Market News
State Employment Regulation, Job Growth, and Managing your Workforce
April 15, 2011
Amidst the backdrop of a sluggish economy, the U.S. Chamber of Commerce released its 2011 study of how state employment policies are impacting each State’s economic development. The Chamber’s report relies on the research of Jeffrey Eisenach, Ph.D. of Navigant Economics, LLC, as well as the law firm of Seyfarth Shaw LLP. The study categorizes each state into tiers based upon the Chamber’s Employment Regulation Index variable, which is composed from a vector of 34 labor and employment policies, including a State’s treatment of the Employment-At-Will Doctrine, View of Employee-Independent Contractor Relationships, Prevailing Wage Laws in the given State, Collective-Bargaining Constraints, and the Employment Litigation Climate of the State. A higher ranking of these measures corresponds to a State’s regulatory regime which imposes greater compliance requirements than the Federal policymakers. These heightened standards, the Chamber notes, are limiting potential job creation and impeding economic growth. The Chamber concludes that if all States would reduce their labor and employment policies to match those at the Federal level, then “the effect would be equivalent to creating a one-time boost of approximately 746,000 net new jobs nationwide.”
However, the Chamber’s report has attracted many critics. One such commentator, Ross Eisenbrey of the Economic Policy Institute, notes that not only does the Chamber employ a “faulty regression analysis,” but it also “mischaracterizes” many of the variables included in its Employment Regulation Index. Eisenbrey contends that the Chamber disregards much of the existing evidence which relates State labor and employment policies to job creation and employee protections. He chronicles State-level WARN acts, Workers Compensation laws, and other regulations in his conclusion that the Chamber’s report is misleading to say the least.
Considering the Chamber’s study and its opposing viewpoints in their entirety, what could an employer learn from each party’s observations to perhaps better manage its workforce, but simultaneously reduce its risk of being penalized for noncompliance? An obvious first step is to become familiar with the employment legislation of the States in which you operate. Does your State maintain any common law or statutory exceptions to the Employment-At-Will Doctrine? Does your State maintain any additional or different Employment and Equal Opportunity Laws? Once you have researched the legal framework of your State or have consulted with an advisor of some kind, you should consider reviewing your company’s handbook with added scrutiny in searching for explicit or implicit contractual language (such as Probationary period) or flaws in your company’s Disciplinary Policy.
Upon a thorough review of your company’s handbook, it is also recommended to evaluate your company’s risk management plan. Does your company have a termination procedure? Does your company have a method of classifying individuals who perform work for the company as independent contractors and are not considered employees? What is your company’s method for classifying employees as exempt or non-exempt under the Fair Labor Standards Act, and what are the overtime pay requirements in your State? Aside from these internal procedures, your company may also wish to evaluate or re-evaluate its need for certain insurance products. Coverages, such as Employment Practices Liability, could help defend your company regardless of the labor and employment laws in your State. For one constant, notwithstanding the legal framework of your state or the potential advantages and disadvantages associated with it, is the escalating rate of lawsuits in our litigious society. Therefore, affording your company the appropriate protections through internal or external means which address this increasing level of litigation, as well as correspond with State-specific mandates, can provide you with the assurance you need in an uncertain and evolving legislative climate.
References:
U.S. Chamber of Commerce
http://www.uschamber.com/reports/impact-state-employment-policies-job-growth-50-state-review
Economic Policy Institute
http://www.epi.org/analysis_and_opinion/entry/the_chamber_of_commerces_employment_regulation_index/
Statistical Foundations:
Juan C. Botero, et al., “The Regulation of Labor.” The Quarterly Journal of Economics (November 2004) 1339-1382.
http://qje.oxfordjournals.org/content/119/4/1339.abstract
Auto, David H., John J. Donohue III, and Stewart J. Schwab. 2002. “The Costs of Wrongful-Discharge Laws.” Working Paper 9425. Cambridge, Mass.: National Bureau of Economic Research.
