Jennifer J. Lee & Annie Smith, Regulating Wage Theft
, 94 Wash. U. L. Rev. 759
(2019), available at SSRN
How best to combat wage theft? In a new paper, Regulating Wage Theft, Jennifer Lee and Annie Smith join the debate with insights from an original hand-coded dataset of State and local anti-wage theft laws enacted from 2005 up through 2018. They know not only who enacted these laws and when, but also the strategies those laws use to combat wage theft. The upshot: Most such laws rely on worker complaints and other enforcement strategies that are less likely to succeed in preventing or redressing wage theft. But, in a few places here and there, the laws use strategies that may do a lot better, and thus are worth a closer look.
The paper’s core: a curated census of anti-wage-theft laws. Unlike past efforts, the paper covers enacted State and local laws over a longer time period. Lee and Smith searched generally in legal databases for laws regulating wage payment or information related to wage payment in every State, the District of Columbia, and the 30 most populous cities. They also scoured secondary sources and talked to worker centers and State departments of labor. They ignored such laws that only increased the minimum wage rate; addressed worker misclassification; required paid sick leave; made “only technical revisions” without “fundamentally” changing the enforcement regime; “would be considered pro-employer provisions”; only covered work performed pursuant to city contracts; or were “subsequently repealed, preempted by state statute, or otherwise invalidated” (Pp. 13-14).
The result: 140 laws (70 State laws and 70 local laws). In absolute numbers, California’s State legislature outpaced other States (19 laws). California had the most local laws, too (29 laws). And many States (the ones in grey) passed no anti-wage-theft laws at all, or at least none that have survived.
To figure out what these laws did, Lee and Smith coded each law based on whether it used one or more of 22 distinct legal strategies. Then, they assigned each legal strategy to one of six strategy types: (1) worker complaints; (2) anti-retaliation; (3) penalties; (4) expanded liability; (5) information requirements; and (6) other. Some jurisdictions enacted many strategies in a few pieces of legislation, while others adopted different strategies piecemeal over time.
Overall, the most common strategy type: penalties, that is, not only civil and criminal sanctions, but also license revocation, negative publicity, wage liens, and wage bonds. The least common strategy type: expanded liability, that is, provisions imposing joint and several liability, a broader definition of employer, and successor liability.
After laying out what the laws do, Lee and Smith explain their concern: “Many of the most common anti-wage theft strategies resemble popular and failed regulatory strategies in other contexts, such as rights claiming, command and control enforcement, and information disclosure,” and these strategies aren’t likely to do any better for wage theft (P. 22). Here, their analysis complements recent papers addressing similar concerns.
But their story isn’t all skepticism. Lee and Smith have more hope about the less-common strategies. And here, their attention to local law really pays off.
For example, consider Florida, which effectively got rid of its State department of labor over a decade ago. There, some localities have enacted anti-wage-theft laws that let “any entity” file complaints on behalf of their members, Broward County, Fla., Code § 20½-4(a)(3)(b), or let the local government contract with local NGOs to aid in enforcement, including help filing complaints, recording liens, and enforcing hearing officer orders, see St. Petersburg, Fla., Code §15-47(a). Provisions like these let local governments work with community groups to co-enforce labor standards.
Another promising strategy: burden-shifting. For example, Los Angeles County’s ordinance declares “a rebuttable presumption that an Employer violated this Chapter” if someone alleges that an employee is owed wages under that ordinance and either the employer doesn’t “maintain or retain payroll records required by” the ordinance, or doesn’t allow the county “reasonable access to such records.” Even for the strategy of imposing penalties, a few places go further and require surety bonds for licenses for certain kinds of businesses, such as farm labor contractors in Oregon and New York City car washes.
So, how much do these legal strategies actually reduce wage theft (individually or combined)? And why? To answer those questions, there’s a lot more to learn. Still, thanks to this paper, we now have a better map of where to go to figure that out.
Andrew Elmore, Franchise Regulation for the Fissured Economy, 86 Geo. Wash. L. Rev. 59 (2018).
An often forgotten area of employment law is the role played by millions of employees working for franchise stores across the country. In his new paper, Franchise Regulation for the Fissured Economy, Professor Andrew Elmore tackles this important area of the workplace, addressing the current standards that govern these workers. Professor Elmore notes the very serious problem of noncompliance in this area with basic employment law, and explains some of the causes that have resulted in this problem.
The franchisee/franchisor relationship is relatively straightforward, as franchisors generally license trademarks to the franchisees. Problematically, in the workplace context, the courts (as a general matter) have failed to consider franchisees as joint employers, which has done little to discourage individual stores from taking unlawful employment actions. While the existing scholarship has focused on the problem of addressing employment law issues arising from subcontractors under the joint employer doctrine, Professor Elmore’s piece takes a different approach. His work proposes that, with respect to franchisors, we should not look to the traditional joint employer test to enhance compliance with employment law. This test does not fit neatly with the construct of most franchise relationships, as the definition of control is currently applied far too narrowly to reach many of the individual stores. In light of this consideration, liability standards must be considered that identify the more unique role franchisors play in the current economy.
More specifically, Professor Elmore looks to other existing theories in the law that could hold franchisors liable for workplace violations. The existing law recognizes apparent agency and misrepresentation theories that could be applied to franchisor relationships. Professor Elmore notes that apparent agency could be used to enhance compliance where franchisors use an internal branding model that creates the perception of franchisor control over regulating employment issues in the stores. Available under the common law as well as certain state statutes, this theory of liability for employment law noncompliance could more specifically address this franchisor-type relationship.
