Government, Courts, and the World of Work

Small employers are fretting over the possibility that they may be coerced into providing health care insurance to their employees.  They say that the recently unveiled House health care reform bill, which requires most employers to provide health care insurance or pay a payroll tax, will kill jobs. 

Under the House bill, nearly every American will be required to have health care coverage.  Employers with payrolls exceeding $400,000 would have to provide coverage or pay an 8% payroll tax.  Employers with payrolls between $250,000 and $400,000 a year would pay a smaller tax, and those less than $250,000 would be exempt.

Small employers that do not provide insurance say that it is too expensive.  For a small business in New Jeresy, the average cost per employee in 2006 was $7,561. The cost of health care premiums in the state rose nearly five times faster than wages this decade. Premiums in New Jersey rose 71%, while earnings increased just 15% between 2000 and 2007.

Thus, the employer mandate will clearly increase the costs of small business in New Jersey.  Since they mostly provide goods and services in the local economy, they can cut back on employment but not that much, because they still need employees to provide the service. They will have to raise prices and pass it onto customers.  In short, its probably going to be cheaper to pay the 8% tax than to provide health insurance.

But what about the small employers that currently provide health insurance?  They are footing the bill for the employers who do not provide insurance in the form of higher premiums.  Likewise, they will continue to subsidize the employer that chooses to pay the tax. So for them, the big unintended consequence of the mandate is to create an incentive to discontinue providing insurance and shift the burden onto employees and taxpayers. Here’s why:

Currently, employer-provided health care is completely voluntary. While 96% of employers with 50 or more employees provide health insurance, only about half of small employers provide health insurance. For about one in eight of the over one million uninsured in New Jersey, at least one person in the family works. 

Of the small employers that provide health insurance, many continue to pass the costs of higher premiums onto employees in the form of bigger deductibles and co-pays. The result is that employees are declining or dropping insurance because it is increasingly unaffordable.

Advocates of the health care mandate are taking a big leap of faith that small employers will not cut back or drop coverage entirely. They believe that the competition for talented employees and avoidance of the payroll tax will keep small employers in the health care game.  To be sure, for small knowledge-intensive firms, where talent is scarce, health care benefits will be a big attraction.  But for many small employers who rely on workers with modest skills being paid modest wages, the increasing costs of health care may cause them to sit out, or get out, of the health care business altogether and simply pay the tax, particularly with the assurance that every employee is required to get coverage elsewhere, subsidized by the government if necessary.

As small employers decide to cut or cancel coverage, the employers who continue to provide coverage will continue picking up the tab for those who do not,  just as they do now. Their premiums will continue to go up, forcing more employers to get out of the game.   

So, in the short term, it would be rational for employers to not provide health care insurance in the first place, or cancel coverage if they already provide it, and pay the 8% payroll tax.  Of course, this would simply shift the cost onto workers, consumers and taxpayers who would need to help pay for the subsidies necessary to keep individual policies affordable. In short, the health care mandate will ultimately shift the costs of health care insurance onto the same workers who can’t afford it now, consumers who are struggling to pay down debt, and onto the already burdened taxpayer.

House Democrats unveiled sweeping health care legislation that would require nearly every employer to provide health care insurance to workers or be penalized 8% of payroll.

Under the bill, employers with payrolls exceeding $400,000 would have to provide coverage or pay the 8% penalty.  Employers with payrolls between $250,000 and $400,000 a year would pay a smaller penalty, and those less than $250,000 would be exempt.

According to 2006 data, employers with between 5 and 9 workers had an average payroll of around $375,000.  About half of these firms already offer employees health insurance.

A Senate bill is expected to be introduced shortly.  According to the Wall Street Journal (July 2nd), the Senate bill is also likely to have an employer mandate, which would require employers to pay an annual fee of $750 for each full-time worker and $375 for each part-time worker if they didn’t cover at least 60% of their employees’ health insurance premiums.  The Senate bill would exempt employers with 25 or fewer employees.

The Employee Free Choice Act (EFCA) had 200 sponsors in the U.S. House of Representatives and more than enough votes to pass the measure.

But the chances of getting a filibuster-proof 60 votes in the Senate fell when Republican, now Democratic, Sen. Arlen Specter of Pennsylvania announced he wouldn’t vote for the measure.

