn the muscle he needs to push puny third world back down into the dust. Kaptain Korn ensures jokes stay corny, rears stay flabby and engines run less efficiently.

If you want to help defeat the Kronies, you might want to take a look at Cato’s DownsizingGovernment.org. Learn more from our video series on how to downsize specific departments (all videos will play below):

The Voting Rights Amendment Act Is a Bad Idea

One of the responses to the Supreme Court’s eminently sensible ruling last year that deactivated part of the Voting Rights Act was to call for a new, updated law to subject particularly bad actors to enhanced federal oversight. We now see the product of that motivation, introduced by the motley bipartisan crew of Reps. Jim Sensenbrenner (R-WI) and Jim Clyburn (D-SC) and Sen. Pat Leahy (D-VT). As I write in my new Forbes.com column:

Last week, a group of lawmakers introduced the Voting Rights Amendment Act of 2014. The timing was no coincidence: The bill was announced on Martin Luther King’s birthday, right before the holiday designated to commemorate the civil rights giant (for which Congress took the week off). This is the long-expected legislation responding to the Supreme Court’s decision in Shelby County v. Holder last June that disabled one part of the Voting Rights Act. But it’s both unnecessary to protect the right to vote and goes far beyond the provision it replaces to rework the machinery of American democracy on racial lines.

Based on the reaction of certain elected officials to Shelby County you could be forgiven for thinking that a congressional fix is badly needed to prevent racial minorities from being disenfranchised. But all the Supreme Court did was strike down the “coverage formula” used to apply Section 5 of the Voting Rights Act, which required certain jurisdictions to “preclear” with the federal government any changes in election regulations—even those as small as moving a polling station from a schoolhouse to a firehouse. The Court found the formula to be unconstitutional because it was based on 40-year-old data, such that the states and localities subject to preclearance no longer corresponded to the incidence of racial discrimination in voting. Indeed, black voter registration and turnout is consistently higher in the formerly covered jurisdictions than in the rest of the country.

Nevertheless, the proposed legislation draws a new coverage formula, resurrecting Section 5’s requirements for states with five violations of federal voting law over a rolling 15-year period. (That formula would currently apply to four states: Georgia, Louisiana, Mississippi, and Texas.) It also sweeps in sub-state jurisdictions that have had one violation and “persistent, extremely low minority turnout”—which can mean simply an average racial-minority turnout rate lower than that nationwide for either minorities or non-minorities.

All that sounds reasonable—Congress is finally updating its coverage formula—until you realize that this reimposition of Section 5 comes without any proof that other laws are inadequate to address existing problems (which is what the Constitution demands to justify the suspension of the normal federalism in this area). After all, Section 5 was an emergency provision enacted in 1965 to provide temporary federal receivership of morally bankrupt state elections, not to enable a constitutional revolution based on arbitrary statistical triggers.

Read the whole thing, and download this longer piece on why the Shelby County ruling actually vindicates Martin Luther King’s dream.

Scalia the Unlikely Swing Vote in Big Workers Rights Case

Today the Supreme Court heard oral argument in Harris v. Quinn, the case regarding the forced unionization of home healthcare workers in Illinois (and by extension the 10 other states with similar laws). To me this is a pretty easy case: just because the state is paying these workers through its Medicaid program doesn’t mean it employs them – just like my doctor isn’t employed by my health-insurance company – which means that it can’t force them to pay dues to a union that negotiates Medicaid reimbursement rates. 

Like most of the labor cases in recent years, however, this one is likely to go 5-4. The so-called “liberal” justices were all openly hostile to the workers’ position, so the challengers will have to sweep the rest of the bench of to win. Fortunately, such an outcome is more than possible – though much will depend on the thinking of Justice Scalia, who was hostile to everyone.

The argument began in a frustrating manner, with a focus on the right to petition the government for redress of grievances, and whether a union asking for a pay increase was different from an individual public-sector employee (a policeman, say) asking for the same raise. Justice Scalia correctly pointed out that this wasn’t really the right at issue here, but he further confused the matter in distinguishing the right to petition from the First Amendment (when in fact that right is found in that amendment). He meant to invoke the First Amendment right to the freedoms of speech and association, but also indicated that he was prepared to give the government plenty of leeway when it was acting as an employer.

Justice Alito was the most skeptical of the union/government position, pointing out that unions don’t necessarily act in all workers’ interest, even when they succeed in negotiating certain “gains.” For example, a productive young worker might prefer merit pay to tenure provisions or a defined-benefit pension plan. Chief Justice Roberts was similarly concerned about administering the line between those union expenses that could be “charged” even to nonmembers (because related to collective bargaining) versus those that can’t because they involve political activity. Justice Kennedy, meanwhile, noted that in this era of growing government, increasing the size and cost of the public workforce is more than simple bargaining over wages and benefits; it’s “a fundamental issue of political belief.” In no other context could a government seek to compel its citizens to subsidize such speech. A worker who disagrees with the union view on these political questions is still made to subsidize it. 

It was also heartening to see that the continuing vitality of Abood v. Detroit Board of Education (1977) was in play. That case established that, in the interest of “labor peace,” a state could mandate its employees’ association with a union, forcing them to subsidize that union’s speech and submit to it as their exclusive representative for negotiating with the government regarding their employment. (Abood simply assumed, without further analysis, that the Supreme Court had recognized labor peace as a compelling interest.)

Justices Breyer and Kagan were particularly concerned that so many employers and unions had relied on the Abood doctrine over the years, so touching it would implicate significant reliance interests. But overruling or severely limiting Abood would only be one more step in the Court’s trend of protecting individual workers from having to support political activities. More workers could thus opt out of supporting a labor union – but if unions truly provide valuable services for their members, few workers would do so.

Of course, the Court could shy away from touching Abood and simply rule that being paid by state funds alone isn’t sufficient to make someone a state employee. Such a position might more easily attract Justice Scalia’s vote – and that of Chief Justice Roberts, who goes out of his way to rule narrowly – even if it leaves unresolved some of the contradictions at the heart of the jurisprudence in this area, such as the duty of courts to police the murky line between “chargeable” and “nonchargeable” union expenses.

For more on the case, see George Will’s recent op-ed and the Wall Street Journal’s editorial.

Does Banning Walmart Help Mom-and-Pop Retailers?

As “Big-Box” retailers like Walmart have proflierated in recent years, “Mom-and-Pop” retailers have asked local governments to ban or limit Big Boxes, arguing that Walmart and their ilk drive small, independent retailers out of business.

One response to this complaint is, “Too bad.”  Walmart’s large size allows it to operate efficiently and offer low prices; independents are less efficient and so should get driven out of business.  Independents may be better than Big Boxes at service, convenience, specialty items, and “personality,” so many will survive despite nearby Big Boxes.  But if some fail and exit, that is what economic efficiency demands.

A different response is that, even if Big Box entry hurts independents, laws that limit Big Boxes do not necessarily help independents.  That is precisely the conclusion of new research by Raffaella Sadun (Harvard Business School).  Analyzing entry regulation in the United Kingdom, she finds that

independent retailers were actually harmed by the creation of entry barriers against large stores. Instead of simply reducing the number of new large stores entering a market, the entry barriers created the incentive for large retail chains to invest in smaller and more centrally located formats, which competed more directly with independents and accelerated their decline.

Thus even if policymakers want to protect small retailers, the “treatment” (government intervention) can be worse than the “disease” (competition)!