Additionally, Professor Elmore notes that where franchisors adopt business tools or policies that tend to encourage employment law noncompliance, the franchisor may be liable under a misrepresentation theory. Franchisors could thus face liability under this theory if they have not taken reasonable measures to assure that their policies are adopted and applied by individual stores in a way that would not result in workplace violations. Looking at “the dependence and loyalty of franchisees,” the Article considers the “unique incentives in franchising” which can promote workplace wrongs (P. 145). The misrepresentation theory arises from state fraud and franchise laws, and could be directly implicated in the employment context.
Taken together, Professor Elmore sees substantial promise for promoting compliance with workplace laws through a more robust application of apparent agency and misrepresentation theory to franchise relationships. As he discusses, these theories “complement the joint employer test by accounting for the control, dependency, and loyalty measures that franchisors use to protect their brand in franchise stores, including in ways that can encourage employment law violations” (P. 145).
Professor Elmore’s paper is an important and superb piece for several reasons. First, workers who are employed as part of a franchise relationship often face uncertainty when pursuing employment protections. This group – which consists of almost ten million workers – can find themselves left behind when attempting to avail themselves of these basic workplace rights. Professor Elmore takes this problem head on, addressing how the franchise relationship impacts millions of everyday workers. Much of the existing scholarship tackles the more traditional working relationships in our economy, sidestepping this important group of employees. Second, this piece explains the inherent weaknesses of the control test that is so important to the question of the joint employer relationship. Professor Elmore identifies why this often-used test just simply is not a good fit – as currently interpreted – for the franchise economy. The Courts have applied “a narrow right to control test that excludes evidence of the indirect and remote measures that franchisors use to control franchise stores” (P. 105).
Finally, and perhaps most importantly, Professor Elmore looks beyond the traditional control test to other areas of existing law – agency and misrepresentation theories – that can be used to enhance workplace compliance for franchise relationships. Professor Elmore’s solution is particularly creative as it does not suggest a new legal theory or propose new statutory law that is unlikely to be adopted. Rather, Professor Elmore has identified practical ways of working within our existing legal confines to promote compliance with workplace laws for a wide swath of workers that are part of a franchise relationship.
Going forward, the courts should consider applying these theories to franchisors in a broadened way to help enhance the workplace protections of all workers in our economy. As Professor Elmore notes, “lawmaking can elaborate these doctrines to make them more effective in encouraging employment law compliance in franchise stores, particularly in jurisdictions in which these theories are limited by heightened reliance requirements” (P. 106). This creative solution to an existing workplace problem represents an innovative approach that could be broadly adopted. The courts, scholars and lawmakers should examine further the possibility of approaching franchisor liability in the way set forth by this groundbreaking paper.
Leora Eisenstadt, Data Analytics and the Erosion of the Work/Non-Work Divide
, __ Am. Bus. L.J.
__ (forthcoming 2019), available at SSRN.
Much has been written in recent years about how technology that is designed to make us all better connected has blurred the line between work and non-work time. For example, in an age in which many non-exempt workers check work email after work hours, on vacation, or on sick leave, defense lawyers have warned their clients about the potential for claims for overtime pay pursuant to the Fair Labor Standards Act (FLSA). Likewise, much has been written about the erosion of employee privacy in an age in which employers increasingly have the ability to use new technology to monitor their employees’ activities.
Professor Leora Eisenstadt’s forthcoming article, Data Analytics and the Erosion of the Work/Non-Work Divide, discusses these same issues, but with a focus on how the ability of employers to collect employees’ off-duty data impacts the erosion of the work/non-work divide. The article examines employers’ “non-transparent use of data analytics to monitor employee behavior, thoughts, and emotions when they are not working and [their ability] to use this data to make decisions about their workplace success” (P. 18).
Professor Eisenstadt provides several examples, including Project Comet, a program that mines data from employees’ social media accounts and then analyzes the information for use by the employer in developing better work teams. These types of programs obviously carry with them the potential for employer misuse. For example, a program that can gather information about an employee’s off-duty health-related internet searches can help an employer identify “which employees are contemplating becoming pregnant, which employees are concerned about developing diabetes, or those who believe they may need back surgery in the near future” (P. 22). While the authors of the Americans with Disabilities Act (ADA) could never have foreseen this type of scenario back in 1990 when the law was passed, the scenario involves the same concerns over disability discrimination that resulted in the ADA placing limits on the ability of employers to make health-related inquiries of employees and applicants.
While the article raises these types of immediate concerns, it also focuses more broadly on the extent to which programs like Project Comet weaken the traditional divide between work and non-work and the broader concerns this raises. The more employers are able to use data analytics to monitor employees’ off-duty activities for use in the workplace, the more muddy traditional employment law rules that are based on this distinction – like the going-and-coming rule in workers’ compensation or overtime laws – become in theory and practice. Moreover, the fact that employers are able to engage in extensive monitoring with only the most minimal level of employee consent raises concerns about the ability of modern workplace privacy laws to effectively deal with these practices. As Eisenstadt notes, several states have lifestyle discrimination statutes that prohibit adverse employment actions based on employees’ lawful off-work activities. However, the concerns raised by employers’ use of data analytics and facial scanning go beyond the concerns that initially motivated many of these statutes.
Ultimately, Eisenstadt’s survey provides the sort of overview that enables a reader to identify broad, big-picture concerns as well as more narrow, issue-specific concerns concerning employer practices in this area. At a time when concerns over the ability of employees to find a work-life balance are growing, Eisenstadt has written a thought-provoking piece about another way in which the work/non-work divide is increasingly crumbling.
Joseph E. Slater, Will Labor Law Prompt Conservative Justices to Adopt a Radical Theory of State Action?, 96 Neb. L. Rev. 62 (2017).
