Law and Politics in Employee Classification

Benjamin Sachs – 

As has been widely reported, the U.S. Department of Labor issued an “opinion letter” yesterday concluding that an unnamed “virtual marketplace company” does not employ the workers who make the company viable. Instead, the letter finds that these workers are independent contractors. The letter is flawed in multiple ways. As Sharon will explain, deciding a major issue of employment law – maybe the major contemporary issue of employment law – through an informal process that allows one party to present all the facts is decidedly inappropriate. There are also multiple substantive problems: as Charlotte pointed out, the letter considers relevant to the control inquiry the fact that this VMC’s workers can also work for other VMCs. I suppose the fact that Wal-Mart workers can also work for Target suggests that Wal-Mart workers are independent contractors of Wal-Mart. Generalizing, I suppose if low wage workers must rely on multiple jobs to make ends meet this should incline decisionmakers to conclude that those workers are all independent contractors.

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Rethinking Public and Private Power: Anderson’s Private Government and Labor Law Reform

This post is part of a symposium on Elizabeth Anderson’s Private Government: How Employers Rule Our Lives (and Why We Don’t Talk about It). Read the complete symposium here.

Catherine L. Fisk –

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Elizabeth Anderson has gained rock star status as the leading philosopher-critic of rising economic inequality and its threat to democratic society. In her second Tanner Lecture, Anderson provides one of the most exciting theoretical justifications for labor law reform since the demise of popular interest in Marxist theory. Anderson’s work inspires me to think about the importance of worker control of access to jobs, co-determination of workplace and corporate governance, and the importance of inclusive unionism along the entirety of a supply chain.

The Industrial Revolution, Anderson says, shattered eighteenth century egalitarian theorists’ hope that “a free society of equals might be built through a market society.” Employment in large enterprises for the vast majority of workers after the Industrial Revolution, whether in a Ford factory in 1930 or in McDonald’s today, was to subject oneself to a dictatorship for most of one’s waking hours. The only real freedom the worker enjoys is to quit. The freedom to quit is not much freedom. (After all, Anderson points out, Mussolini was no less a dictator because Italians could emigrate.)

Labor unions are the only mechanism in history that institutionalized what Anderson identifies as the four essential ways to protect “the liberties and interests of the governed under any type of government.” These are (1) an effective use of the threat of exit (as by striking or enabling workers to leave a job without being blacklisted or unemployed), (2) the rule of law (effective enforcement of contractual and statutory rights to minimum standards and fair treatment), (3) substantive constitutional rights (rights at work), and (4) voice (a say over working conditions). Unions are the only institution that achieved nationwide scale and a sustainable funding mechanism to enable consistent performance of these four functions by and on behalf of workers. Other worker formations (worker organizations like ROC United in the restaurant industry or the National Domestic Worker Alliance in domestic work) could play many of these functions, and already do on a limited scale, but they have yet to achieve meaningful voice in the workplace.

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Workplace Autocracy in an Era of Fissuring

This post is part of a symposium on Elizabeth Anderson’s Private Government: How Employers Rule Our Lives (and Why We Don’t Talk about It). Read the complete symposium here.

Cynthia Estlund

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Elizabeth Anderson’s deeply thoughtful book, Private Government, aims to bring the problem of workplace hierarchy and “the pervasiveness of authoritarian governance in our work and off-hours lives” back onto the front burner of political and philosophical discourse, where it resided a century ago. She reframes the problem as one of “private government” – that is, a government “under which its subjects are unfree,” and which “has arbitrary, unaccountable power over those it governs.” “It is high time,” says Anderson, “that political theorists turned their attention to the private governments of the workplace.”

The problem of employer domination has long occupied legions of labor and employment law scholars. Unfortunately, Anderson’s welcome effort to reignite stalled debates (which I review at greater length here) might come too late, given decades-long trends in the organization of work that are transforming the landscape of work and destabilizing the very concept of workplace governance.

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Worker Voice, Worker Power

This post is part of a symposium on Elizabeth Anderson’s Private Government: How Employers Rule Our Lives (and Why We Don’t Talk about It). Read the complete symposium here.

