Recently in Employment Law Category

The EEOC has settled a suit against Pepsi for $3.1 million: Pepsi was neutrally using criminal background checks "indiscriminately," including excluding applicants with pending criminal charges, and the EEOC alleged that this had an impermissible disparate impact against African-Americans. Pepsi immediately caved. [EEOC press release]

Earlier.

Five years ago today, we discussed San Francisco's sweeping Proposition F, imposing huge sick-leave administrative requirements on small employers, including families that hire babysitters. So how has it worked? Press coverage, building off of a left-wing thinktank survey, has been uniformly positive, with one employer admitting that the law imposed an additional $110,000 cost on him, but that he still liked the law. The Monitor didn't interview anyone who opposed the law, but the fact that two thirds of employers claim to support the law means that one third don't, and it's the marginal effects of the law that are important for public-policy purposes, yet no one has measured those.

The study is further double-edged, as it shows that many employees are not aware of the law, suggesting that the full cost has yet to be realized; too, the study does not interview the unemployed workers who do not have jobs because the sick-leave law made them unprofitable to hire. One reason that the law's effect may be muted is because there doesn't seem to be enforcement of the more draconian aspects of the law—which can change on a dime through public or private enforcement. Moreover, the press coverage does not mention that San Francisco's unemployment rate has more than doubled since the law was passed. Of course, there are confounding factors in the rise in the unemployment rate (I wouldn't contend that Prop F is the sole cause of the rise), but surely a $1000/employee/year increase in mandated benefit expense has some effect.

As I've noted before, these sorts of mandates are not free to employees. If San Francisco mandates an additional $1000/year in benefits to employees, employers are simply going to pay employees $1000/year less in wages. The effect will be heaviest on low-skill workers, who may be unprofitable to hire at the high combination of San Francisco's high minimum wage and benefits requirements, and thus lose jobs. These effects are very real, but aren't going to be captured in surveys. The press and the academic community have fallen short on the job here.

Under a recent amendment to the federal Fair Labor Standards Act, employers must reconfigure their offices to create a dedicated disturbance-free space for breast-feeding mothers "that is inaccessible to other employees, and, in most cases, enable nursing mothers to refrigerate the expressed milk." Bathrooms don't count. The Department of Labor has started issuing citations enforcing the law, but employers need not worry about the additional expense says activist Danielle Rigg, because "Employers stand to win big from employees breastfeeding. Making it a top priority promotes less absenteeism, fewer healthcare costs and happier moms who are employees." [HuffPo via ABAJ] Which raises the question why, if it's so beneficial for employers to spend extra money on breast-feeding mothers, one needs a federal law imposing this practice upon employers.

These sorts of regulations are not free. Every time Congress or the courts or regulators impose an additional burden upon employers relating to employees, it increases the marginal cost of hiring employees: not just the compliance cost of the additional real estate in this case, but the additional costs of a legal and HR bureaucracy that has to keep track of all of the requirements and ensure compliance, and the additional taxes that go to enforcement. That comes directly out of the wages and other benefits employers are willing to pay employees, and means that, at the margin, some jobs will be lost as employers look for other ways to get productivity without more expensive employees. If Congress decided that every employee working eight hours a day should get a free $5 Starbucks gift card, employers will respond by reducing wages $5/day—or hiring fewer workers at the 8-hour/day mark. Congress may think it's benefiting employees when it mandates perks, but this is not a wealth transfer from employers to employees. Employees' marginal benefit must still exceed their marginal cost or they won't be employees. Instead it is a wealth transfer from all employees to breast-feeding mothers and non-productive bureaucrats, with a deadweight loss to society.

Now, certainly, we as a society can decide that this is a cost we should bear—though if there is social demand for this, one wonders why societal disapproval for businesses unfriendly to mothers is not sufficient to achieve this result without inefficient top-down enforcement that might be unduly Procrustean. And if Rigg is right, businesses will be excited to incur these additional marginal costs in exchange for the marginal benefits. But in an era of 8.5% unemployment, voters and policymakers should be looking closer at the question of whether it's better to have legislators or bottom-up voluntary transactions decide what employee benefits are worth wage and job cuts.

In his piece Obama EEOC Wipes Out Jobs By Making Hiring More Difficult featured on examiner.com, Hans Bader, senior attorney and counsel for special projects at the Competitive Enterprise Institute, outlines his position that President Obama's Equal Employment Opportunity Commission appointees are expanding the agency's enforcement authority via overly broad statutory interpretation. Such interpretation, according to Hans, in effect creates a Catch-22 where businesses attempting to avoid EEOC suits by taking compliance measures get sued anyway for violating other conflicting laws or regulations in their effort to employ those very compliance measures. Such aggressive enforcement has already deterred businesses from hiring new employees.

Hans points to some interesting examples, such as the following:

The EEOC has sued employers who sensibly refuse to hire as truckers people with a history of heavy drinking and alcoholism. It has done so even though if employers do hire alcoholics for such safety-sensitive positions, they will be sued under state tort laws when the alcoholic driver has an accident. The EEOC's demand that such employers disregard histories of alcoholism is based on an extremely expansive, and dubious, interpretation of the Americans with Disabilities Act.

The EEOC is suing employers over the use of criminal histories in hiring, and harassing employers who conduct criminal background checks, even though employers who hire criminals end up getting sued when those employees commit crimes while on the employer's payroll. The EEOC's demands thus place employers in an impossible dilemma where they can be sued no matter what they do.