Late last year, in Janus v. AFSCME, the Supreme Court held unconstitutional all union-security clauses in public-sector collective-bargaining agreements. Union-security clauses are contractual provisions that oblige union bargaining unit members to pay agency fees – that portion of union dues that pays for collective-bargaining-related activities such as contract negotiations and grievance-arbitration. In finding that such clauses violate the First Amendment, the Court, in a 5-4 decision, overturned Abood v. Detroit Board of Education, a 41-year old precedent with no dissenting opinion. Many labor scholars (including Joseph Slater) and activists predict that Janus will have a large economic impact on unions because, under a doctrine known as the duty of fair representation, unions must represent employees whether those employees pay full dues, agency fees, or no dues. These thinkers thus predict that unions won’t be able to collect as much money to represent all employees. As a corollary, diminished union treasuries will foreseeably harm the Democratic Party insofar as unions tend to give more to the Democrats than to other political parties.
For these reasons, Professor Slater’s thoroughly researched, brilliantly analyzed, and well-written article, Will Labor Law Prompt Conservative Justices to Adopt a Radical Theory of State Action?, presents an important question: Given that the Court has unceremoniously disturbed stare decisis to declare all public-sector union-security clauses unconstitutional, will it find a way to declare all private-sector union-security clauses unconstitutional by adopting a broad theory of state action? Professor Slater correctly concludes that such a conclusion would be incoherent in theory and unworkable in practice. This is because to conclude that all such clauses in private-sector contracts are unconstitutional, the Court would have to adopt an unbounded theory of state action, which would effectively erase the state-action requirement from constitutional analysis and obliterate the public-private law distinction that is so fundamental to our constitution.
Why then is this such an important article? As Slater points out, there have been only two areas of private-sector law with which the Court has experimented in broadening the catchment area of state action: racial discrimination qua Shelley v. Kramer (finding state action in private, racially restrictive covenants) and union-security clauses qua Railway Employees’ Department v. Hanson (holding that union security clauses under the Railway Labor Act implicated the First Amendment, but failing to find a First Amendment violation). Until recently, courts had shut down both areas from further expansion. The concern then is this: Will a conservative court, which is hostile to unions, use this expansive theory of state action to declare private-sector union security clauses unconstitutional?
Slater’s argument is cogent in its simplicity: “union security clauses in the private sector do not implicate the First Amendment because there is no state action.” This is true under modern theories of state action, which are restrictive, and some historical but experimental theories suggested under Hanson, grounded in the National Labor Relations Act’s (NLRA) and Railway Labor Act’s (RLA) exclusive representation model, and under Keller v. State Bar of California. Hanson’s theory – that the RLA involved state action because it preempts state right-to-work laws – is incorrect because “federal preemption of state laws, regarding voluntary provisions in employment or other private contracts, does not create state action.” If this were true, then Title VII preemption of discriminatory contract clauses, for example, would create constitutional as well as statutory causes of action. Similarly, exclusivity – the NLRA and RLA principle that majority unions represent all employees in the bargaining unit, not only those who voted for the union – does not implicate state action because those labor statutes do not mandate union formation, require union-security clauses, or reward parties for adopting such clauses. In other words, there is no forced-association problem. This argument was articulated most prominently in Justice Black’s dissent in Machinists v. Street, where the majority avoided the constitutional issue by deciding the case on statutory grounds. Finally, in Keller, where the Court analogized attorney bar association fees to union dues and bar activities to union activities, the Court held that compulsory bar dues may not be used for political expenditures but may be spent on “activities connected with disciplining members of the bar or proposing ethical codes for the profession.” Slater also debunks the corollary to this argument, that unions are state actors insofar as the state grants them monopolistic powers. Slater not only explains that unions have limited power but also points out that “a government grant of monopoly powers to an otherwise private party does not make that party into a state actor even if the government also heavily regulates that party” (P. 84.)
Once again, if these arguments are so obvious, then why is this article so important? Slater suggests that the cases that might be used as precedent – Shelley and Steele– are better understood as occurring at a time when advocates and courts were willing to “ben[d] state action theory beyond any bounds that were previously recognized or would be recognized later, in an attempt to address the fundamental evil of racism in private economic transactions before statutes barred such discrimination” (P. 90). Accordingly, in these highly polarized times, were conservatives tempted to “ben[d] state action theory beyond any bounds that were previously recognized or would be recognized later, in an attempt to address [what they view as] the fundamental evil of [forced unionism] in private economic transactions,” Slater’s extensive research lays bare all the reasons that private-sector union-security clauses do not amount to state action. Accordingly, if an anti-union plaintiff attempts to put forward these arguments, reviewing courts will not be tempted to follow plaintiffs down this path, for fear of creating a greater evil – the elimination of state action once liberals recapture the Court. For example, an affirmative-action clause such as the one at issue in Steelworkers v. Weber, might not only create a statutory cause of action under Title VII but also a constitutional cause of action under the Fifth and Fourteenth Amendments.
In any event, Slater’s argument is important because the National Right to Work Foundation and other conservative or anti-union groups continue to argue that union-security clauses in the private sector are unconstitutional. In short, these cases remind us to be careful for what we wish. We might get it and much more.
Tristin Green and Angela Onwuachi-Willig are interested in the act of narration, and the power that lies in the choice to include or exclude. Green explores these themes in her recent essay, Was Sexual Harassment Law a Mistake? The Stories We Tell. As Green recounts, the U.S. Supreme Court recognized hostile work environment as an actionable form of sex discrimination in Meritor Savings Bank v. Vinson. In doing so, the Court seemed to reject the prior view of such harassment as mere “‘personal’ advances of a man toward the singular woman to which he is attracted,” and to adopt a structural view, recognizing that “others in the organization and the organizational structure itself [can be] causes of ongoing hostile environments.”