Charles Du

anderson book coverEvery day, as in-house counsel for an activist, organizing union, I listen to workers’ stories of the indignities that come with being subject to the arbitrary power of their employers: being forced to work through breaks and lunch; facing sexual harassment from customers, coworkers, and supervisors; being fired for an offense they did not commit. It is gratifying to see these lived experiences of working people, so often ignored, being highlighted by a political philosopher of Elizabeth Anderson’s stature. By denaturalizing and challenging arbitrary and unaccountable authority in the workplace, Private Government is a powerful argument for an expansive commitment to democracy in private spaces like the workplace, where blinkered definitions of what counts as “government” have come to serve as ideological justifications for abuse and domination. Her book also comes at just the right time, providing conceptual clarity in a moment of rising social democratic sentiment and actual potential for change. I’d like to provide some reflections on practical lessons that labor law practitioners and academics might draw from Anderson’s work.

After laying out the problem of private government at work, Anderson examines four different strategies for tackling the problem: (1) exit, (2) the rule of law, (3) substantive constitutional rights, and (4) voice. She dispenses with the first three before concluding that “there is no adequate substitute for recognizing workers’ voice in their government.” I agree, but I believe that the critical question is how to achieve greater worker voice in the face of recalcitrant employer opposition, a problem that requires further attention to legal norms, constitutional rights, and worker exit.

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Techno-utopian, Cyclical, Political: Reconsidering the Path of Legal Employment

Frank Pasquale –

About a decade ago, when legal employment dipped sharply, there was a raging debate on the future of the legal profession. Some said the drop reflected a permanent decrease in legal work. The logic here was simple: computers were increasingly capable of completing more sophisticated projects. Having eclipsed paralegals in some document review tasks, they would, we were assured, soon supplant attorneys at writing briefs. These techno-utopians also evoked (what they called) a market logic: the more competition pressed firms to become more efficient, the more software they would deploy.*

Others saw the dip in employment as cyclical. It wasn’t just lawyers who suffered in the wake of the global financial crisis; employment in many fields fell. A drop in effective demand was shrinking the economy as a whole. The cyclical school predicted that when the economy rebounded, jobs for attorneys would also recover.

I will not attempt to adjudicate the dispute here. The most vehement techno-utopians, who predicted mass closures of law schools, the “end of BigLaw,” and obsolescence for attorneys, have ended up looking silly. The legal profession did not become the modern-day equivalent of buggy-whip manufacture. Even paralegal employment has been on the rise. In the broader economy, the techno-utopian story has fared even worse. One of its prime policy ideas—the notion of a “skills gap” crippling the economy thanks to workers’ lack of education—has been widely debunked. On the other hand, fewer persons are becoming lawyers today—an indication that the field is shrinking in some areas, to the chagrin of cyclical-ists.

Each approach is performative, in the sense that it not merely describes the world, but also prescribes future action. From a techno-utopian perspective, it is good to see fewer Americans becoming attorneys, because so many are performing roles that can be automated. From a cyclical perspective, growth in the number of lawyers is a positive trend, since it both reflects and manifests more economic growth generally. But it is possible that each of these economics-driven schools of thought is missing a bigger picture issue: namely, the political and social valence of legal work and its fair compensation. That is where discussions of the legal profession need a political economy perspective, rather than a merely economic one.

This political economy perspective should encompass many concerns. This post focuses on two: the beneficiaries of legal work, and its nature. My main point is that then trends which both techno-utopians and cyclical-ists celebrate as vindicating their own points of view, are ambiguous as to their effects on society generally.

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“Hey Google, What’s a Strike?”

Brishen Rogers —

What's a Strike

Yesterday morning, tens of thousands Google employees walked off the job in Dublin, London, Singapore, Zurich, Haifa, Berlin, New York, Ann Arbor, and many other cities. The immediate spark for the protests was revelations that the company had given generous exit packages to a few executives credibly accused of sexual misconduct, including one accused of “coercing [a subordinate] into performing oral sex” in 2013. But the workers also have broader, more longstanding grievances with the company’s leadership regarding gender equality: as the Times reported, “tensions over the treatment of women in the workplace have simmered for years…with disrespectful remarks coming from executives and the rank and file alike.” Plus, many Google employees have balked at the company’s participation in Department of Defense projects and its development of a censored search engine for the Chinese market. Given this widespread discontent, support for a walkout went viral: organizers said a few days ago that they expected around a thousand workers to participate, but instead it now appears that tens of thousands did so.