The EEOC is also suing employers who don't bend sensible workplace rules to accommodate the obese, claiming that obesity is a disability. And it is suing employers who take into account bad credit and financial histories in hiring, even though failure to take that into account can lead to lawsuits against banks and property managers by customers.

Speaking of how easy it is for employees to bring profitable meritless claims against employers, the case of William Burch and Champion is fascinating. Champion, which makes air filters, fired Burch. Burch decided to sue for wrongful termination, and tried to make his case better by faking evidence of criminal price-fixing by backdating price-increase sheets. The falsified evidence has led to criminal investigations and class-action suits; Burch himself was able to settle his employment suit for $450,000.

Burch has since pled guilty, and was sentenced to two years for misleading prosecutors. But the lawyers who brought the bogus suit are still proceeding as if nothing has changed and are resisting motions to throw out the civil litigation. Nothing in Burch's sentence requires him to repay Champion. [Bloomberg via Schachter @ NY Post, who has nice things to say about me.]

I wasn't a huge fan of Herman Cain last week: as the last three years have shown us, the presidency requires more than a lightly-experienced charming guy who can turn a pretty phrase. The sexual harassment allegations have lowered my opinion of Cain, though not so much because I think Cain engaged in flirting, but because someone running on his business experience is demonstrating that he isn't very good at crisis-management either.

I don't have the faintest idea whether Cain is guilty of sexual harassment two decades ago. As Curt Levey notes, the complaints that have been aired to date rise to the level of Clintonian flirting rather than something actionable, though that doesn't mean that there wasn't more to it than that. More importantly, the fact of a five-digit settlement (the story of this changes, but now it appears that it was a year's pay to a $35,000/year employee) indicates absolutely nothing. Kurt Schlichter has a good piece in the New York Post:

When you consider that, more than a decade ago, Herman Cain settled some unspecified sexual-harassment claims, you also need to consider that the only things you need to file a lawsuit are the filing fee and a printer. Facts are optional.

Maybe Cain did harass some employees. But the dirty little secret among lawyers that defend business people from lawsuits -- and among those lawyers who bring them -- is that an enormous percentage of such claims are frivolous, if not flat-out lies. ...

Lawsuits are so expensive to defend that it makes good business sense to settle even the most frivolous cases. And businesses do. ...

In the world of sexual-harassment law, the accusations are bad enough. You're guilty until proven innocent. The law is skewed toward the plaintiffs -- it's hard to get even the silliest charges tossed out, and even then it often costs upward of six figures to do so.

Businesses almost never collect their legal fees back after defeating frivolous claims, but a winning plaintiff usually does. And when the lawyer is working on a contingency, taking 40 percent or more of the haul and fronting the costs of the suit, there's little incentive not to march down to the courthouse and file even the flimsiest case.

Indeed, it is so easy to bring a profitable sexual harassment claim that it's frankly a testament to the sturdiness of our civil society that we don't see much more of them, true and false. That said, just as a payoff doesn't indicate a true sexual harassment claim, it doesn't indicate a false one, either.

I was alone in complaining about the one-sided media coverage of the Jamie Leigh Jones litigation, but yesterday, a few years later, the Houston Chronicle comes around to criticizing the media coverage as a sidebar to a longer post-mortem on the case.

The Atlantic weighs in about the unworkability of the proposal in Barack Obama's American Jobs Act to permit litigation over alleged discrimination against the unemployed; Point of Law readers already knew that.

Charles Lane via Mickey Kaus:

"I agree that there are some rules and regulations that put an unnecessary burden on businesses at a time when they can least afford it," Obama told the Congress. So why the heck would he create another one?

The problems with this bill are no surprise to Point of Law readers.

In the face of persistent unemployment, the New York Times publishes an op-ed to create a burdensome litigation right that will only make it more expensive to hire employees: to wit, ugliness discrimination lawsuits, perhaps as an extension of the Americans with Disabilities Act. Some jurisdictions, such as the District of Columbia, purport to allow such lawsuits already. No one ever seems to think about the workability of such litigation: does a "7" have a prima facie cause of action if he or she is passed over a promotion for a "9"? Is a pleasant appearance a legitimate job requirement for sales, or does an employer have to accept the problem of repulsing customers? Is slovenliness and being unkempt protected, or does the right only extend to aesthetic problems of the face and body?

Daniel Hammermesh, in the course of promoting his new book, proposes solving this problem: "For purposes of administering a law, we surely could agree on who is truly ugly, perhaps the worst-looking 1 or 2 percent of the population." Of course, that only leads to litigation over whether a plaintiff is in the second percentile or the third percentile. I'm reminded of Judge Easterbrook's concurring opinion in Gammon v. GC Services over the problems of interpreting a law to give a cause of action for deception of the "least sophisticated consumer":

[U]sing the "least sophisticated consumer" as the benchmark would create big problems when determining whether the plaintiff belongs to the class he purports to represent. Imagine the deposition:

Q: Mr. Gammon, I see that you received a C+ in high school English and read detective stories. How then can you be included among the least sophisticated recipients of debt collection notices?
A: Counsel, even my best friends will tell you that I am a simpering fool.

Will a defendant in an ugliness trial be allowed to require the plaintiff to get a makeover before presentation to the jury over the question of whether the plaintiff is in the protected class, or can the plaintiff deliberately choose unflattering makeup and clothing? And what do we do with the fact that jurors are more sympathetic to better-looking plaintiffs and attorneys?

The sad thing is that Hammermesh is a professor of economics. I'd expect this sort of nonsense from a law professor or a sociologist, but you'd think that an economist would have a basic understanding of transactions costs before proposing such public policy malpractice.