However, Green excavates the Meritor record, as well as the records of four other major Supreme Court decisions on sexual and racial harassment, and uncovers substantial evidence of structural problems in those workplaces that the Court excluded from its factual recitations and legal reasoning. She finds the stories of the plaintiffs’ co-workers who were also harassed, but whose testimony barely figured in the Court’s telling, and evidence that men other than the individuals accused participated in the same or separate acts of harassment. She also notes the unacknowledged role of the organization in each of these stories. Many of the workplaces she examined were highly segregated by sex, with “leaders . . . [who] did little to nothing to learn about the culture or behaviors in their workplaces,” and in fact exacerbated cultural and structural problems by failing “to change things about which they were aware.”
As Green shows us, when stories like these are absent from the official narrative, the law’s conception of the true nature and causes of sexual harassment re-narrows, and returns to the earlier “personal advances” view. In adopting this limited view, courts shut down those who try to tell broader, structural stories, and miss opportunities to make real change.
Green pushes us to adopt a broader view, to engage with culture and structure. And in her feminist rewriting of Meritor, Angela Onwuachi-Willig does just that. Writing as Justice Onwuachi-Willig, she takes the role of narrator, and places culture and structure, as well as history, squarely at the center of the story she tells.
For a reader accustomed to the Supreme Court’s own narrative choices in Meritor, and the similar choices of courts since then, Onwuachi-Willig’s deliberate inclusion of a different set of stories stands out. She describes Vinson taking a job as a bank teller, adding, almost casually, that Vinson then became “one of the more than 80 percent of women who worked as bank tellers nationwide.” This reference to the background occupational segregation in the banking industry jumps off the page, precisely because it is so different from the usual sexual harassment story-telling. So does her telling of the larger story of the power imbalance between Taylor, “a bank vice president, a church deacon, and the father of seven,” and Vinson, “a high-school dropout and divorcée,” who was married by age fourteen to an older man. Justice Onwuachi-Willig also tells the stories of the other women whom Taylor harassed, and the willful inaction of the men who ran Meritor Savings Bank. Finally, she adds race to the narrative, engaging with the stereotyping of African-American women as sexually available – even legally unrapeable – and African-American men as sexual aggressors.
Onwuachi-Willig’s story is dramatically, powerfully different from the one told by the white, male-dominated Meritor Court, and accomplishes what Green asks us to do: to recognize harassment in its full context, and to stop telling stories of individual aggressors and individual victims. Drawing on this story, Onwuachi-Willig develops a different sort of sexual harassment law from what we are used to, including strict liability for the employers of harassers. Strict liability is an important device, because it gets at structure, holding the employer – the entity that regulates the workplace – accountable for the environment it creates.
Taken together, Green’s and Onwuachi-Willig’s re-tellings of sexual harassment stories produce a very different kind of sexual harassment law than what we have now. In this age of #MeToo and Time’s Up, both are highly recommended reading to help us critique the stories we tell, and to begin to learn to tell – and understand – new ones.
Cite as: Charlotte S. Alexander, How to Tell Other Sexual Harassment Stories
, JOTWELL (Feb. 22, 2019) (reviewing Kristin K. Green, Was Sexual Harassment Law a Mistake? The Stories We Tell
, 128 Yale L.J. Forum
152 (2018); Angela Onwuachi-Willig & Kristen Konrad Tiscione, Rewrite of Meritor Savings Bank v. Vinson, 477 US 57 (1986)
, in Feminist Judgments: Rewritten Opinions of the United States Supreme Court
, Kathryn M. Stanchi, Linda L. Berger & Bridget A. Crawford, eds., Cambridge University Press (2016).), https://worklaw.jotwell.com/how-to-tell-other-sexual-harassment-stories/
Naomi R. Sunshine, Employees as Price-Takers, 22 Lewis & Clark L. Rev. 105 (2018).
In Employees as Price-Takers, Naomi Sunshine defines employees as workers who lack “significant input into the prices charged to customers and their own pay rates.” (P. 110.) Sunshine’s proposal comes amidst a blizzard of articles, court cases, tribunal opinions, legal briefs, and white papers all examining this critical issue. It stands out amidst the snow drifts because of its simplicity, and because it provides a creative and intuitive insight. Her price-setting definition of employment has the potential to reorient current debates around this new metric.
There are several competing definitions of “employee,” and Sunshine carefully surveys the landscape. She discusses the dominant “control” test with its different variations, as well as the “economic realities” test, the “entrepreneurial opportunities” test, and the relatively new “ABC” test used in California and elsewhere. She illustrates these tests with the example of an HVAC worker as the paradigmatic independent contractor and examines how the test would categorize such a worker. Sunshine’s quiet unpacking of the entrepreneurial opportunities test is particularly deft, as she works her way down to the test’s foundational focus on the opportunity for profit or loss. She shows how the test renders the most vulnerable workers even more vulnerable, as it leaves them bereft of employment protections even when the potential for profits is merely illusory.
Employees as Price-Takers also examines the idea of an intermediate category between employee and independent contractor. The article looks at academic and policy proposals like Harris and Krueger’s “independent worker” delineation, as well as laws such as Canada’s “dependent contractor” statutes. She questions whether a third category is necessary if such workers could appropriately be defined as employees. Her analysis raises important questions, such as: What would the purpose of this third category be? Which “employment” protections would be extended, and which would be withheld? As Sunshine points out, the Fair Labor Standards Act has an expansive definition of employee similar to the Canadian dependent contractor—and thereby may sneakily cover the intermediate category itself. And yet many of these “third way” proposals do not extend minimum wage or hour protection to this middle category.
