Topic: Regulatory Studies

Feds Lose Another Unanimous Supreme Court Case

Earlier this year, I documented the Obama administration’s abysmal results before the Supreme Court (the two Obamacare cases excepted). Not only is its overall winning percentage much worse than any other modern presidency, but its spate of unanimous losses is truly record-breaking.

And that record has only grown in the last few months. This week the government suffered its fifth unanimous loss of the year – matching its dubious achievement in 2013 with 25 cases still left to be decided – in a property-rights case in which Cato filed an amicus briefU.S. Army Corps of Engineers v. Hawkes Co.

Hawkes has a somewhat technical background but the case boiled down to this question: Can a landowner – in this case a peat-mining company (nothing to do with scotch, unfortunately) – challenge a government determination that its land is subject to federal regulation? Not whether the land is properly a wetland under the Clean Water Act, but whether the owner can go to court to argue the point in the first place!

Thankfully, all eight justices ruled that yes, this agency action is subject to judicial review under the Administrative Procedure Act. If you’re an eagle-eyed reader and think this reminds you of another case from a few years ago, you’re right! In 2012, the Court – also unanimously – ruled essentially the same way in a case called Sackett v. EPA. Yes, that case involved a different government agency and different legal technicalities, but the upshot is the same: if the government does something that hurts your use and enjoyment of your land, you get to go to court to challenge that action.

You’d think this would be a simple proposition, and yet the government insists on fighting it all the way to highest court in the land – and garnering nary a vote. Congratulations to our friends at the Pacific Legal Foundation, who litigated Hawkes and who have now won eight straight cases at the Supreme Court!

Finally, one interesting footnote to Hawkes: The Court took up this case after the U.S. Court of Appeals for the Eighth Circuit had ruled against the government and thus split from an opposite ruling by the Fifth Circuit in an essentially identical case called Kent Recycling Services v. U.S. Army Corps of Engineers. That Hawkes ruling happened but two weeks after the Court had denied review in Kent Recycling. Accordingly, the keen PLF lawyers who also brought Kent Recycling filed an immediate petition for rehearing, which the justices held pending the resolution of Hawkes. That petition will now be Granted, the lower-court ruling Vacated, and the case Remanded – what lawyers call “GVR’d” – for reconsideration (and reversal) in light of Hawkes.

As far as I know, it’s been decades since a cert. denial was not only reconsidered, but turned into a summary reversal on the merits. And it was here at Cato’s Constitution Day conference where John Elwood made what I believe was the first public call for just that outcome (see final panel). 

Big Bureaucracies Beget Bad Behavior

One of the problems with big government is that it stimulates the worst sort of behavior from people and attracts legions of cheaters on the inside and outside.

On the outside, the more than 2,300 federal subsidy programs are under constant assault by dishonest individuals, businesses, and criminal gangs. The improper payment rates for the earned income tax credit and school breakfast programs, for example, are more than 20 percent. Medicare and Medicaid are ripped off by tens of billions of dollars a year. It’s a sad reality that when the government dangles free money, millions of people will falsify application forms to try and get some of it.

Abusive California Labor Law to Be Considered by State’s High Court

California has a “mandatory mediation and conciliation process” whereby unions can force agricultural employers into collective bargaining and also bind the employers to the terms of a collective-bargaining agreement drawn up by a “neutral” mediator. This is the only such compulsory-bargaining law in the country. 

One employer successfully challenged the process in the California court of appeal on the grounds of “class of one” discrimination (treating this employer differently than others)—and separation-of-powers violation. That ruling is now on appeal to the California Supreme Court.

Cato has joined the National Federation of Independent Business and four agricultural associations on an amicus brief supporting the farming company. We argue that the compulsion regime is unconstitutional for two reasons.

First, it imposes mini-labor codes to govern the relations of individual employers and their employees’ unions. It doesn’t provide any safeguard to ensure that similarly situated employers or unions will be treated similarly. It allows mediators to wield legislative authority irrationally and arbitrarily. It therefore denies affected parties the equal protection of the laws, in violation of the U.S. and California Constitutions.

Second, the compulsion regime delegates substantial legislative authority to private-party mediators. It doesn’t provide these mediators with any goal or purpose that they must achieve in drafting collective bargaining agreements. It doesn’t give them any standard or rule by which to achieve any goal or purpose. It fails to establish any adequate safeguards against the abusive exercise of the power delegated. The compulsion regime therefore violates the non-delegation doctrine—delegating legislative powers to an executive agency—and the separation of powers.

In the case of Gerawan Farming, Inc. v. Agricultural Labor Relations Board, the California high court should affirm the judgment below.

Five Facts about the Minimum Wage

1. A dozen California metropolitan areas – including big cities like Fresno, Stockton, Bakersfield and Modesto – already have unemployment rates from 8.0% to 18.6%. Yet California’s statewide minimum wage is now scheduled to rise every year through 2022.

2.  News reports imagine that raising the minimum wage will push up other wages, so average wages would supposedly rise more quickly. On the contrary, three of the four most recent increases in the federal minimum wage were quickly followed by prolonged stagnation in average wages.  change in avg and min wage

3. In 2015, twice as many earned less than the $7.25 federal minimum wage (1,691,000) as the number paid that minimum wage (870,000).

