The following article appears in the September 21, 2015 edition of Chain Store Age.
By: Joe Kefauver
The new overtime regulations are just one piece of a much broader strategy being executed by the labor community
In the two months since the Department of Labor announced its proposed new overtime standards, much has been written about what it may mean for employers both big and small.
For business operators, the ramifications are still being assessed and significant impacts will be felt not only in labor costs but also in how their businesses will operate moving forward. There’s a larger and more important effort underway, however, and the overtime regulations are just one piece of the puzzle.
While there is general consensus that the overtime regulations are due for an update, what hasn’t been discussed is why such a dramatic change in the law is necessary. From a microeconomic perspective, the “need” is fairly self-evident. The labor community and its allies in government have long lamented that workers in service-facing positions are being systemically reclassified as “managers,” so employers could work them longer hours and save significant money by not having to pay overtime. They believe that this is an abuse of the current system. Whether that is true or not across the board, there are certainly enough cases where this abuse occurs to allow this narrative to gain traction.
Also, advocates are naturally going to demand a governmental response. However, from a macro-political perspective, few business owners are recognizing that the new overtime regulations are just one piece of a much broader strategy being executed by the labor community. It is literally one spoke in a much bigger wheel.
Over the last 25 years or so, there has been general consensus on the political left that employers have both taken advantage of favorable labor laws and also employed a variety of business structures that are fully intended to simultaneously reduce labor costs, but, more importantly, limit or eliminate altogether their liability for their workforce. Examining a few of these tactics will demonstrate how the new overtime regulations fit into this overall strategy.
The labor community has long argued that there is a widening gulf between where capital is created – the storefront – and where that capital ultimately ends up – the employer (or the “center of capital” to use the NLRB’s language). Because of this, they argue, the employee who actually performs the service becomes ever more distant from the benefits – the profit – of that labor.
The labor community argues that businesses have devised a number of different structures and strategies that separate the actual employer from the liability (the cost of the labor and benefits and liability from protecting workers). According to this worldview, an employer that benefits from a network of subcontractors, independent contractors and/or franchisees while not exerting direct control over the terms and conditions of employment is indirectly controlling them.
One of the most prominent examples, of course, is the franchise business model where the franchisor has no direct control over the labor practices of their franchisees and subsequently shifts the liability of those labor costs and responsibilities for worker protection onto those same franchisees. This is precisely why the labor community has been leveraging their allies at the NLRB to attack franchise brands – most notably McDonalds – and ultimately determine that the franchisor and the franchisees are, in fact, “joint employers.”
In the above scenario, with liability spread across the franchisor and the franchisee, labor can bargain and win concessions from both, rather than having to focus on each employer individually. Franchisors then have to determine whether the model even makes sense anymore. Score one for the unions.
In a similar case, the practice of leveraging independent contractors and sub-contractors has become a target. In the Browning-Ferris case, The Teamsters claimed that Browning-Ferris should be ultimately responsible for the labor practices of the independent contractors the company used at their processing facilities, and those employees should be viewed as employees of Browning-Ferris.
Predictably, the NLRB ruled against Browning-Ferris, and with that one decision made employers’ use of sub and independent contractors much less advantageous. Score another one for the unions.
Ironically, the term “flexibility” is flexible in itself. Employers view flexibility as a tool for not only being more strategic and predictive with regard to labor costs but also as a tool to ensure that the hours that employees work are reflective of customer-traffic patterns so operators can provide the best customer-service experience possible. Basically, you beef up during periods of high customer traffic and scale back during predictably slow times.
It seems pretty simple – fish where the fish are. For the labor community, though, flexibility is a code word for reliance on part-time workers as a way to avoid paying overtime and exempt employees from health-care coverage. Consequently, they are employing a variety of tactics across the country to limit employer flexibility.
For example, in numerous states and localities, legislation has been proposed to regulate employee schedules. Under the guise of “Fair Workweek” legislation or a “Retail Workers Bill of Rights”, proponents are pushing for mandates forcing employers to post schedules between 14 and 21 days in advance, allow for a certain number of hours between an employee’s shift and their next one or pay time and a half for those hours and other punitive restrictions.
Additionally, some of these bills restrict an employer’s ability to hire additional part-time workers until all existing workers have been offered more hours and/or full-time status. And the list goes on.
While only a few of these regulations have passed at the local level, most notably San Francisco, the overall effort has been very effective at furthering the anti-employer narrative and demonizing retail and restaurant brands. Because of that messaging success, the issue is now front and center on the White House’s labor agenda and the Department of Labor is considering national scheduling regulations. Score yet another one for the unions.
The new overtime regulations, while costly and punitive in the near term, have to be understood against the broader backdrop of the labor agenda. It’s less about what constitutes a manager or an hourly worker. It’s about how it all fits in the overall fight against employer flexibility. The more flexibility an employer has, the less likely employees can gain the necessary traction needed to organize and ultimately bargain collectively. That is why they want flexibility in all its forms to be legislated or regulated out of existence.
What we have going on here is essentially the component parts of a collective bargaining agreement coming together under a comprehensive government-designed framework. Whether its higher pay and benefits through state and local legislation, reshaping of existing business structures by the NLRB, or union-friendly workforce regulations perpetrated by the Department of Labor and OSHA, the cumulative and simultaneous weight of these actions is creating a defacto CBA via regulatory fiat.
Operators need to resist the temptation of viewing these issues separately depending on their immediate impact to individual P&Ls and/or brand reputations. The labor community views them as one umbrella campaign designed to comprehensively change the business models of the retail sector and entry-level employers. The business community would be wise to do so as well.