The primary innovation of the article is its new definition of employment. Sunshine nicely sets out the case for making control over price and pay the critical component of employment—the one that renders employees economically vulnerable. She contends: “If the company controls prices vis-à-vis the customer . . . . the worker is really just a representative of the company—the customer has sought a service from the company, and the worker is the one fulfilling that service.” (P. 149.) Sunshine here keys in on the critical difference between working independently and working as part of a firm. Employees work for an economic firm, and the firm is the economic actor within the relevant marketplace. As Ronald Coase recognized in The Nature of the Firm, firms replace markets when they can operate more efficiently as a collective outside of the market. Independent contractors, on the other hand, are not part of the alleged employer—they work as sole proprietors, or as part of a different firm. In the words of the Restatement of Employment Law, “individuals provide services as independent businesspersons if they are able to serve their own economic interests through entrepreneurial control over a significant part of their costs or opportunities for profit.” This differentiation is a fairly basic economic one, and it should be a basic legal one, as well. However, reducing the differences between markets and firms to easily discernible factors has proven quite difficult. This is where Sunshine’s ingeniously simple test comes in: who sets the price? A worker who controls the pricesultimately charged to consumers for an end-product or service is an independent contractor; a worker who does not is an employee.
Sunshine does not resolve every theoretical and doctrinal issue related to this new test, nor would one expect her to do as much in a single article. She makes clear from the beginning that her test is best addressed to workers who interact directly with the customers, forming a triangular relationship between firm, worker, and customer. (Pp. 111-12.) In a bilateral relationship, the employee will always have a say over her pay, as it is (in theory) negotiated between the two parties. This distinction is why I initially found her reference to price and pay, rather than just price, to be confusing. However, her insights into the nature of control over contracting might also apply, in some ways, to bilateral relationships. Sunshine should go back to her HVAC example and think through how her insights on price might apply there.
One other wrinkle for Sunshine’s “price-pay” test is the algorithm used by Uber and other platform companies. Uber claims that it is not a transportation company, but rather an information services company that connects riders with drivers. The argument has some intuitive appeal: no one argues that eBay is a retailer when it provides a marketplace for goods. But Sunshine’s new test resolves this nicely, because the eBay sellers and buyers set their own prices. Uber, on the other hand, has established a metric for price-setting that drivers and customers do not control. If Uber were truly a marketplace, it would allow the drivers and riders to individually “bid” for rides using their own prices. But Uber’s control over prices means that it acts as the employer.
In creating a new price-oriented test for triangular employment relationships, Sunshine offers a more straightforward path through rocky terrain for judges, advocates, and workers themselves than now exists. As she recognizes, there may be a category of non-employees who nevertheless are dependent enough and vulnerable enough to deserve certain employment protections. But we harm the coherence of the “employee” category if we try to jam these workers in there. Employment is a category relating to the legal and economic context in which the worker labors. Sunshine’s article goes a long way in helping us conceptualize and define this category.
Ewan McGaughey, Democracy in America at Work: The History of Labor’s Vote in Corporate Governance
, 42 Seattle U. L. Rev.
__ (forthcoming 2019), available at SSRN
Like everybody else, I’ve been thinking a lot lately about democracy. How can we nurture faith in democracy when significant segments of the working class feel so disempowered that they either don’t vote at all or turn to nihilist, xenophobic, racist, or hateful visions of American life offered by speakers who seem to have less interest in governance than in nurturing grievances? Although turn-out in the mid-terms was high, as mid-term elections go anyway, still many people who could have voted did not vote. This invites the question about what law can do to build institutional structures and a culture that convinces the disaffected that they can join together to build a better world. One of the very few things on which one can find agreement between the right and the left today is that a lot of poor people and working people have been left behind by the elites that seem increasingly to control their work lives, their economy, and politics. But the agreement stops there, and the sense of polarized stalemate only breeds cynicism and despair.
I found an antidote to despair in reading Ewan McGaughey’s forthcoming paper, Democracy in America at Work: The History of Labor’s Vote in Corporate Governance. It is a perceptive, broadly synthetic, and snappily-written account of the past and possible future of labor’s role in corporate democracy. The paper enriched my thinking about re-linking democracy in political life with democracy in work life. It bubbles over with ideas about how law could create a more accountable form of capitalism. Based on an admirably succinct survey of the history of labor involvement in corporate governance, McGaughey articulates a bold, provocative, and exciting thesis: “Democratic voice in the economy is embedded in American tradition, efficient, legitimate, and (even without federal law reform) could be written into state laws today.” (P. 3.)
The paper opens with the father of modern American corporate law, A.A. Berle, who (according to McGaughey) had quite a bit to say in favor of democracy in the economy; giving labor rights to limit the “power of corporate managements with respect to wages and labor relations” would strengthen political and economic democracy because “democracy in the economy would follow the ‘corporate’ revolution,’ just as democracy in politics followed the industrial revolution.” The paper then name-checks a variety of bills recently introduced in Congress (with no hope of passage, of course) that would require things like employee election of 40% of the board seats in $1 billion companies, or 33% of board seats in listed companies, or 50% of seats on boards of single-employer pension plans. (P. 2.) McGaughey’s task in this paper is to normalize these proposals – to show they are not unprecedented in history, or inefficient or otherwise outrageous as a matter of corporate law. Along the way he suggests reasons why labor and progressive scholar-activists should pay more attention to whose money is on Wall Street (the modest retirement savings of a lot of working people) and the legal rules affecting who has a say over what Wall Street financiers do with Louis Brandeis famously, and still accurately, called “Other People’s Money.”
McGaughey recounts many examples of labor’s involvement in corporate governance from the nineteenth century through the twentieth. Along the way, he finds examples of many of the labor law reforms being proposed today, including tripartite wage boards, sectoral bargaining, works councils promoted by the National War Labor Board during World War I, and union membership on corporate boards. A cigar manufacturer in 1879 settled a strike by creating a tripartite board to resolve disputes over wages and working conditions. The UAW negotiated, successfully, to have a labor representative on Chrysler’s board of directors from 1980 to 1984. In between, he examines some isolated examples of tripartite systems for setting working conditions and numerous examples of labor involvement in pension plan administration. And he gives sustained attention to a Massachusetts law enacted in 1919, signed by then-governor Calvin Coolidge and still on the books today, that allows “a manufacturing corporation [to] provide by by-law for the nomination and election by its employees of one or more of them as members of its board of directors.” Boston’s famous clothing store, Filene’s, had four of its eleven board members chosen by employees in 1922.