4. Every time the federal minimum wage has been increased the number earning less than that minimum always increased dramatically.  This was not just true of teenagers but (as the graph below shows) also for those over 25.  When the minimum wage is pushed up faster than the market would have moved it, the effect is to greatly increase the proportion of jobs paying less than the minimum (including working for cash in the informal economy).  Employers offering less than the minimum, legally or otherwise, then enjoy a flood of unskilled applicants unable to compete for scarcer opportunities among larger businesses subject to minimum wage laws. Such intensified rivalry for sub-minimum-wage jobs then pushes the lowest wages even lower.more were paid less than min when min wage went up

 5. Regardless of federal, state or city laws, the actual minimum wage is always zero.

The High Cost of Obama’s Overtime Edict

The Obama administration this week announced final regulations doubling the salary threshold (from $23,660 to $47,476) at which most employers must pay time-and-a-half overtime to white-collar workers, and indexing future thresholds to advances in the wage level. Employees 25-34 and those with a bachelor’s degree are expected to be the most heavily affected groups; among sectors expected to be hard hit are not only retail chains, restaurants, and small businesses that hire on-site managers, but also colleges and even food co-ops.

As colleague Jeffrey Miron observed in this space on Wednesday, the notional paycheck benefits to employees reassigned to hourly status are likely to prove temporary, since employers have many ways over the medium term of dodging a permanent upward jump in payroll costs: they can forbid employees to clock more than 40 hours a week, lay off those who regularly do so, cut back on non-cash perks for the salaried, and so forth, not to mention suppressing the level of base pay itself.

The final version slightly softens some of the worst features of last year’s proposal, knocking down the pay threshold a bit, allowing bonuses and commissions to count toward 10 percent of the sum, and dropping a scheme to expand the range of duties forbidden to salaried managers. But overall, it’s still impractical in the extreme - as House Democrats, of all people, discovered when they tried to comply with the spirit of the rules in their own offices. The result, as I noted in this space last month, turned out to be a series of headaches including the prospect of unanswered phones and other gaps in constituent service, layoffs, and even closure of some district offices.

Overtime Regulation Update

Following up a proposal announced last year, the Obama administration is set to raise the salary threshold at which employers must pay time-and-half for overtime hours (normally, those above 40 hours per week). Currently these rules apply to workers with annual salaries up to $23,660; the new rule raises this threshold to $47,476.  This will affect about 4.2 million workers, according to administration estimates.

What impact will this regulation have? 

In the short run, many employers will indeed pay higher total compensation to affected employees, given limited options for offsetting the mandated increase in wage costs. This is the outcome sought by regulation advocates.

In the medium term, however, employers will offset these costs by re-arranging work schedules so that fewer employees hit 40 hours, by laying off employees who work more than 40 hours, or by pushing such employees to work overtime hours off the books.

In the longer term, employers will reduce base-level wages so that, even with overtime, total compensation for employees working more than 40 hours is no different than before.  

Thus, expanded overtime will benefit some employees in the short term; cost others their jobs or lower their compensation in the medium term; and have no meaningful impact in the long term.

Is that good policy?

Insider Trading: The Unknowable Crime

Under our criminal justice system, ignorance of the law is no defense.  But what if the law is undefined?  Or what if it seems to change with every new case that’s brought?  What if unelected judges (with life tenure) started to invent crimes, piece by piece, case by case?  Holding people accountable for knowing the law is just only if the law is knowable, and only if those creating the law are accountable to the people. 

On Friday, Cato filed an amicus brief in Salman v. U.S. that is aimed at limiting the reach of just such an ill-defined, judicially created law. “Insider trading” is a crime that can put a person away for more than a decade, and yet this crime is judge-made and, as such, is ever-changing. Although individuals may know generally what is prohibited, the exact contours of the crime have remained shrouded, creating traps for the unwary.

The courts, in creating this crime, have relied on a section of the securities laws that prohibits the use of “any manipulative or deceptive device or contrivance” in connection with the purchase or sale of a security. The courts’ rationale has been that by trading on information belonging to the company, and in violation of a position of trust, the trader has committed a fraud.  The law, however, does not mention “insiders” or “insider trading.”  And yet, in 2015 alone, the Securities and Exchange Commission (SEC) charged 87 individuals with insider trading violations.  

Broadly speaking, insider trading occurs when someone uses a position of trust to gain information about a company and later trades on that company, without permission, to receive a personal benefit.  But what constitutes a “benefit”?  The law doesn’t say.

Left to their own devices, the SEC has pushed the boundaries of what constitutes a “benefit,” making it more and more difficult for people to know when they are breaking the law.  In the case currently before the Court, Bassam Salman was charged with trading on information he received from his future brother-in-law, Mounir Kara, who had, in turn, received the information from his own brother, Maher.  The government has never alleged that Maher Kara received anything at all from either his brother or Salman in exchange for the information.  The government has instead claimed that the simple familial affection the men feel for each other is the “benefit.”  Salman’s trade was illegal because he happens to love the brothers-in-law who gave him the inside information.

Under this rationale, a person who trades on information received while making idle talk in a grocery line would be safe from prosecution while the same person trading on the same information heard at a family meal would be guilty of a felony.  Or maybe not.  After all, if we construe “benefit” this broadly, why not say that whiling away time chit-chatting in line is a “benefit”?    

No one should stumble blindly into a felony.  We hope the Court will take this opportunity to clarify the law and return it to its legislative foundation.  Anything else courts tyranny.