Nevertheless, President Obama recently told AFL-CIO leaders in a videotaped address, “We will pass the Employee Free Choice Act, “according to the The Wall Street Journal.

Meanwhile, some businesses have proposed a compromise, including Costco Wholesale Corp., Whole Foods Inc. and Starbucks Corp, employers that would be targets for union organizing if the EFCA gets enacted.

Many observers predicted that the current economic crisis would force Congress to delay action on this bill - but that’s increasingly starting to look like wishful thinking. Union officials have released statements from Nobel-winning economists and other business experts supporting the EFCA, and they’re ready to spend millions of dollars and volunteer hours this spring pressuring Congress to pass the legislation.

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The Wall Street Journal reports that labor unions will be targeting federal contractors in 2009. According to the people quoted in the resport, unions view federal contractors, including banks, as vulnerable to organizing.

Unions are lobbying to include labor rules in the stimulus package being prepared by Congress, including a requirement that contractors remain neutral during organizing drives.

Meanwhile, in its final days the Bush administration is considering an executive order that ensures federal contractors do not abandon elections in favor of card-check rules.

It is unclear, however, whether any of these actions now being discussed would be legal, considering that the National Labor Relations Act preempts most labor regulations and that the First Amendment protects  both union and employer speech during organizing drives.

In 2002, EANJ surveyed its member-employers on whether they informed employees of the political positions that they were taking and whether they engaged employees in political discussions. Of 157 respondents, one in four (25%) stated that they informed employees of political views and positions.

In 2006, the NJ Legislature enacted, and the Governor signed, the Worker Freedom from Employer Intimidation Act.  As first introduced, the purpose of the bill was to restrict the employer’s right to discuss labor unions, but since this type of speech is protected by the National Labor Relations Act, the bill was revised to cover political, civic and religious issues and opinions.

This week EANJ did a follow up survey. 205 employers responded. Only 7 reported that they engaged employees in political discussions.  While we can only speculate as to whether this dramatic decline in political speech is attributable to the chilling effect of the Act, it is apparent  that the Act is preempted by federal law and violates employers’ First Amendment rights.

The law also harms the public. Of the seven employers noted above, 4 are nonprofit organizations. This makes sense, considering that most nonprofits have a direct stake in who gets elected and what laws get passed. Since most nonprofits are prohibited from lobbying, they often engage in educational programs for employees, clients and other stakeholders. Sadly, in addition to violating employers’ free speech rights,  the Act chills organizational speech that serves the public interest.

The most common cause of workplace litigation is the perception of unfair discipline and discharge.   Many employers misunderstand this, and that’s why supervisory training makes no difference.

So, before considering supervisory training, consider this: Most employers are interested in production, efficiency, uncovering mistakes, and the elimination of waste. This requires the compulsory cooperation of employees by getting them to follow uniform procedures over and over again, and to make sure there are no deviations.   Since the whole system is based on repetition and finding and correcting mistakes, most feedback given by supervisors, even if  intended to be helpful, is viewed by employees as punitive.

Further, in a workplace where there is an absence of praise, discipline will almost always be perceived as punishment. 

But fair and ethical discipline requires thinking and acting from both sides of the brain.  It requires more than the use of punishment.  The best supervisors combine job expertise with people skills. To have a truly productive and litigation free environment, supervisors must motivate employees by tapping into their values– as opposed to merely threatening them, which is mistakenly seen as easier to do.  In short, the best supervisors are leaders, not dictators.

But the dirty little secret is that many employers are simply not interested in the leadership abilities of their supervisors because they believe that leadership skills– such as listening, articulating core values, coaching, mentoring, conflict resolution, cultural sensitivity– are incompatible with meeting production quotas, finding mistakes and eliminating waste.

Since many employers are not really interested in supervisory leadership, supervisors have no incentive to improve their people skills. Supervisory training is a waste of time without incentives encouraging supervisors to take leadership skills seriously. Training without incentives and role models from the top, leave supervisors feeling more disillusioned and cynical than ever. 

Its clear that discipline without leadership results in conflict; and conflict perpetuates litigation. But most employers have no insight into the problem and no genuine desire to break this vicious cycle.