The historian in me wanted much more on each of these examples – what they actually accomplished for labor, what conditions gave rise to them, whether they reflected actual power for workers, and why they disappeared. But that would, of course, make a pithy article into a tome. But what they suggest about what might be done today is more significant to McGaughey than what they achieved and why they failed. He uses them as contrast for the narrative that has become so familiar since Thomas Picketty, and others before and since, have charted the rise of inequality against the decline of unions. McGaughey points out that it’s not just that, when workers had unions, unions were able to negotiate that the fruits of capitalism were shared more equitably (though never even close to equally) between the top 1 percent and everyone else. Rather, it’s that without unions, capitalism has been more undemocratic – more autocratic – than at any time in modern American history because corporate leadership, financial analysts, and the leaders of elite financial institutions make all the decisions about other people’s jobs. Even more appalling, however, is that they do so using the pension investments and savings accounts of ordinary people; they run the economy using other people’s money.
McGaughey then explodes the myth that shareholder primacy in corporate law means shareholder democracy, or even any real form of corporate accountability to the majority of shareholders. Rather, he explains, the only accountability that the modern law and theory of “shareholder primacy” delivers is to the financial advisors who work with a small handful of large institutional investors. As he says, “Asset managers control shareholder voting rights with other people’s money.” (P. 42.) And this is not a system that emerged out of a natural search for an efficient system of corporate governance. “The monopolization of shareholder votes by asset managers is not a system that emerged in a competitive environment, but one backed by the coercive power of federal law, and the unequal bargaining power of captured capital.” (P. 43.) These advisors have, he points out, such deep and strong conflicts of interest that it’s a myth to imagine they are acting in the interest of shareholders at all. And the results, he argues, are not even efficient, or productivity-maximizing, or wealth maximizing in economic terms.
Finally, McGaughey explores ways that states, through their corporate law, could lead the way in adopting legal reforms that would create the conditions for actual democracy at work. He asserts that law of three blue- or blue-leaning states (California, New York, and Delaware) account for the vast majority of incorporations. (P. 45.) He argues that there are no federal legal barriers to these three states enacting laws requiring labor representation on the corporate board of directors. (This assertion may vastly overstate Delaware’s willingness to jeopardize its position as a leader of corporate law by doing anything at all that would upset corporate leadership, and it may also underestimate the seriousness of the race-to-the bottom problem if states were to try to regulate membership on corporate boards.) He proposes how states could play a role in creating a more accountable form of capitalism by requiring the creation of truly independent works councils, along the lines that the United States occupying force wrote for Germany in 1946. (P. 45.)
This is a relatively lean article for all that it aspires to do (47 double-spaced pages in manuscript). Much of it is suggestive rather than exhaustive. But that means it’s suggestive of future work rather than exhausting to read. I hazard no opinions on McGaughey’s analysis of corporate law. But I appreciate the ambition to think of ways that capitalism could be made more democratic. And in this time of political alarm or malaise, I welcome creative ideas about how law could provide tools to enable the working class to feel more empowered at work and in the economy.
Catherine Fisk and Martin Malin, After Janus
, 107 Cal. L. Rev. __ (forthcoming 2019), available at SSRN
Have you ever had an idea for an article, but then somebody else beat you to writing it and did a better job than you would have with the topic? After Janus is my first experience with that, and not surprisingly, its co-authors are scholars I respect immensely.
Janus v. AFSCME held that all union security clauses (contract provisions requiring members of union bargaining units to pay their share of the costs of union representation) in the public sector violate the First Amendment. This constitutionally imposed “right to work” rule will cause unions significant financial damage, mainly because under “duty of fair representation” (DFR) rules, unions generally must represent members of union bargaining units without regard to whether or not they pay any dues. Scholars have been working on ways unions could get around some or all of the negative effects of Janus. Current ideas include getting rid of the “majority exclusive representative” model, adjusting DFR rules, or requiring employers to pay for unions’ collective bargaining costs. AfterJanus responds to these proposals with what I believe is appropriate skepticism. Further, it creatively reframes the union’s financial dilemma as a collective action problem, as opposed to the more common framing of a free-rider problem. It also makes some potentially very useful alternative suggestions. Because it addresses so many topics, the summary below barely hits the highlights. Anyone interested in labor law and policy should read this article in full.
First, the article stresses that “right to work” rules create collective action, not free rider, issues. The problem is that, without a way to require everyone who benefits from union representation to pay for it, it becomes economically rational for more and more employees simply not to pay for the benefits. This means, crucially, that the union will be increasingly unable to provide common goods on which bargaining unit members could “free ride.” The article gives examples of bargaining units in “right to work” jurisdictions whose members vote by substantial majorities to unionize or to remain unionized, while only a minority pay any dues.
The article then critiques several proposals union supporters have made, showing that they do not solve the collective action problem and detailing other flaws. In one of my only quibbles with the article, it largely combines the “eliminate exclusive majority” idea with the “alter DFR rules in grievance/arbitration handling” idea under the general rubric of “Members Only Representation.” I think these ideas are more conceptually separate, but the article deals well with both.
Getting rid of majority/exclusive representation is popular among some labor law scholars, and it would solve the problem of forcing unions to represent those who don’t pay dues. However, there are at least two reasons this is not a way around Janus. First, it is unrealistic politically. As the article shows, among other things, the U.S. labor movement, including major public sector unions such as AFSCME, AFT, NEA, and SEIU, do not want to get rid of it. Second, and more controversially, the article argues that the limited experience with members-only bargaining in the U.S. shows that “such systems are fraught with problems for both employers and employees” (e.g. a system in California schools prior to 1976).
A less radical and more feasible solution would be to adjust DFR rules such that unions either did not have to represent workers who don’t pay dues in grievance/arbitration proceedings, or could require workers to pay the costs of arbitrations or other disciplinary hearings. Janus explicitly left the door open for that, although the opinion stressed that unions would still have to represent all members of bargaining units in contract negotiations. Again, this has some appeal at first glance, and a few states (Florida, Nebraska, Nevada, and New York) already have modified their DFR rules along these lines.
There are complications, however. What about other types of representation? Public-sector unions traditionally represent employees in, e.g., civil service hearings, in suits under employment laws and state and federal constitutional provisions. Moreover, the article shows that states that have adopted this option often have low union density rates. This is partly because most employees don’t think they will need a union in a discipline cases. It does not solve the collective action problem because it turns union membership into a form of last-minute insurance policy. Also, letting individual members handle arbitrations would limit the union’s ability to refine general contract language into specific rights in the interest of all bargaining unit members.
The article also analyzes the proposal that employers should, in some way, pay the costs of contract negotiation. Problems here include making unions financially dependent on employers, leaving union financial health vulnerable to political change, possibly impeding union democracy and lessening motivation for local unions to engage employees, and creating a perception that the public is paying for unions.
Malin and Fisk have some creative alternative suggestions. First, unions could compel employees to make contributions equal to the cost of agency fees to some other 501(c)(3) organization, as is done with religious objectors; this would lessen employees’ incentives to refrain from paying union fees for economic reasons, while still allowing ideological objectors an alternative to supporting a union. Second, unions could assess employees a pro-rata share of estimated total arbitration fees for a year. So, for example if a union spent a total of $25,000 in a given year on arbitrations, and the bargaining unit had 250 members, a bargaining unit member who refused to pay dues could be charged a $100 share of the total arbitration fees. Third, unions could add more “members-only” benefits, such as insurance, free legal representation, and voluntary shift-trading or leave banks. Fourth, unions can engage in more member education – a route that many unions are taking, assisted by state laws designed to facilitate union-worker contact.
A “Jot” can only scratch the surface of this sophisticated, multi-faceted article. It is a must-read for all labor scholars. I liked it a lot.
Elizabeth Chika Tippett, Harassment Trainings: A Content Analysis
, __ Berkeley J. Emp. & Lab. L.
__ (forthcoming 2018), available at SSRN
Every couple of years, some automated program at the University nags me about renewing my sexual harassment training. Since the computer provides no way for me to claim an exemption for my work on the topic over the years, I usually procrastinate a few weeks and then give in, log on, and spend the 20 or so minutes needed to run through the process and get my certificate of compliance. (Why I need a certificate when the program presumably keeps track of my efforts is another question). Each time, I finish thinking how incredibly stupid the training is—and not just because I—like pretty much everyone reading this on Jotwell—know more than the average person about the topic.
But “stupid” is probably counterbalanced by cheap and efficient—if “cheap” means compared to live efforts and “efficient” means a low cost way of checking the “reasonable care to prevent” box for avoiding liability for sexual harassment. And I don’t deny it works since I can’t recall a case where a court found colorable employer training efforts to be per se insufficient to “prevent” misconduct.
Nevertheless, I ask myself each time—can this possibly be what the Supreme Court had in mind?
The difference between me and Tippett is that I’ve never gone further to figure out whether my university is using “best practices” or even “ok practices” in training its employees on this important topic. Liz did, and in an impressive way. Harassment Trainings: A Content Analysis builds on the line of literature started by Susan Bisom-Rapp’s groundbreaking Fixing Watches with Sledgehammers, and Ounce of Prevention articles. It both updates the earlier research and provides a remarkable on-the-ground view of the cottage industry of antiharassment training, with a focus on the nearly two decades since the Supreme Court’s employer liability structure in theory changed the way employers did business.
From reading A Content Analysis, it turns out that my experience with sexual harassment training isn’t so unusual after all. And maybe the limitations of employer training have something to do with the reality that #MeToo has exposed: The Court’s elaborate social engineering effort to shift the incentives of both employers and employees in order to rid the workplace of harassment has largely been a failure.
Liz’s article has a number of unexpected findings. Examining the harassment training from 1980 to 2016, she shows that much of the content actually traces back long before Faragher/Ellerth. But, surprisingly, considering how so much else has changed in both law and learning theory, the training long ago coalesced into a “genre” consisting of an authoritative figure summarizing legal rules and giving examples of prohibited conduct. Further, she reports that “current trainings include large quantities of tangential legal information and overemphasize sexual conduct at the expense of other forms of harassment. They also tend to suggest that relatively trivial slights could give rise to harassment-related liability.” That certainly matches my experiences.
More interestingly, she also reports that earlier training had “two competing narratives”—abuse of power taking a toll on victims and liability risks that could affect company performance. But the “power-based narrative faded over time,” and current training tends to focus on the “business case” for preventing harassment—it’s a violation of company policy. That, she argues, tends to deemphasize that harassment is a form of discrimination, with the consequent dilution of the moral case against such conduct. For example, current training tends to ignore stereotyping discrimination or gender-based harassment. Liz argues that there is reason to believe that a focus on the wrongfulness of the conduct might also be more effective in deterring it than an “it’s against the rules” approach. Further, Tippett suggests that framing the law as prohibiting a “wide swath of behavior” may “inadvertently signal” that avoiding interactions with women or other potential victims is the best way to avoid problems, which has obvious negative implications for the cause of workplace equality.
The author concludes by sketching some “new and different approaches” that might be taken to training, including training more tailored to reported individual differences in attitudes, beliefs, or self-reported behavior. And resonating with my experiences was her recommendation of “more authentic content,” which strikes me as more engaging and therefore more likely to leave a lasting impression. One example was, rather than just identifying problematic conduct, having a session that requires managers to respond to how they would deal with a particular scenario. That not only gets the point across about the conduct in question but also engages the trainee in the complicated dynamics of changing objectionable behavior in the workplace.
This project can’t have been easy—to gather her data of 74 examples from 61 providers, Liz had to contact 175 professional trainers and law firms and scour libraries for historical materials. To my mind, that makes the project more important. After all, the point of legal rules is to affect conduct on the ground and it’s impossible to assess the success or failure of any particular regime unless one can determine how conduct changes.
There’s a lot more to the article than I have described, but I hope I’ve explained why I like the piece a lot.
However, there’s an obvious downside to studies such as this: while it is very effective in revealing the shortcomings of current training efforts, it also suggests that mediocre training is the current standard of care for employers, which might make it more difficult to reform such training. Another item to put on the #MeToo agenda.
Cite as: Charles A. Sullivan, Train Smarter
(November 16, 2018) (reviewing Elizabeth Chika Tippett, Harassment Trainings: A Content Analysis
, __ Berkeley J. Emp. & Lab. L.
__ (forthcoming 2018), available at SSRN), https://worklaw.jotwell.com/train-smarter/
Much has been written about employers’ mandates that their employees arbitrate claims on an individual basis. Empirical studies have examined employee success rates in arbitration, comparing them to employee success rates in litigation, and the effects of the employer being the only repeat player in the process. Scholars have also examined the evolving abdication by courts of their role in policing arbitration mandates. Cynthia Estlund’s article examines a more basic question: when employers impose arbitration mandates on their employees, do employee claims even get brought? Her answer is a resounding “rarely,” and much more rarely than when the claims can be brought in court.
Estlund acknowledges the challenges in collecting data about employment arbitration. She works with data assembled by Alexander Colvin and his colleagues. Colvin’s studies focus on the American Arbitration Association (AAA), which he estimates is designated in about half of employment arbitration agreements. Colvin also estimates that 56% of private sector non-agricultural employees are covered by arbitration mandates.
The starting point for Estlund’s analysis of claim filing is AAA’s report that in 2016, 2879 individuals filed employment claims. Given that AAA has about half of the employment arbitration business, she doubles this to produce an estimate of 5126 total cases. She then turns to the number of employment cases filed in federal court in 2016, 31,000. If 56% of employees nationwide were subject to employer-imposed arbitration mandates, Estlund reasons, and employees filed arbitration demands with the same frequency as they filed suit, we would expect 39,000 claims in arbitration. She reduces this figure to account for the 15.2% of employees who work in the public sector and to account for the possibility that some, even many, of the federal court filings were by employees subject to arbitration mandates. This yields an estimate of between 9600 and 28,400 expected arbitration claims if employees are as likely to pursue their claims in arbitration as in court. She adjusts the figure upward to take into account state court filings, relying on an estimate of 195,000 per year developed by Mark Gough, and for collective actions in Fair Labor Standards Act (FLSA) cases, which she estimates included 350,000 individuals. She concludes that if employees are as likely to file arbitration demands as law suits, there would be between 320,000 and 727,000 claims in arbitration, or that under 2 percent of the claims one would expect to find actually enter the arbitration process.
Estlund addresses two limitations of her analysis. First, she observes, larger employers are more likely than smaller ones to impose arbitration mandates, and they are also more likely to comply with the employment laws. Second, she relates that many large employers incorporate arbitration in a comprehensive dispute resolution system that includes mediation and many claims may get resolved in earlier stages of the system. But she urges, correctly in my view, that the disparity between the number of arbitration claims we would expect to be filed and the number that are actually filed is so great that these two limitations cannot come close to explaining it.
I have a few quibbles with Estlund’s work. First, I don’t agree with including the individual employees covered by FLSA collective actions in her total figures for law suits filed. Those who join collective actions have not taken the initiative on their own to file suit. They have responded to notices inviting them to join lawsuits already filed. A more apples-to-apples comparison would be between those employees who took the initiative to file suit and those who took the initiative to file arbitration demands. Second, Estlund relied on Colvin’s data, which focused exclusively on AAA cases. J. Ryan Lamar and David Lipsky have conducted extensive empirical analysis of FINRA employment arbitration. It would be nice to see if their data is consistent with Colvin’s with respect to likelihood that an employee will file an arbitration demand. Third, Estlund relied on data from 2016. She had to, as that was the most recent data available to her. But in 2016, the plaintiffs employment bar was just beginning to deal with the Supreme Court’s gutting of the key tools of judicial policing of the fairness of employer-mandated arbitration procedures in AT&T Mobility v. Concepcion and American Express v. Italian Colors Restaurant.
In 2018, plaintiffs’ lawyers are increasingly responding to employer mandates of individual arbitration by filing hundreds, and in some cases thousands, of individual arbitration demands. Such actions give plaintiffs significant settlement leverage because under AAA rules, employers are responsible for all AAA fees and all arbitrator fees. In light of this development, it would not surprise me if the number of arbitration cases has increased significantly since 2016 and will continue to increase in the coming years. It also will not surprise me if employers drop their arbitration mandates once they realize that they could be facing hundreds of thousands of dollars, and in the cases with the largest number of filings millions of dollars, in arbitration fees.
These quibbles aside, Estlund makes a compelling case that under current conditions, employment claims mostly disappear into a black hole when employers mandate individual arbitration. The notion that by agreeing to arbitrate, an employee does not waive statutory rights but merely agrees to seek redress for violations of those rights in an arbitral rather than a judicial forum has become nothing more than a legal myth, or as Estlund puts it, judicial “complicit[y] in employers’ effective nullification of employee rights and protections.”