What to make of all this? At first glance, it may seem sui generis—a sudden expression of outrage by workers who feel Google hasn’t lived up to its own values, particularly in the era of Me Too. But I think it is more than that: yesterday, Google went on strike. The walkout resembles other recent strikes in non-unionized workplaces, including the recent “Red for Ed” teachers’ strikes and the “Fight for $15.” In that regard, it highlights both strengths and weaknesses of U.S. labor law, and suggests broader lessons for students of law and political economy.

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How Contemporary Antitrust Robs Workers of Power

Sandeep Vaheesan

Man Controlling Trade by Michael LantzThe political economist Albert Hirschman developed the idea that members of an organization can exercise power in two ways—through exit and voice. Market activity is associated with exit: consumers unhappy with the price or quality of service of their current wireless carrier can switch to a rival carrier offering lower rates or better service. Elections exemplify voice: voters can replace a corrupt or ineffective incumbent officeholder with a challenger promising to make the government work for ordinary people. For workers, both exit (joining a new employer) and voice (making demands of a current employer) are important. Despite the pro-worker aims of the framers of the Sherman and Clayton Acts, antitrust law today is an enemy of both exit and voice for workers.

For more than a generation, antitrust enforcers have permitted labor markets to become highly concentrated and have also interfered with the efforts of a large segment of workers to build collective power. Through their labor market actions, the Department of Justice (DOJ) and Federal Trade Commission (FTC) reinforce, rather than tame, corporate power. To create a progressive, pro-worker antitrust, legislators and policymakers must adopt a radically different vision for the field.

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Bloom on Abood’s Mistake in Jacobin

Will Bloom —
Last Tuesday, I argued in Jacobin that, for all the ways in which Justice Alito’s Janus decision was wrong, it made one important point. Justice Alito correctly noted the false distinction drawn by the Abood court between union’s “ideological” work in the electoral sphere and its “non-ideological” work in collective bargaining and contract enforcement. Abood‘s insistence that there was nothing ideological about collective bargaining reinforced and reified a trend towards the depoliticization of American workplaces, which in turn dampened the development of class consciousness and working class power. My piece focused on a key LPE concept: the ability of the law to lock in and even create power dynamics between parties, and the need to denaturalize and challenge those baked-in relationships.
Will Bloom is a labor and immigration attorney in Chicago. He is a member of the National Organization of Legal Service Workers, UAW Local 2320, and the Democratic Socialists of America.

How Shareholder Primacy Hurts Jobs and Wages

Lenore Palladino— 

The debate around stagnant wages and job creation seems well-settled: scholars point to globalization, or skill-biased technical change, or the decline of union density.  Others point to the ‘rise of the robots’, claiming that automation and technology are driving us towards a jobless future. But few consider that the dominance of shareholder primacy within America’s public corporations has contributed just as much to economic inequality as these more commonly-cited factors.

I define shareholder primacy as the shift within public companies from investing corporate profits within the firm or its workers to instead sending corporate profits back to shareholders, and, in some cases, holding increasing amounts of financial assets. Companies today care more about their financial metrics than they do about producing goods and services more efficiently over time. That’s why corporations are on track to spend $1.2 trillion this year simply rewarding shareholders by purchasing back their own stock and paying dividends.

For a current example of the dominance of shareholder primacy, take the response to the big tax reform legislation of 2017, which lowered the corporate tax rate to twenty-one percent. According to Trump and the GOP, the legislation was meant to incentive companies to create jobs. What have companies done so far? $171 billion dollars have been spent on share buybacks, whereas only $6 billion has gone to workers’ bonuses and small wage bumps. When the point of corporate activity is to return money to shareholders, investing in productive workers who can grow the business over time is beside the point.

Much of the public still thinks that America’s largest businesses function as they did in the post-World War II era: they earn profits, use those profits in part to enrich their top CEOs, and also invest in their workforce, innovation, and in better prices for us all. But somewhere along the way, in the Reagan administration, government regulations and reforms in corporate governance broke this productive cycle. Some companies focused on shareholder payouts, while others focused on profiting more and more off of financial activity. This shift was led by our industrial mainstays: the paradigmatic American firm, General Electric, earned 43% of its profits in its banking arm, GE Capital, as recently as 2014.

Firms made these choices in direct response to rising pressure from capital markets to move money out of the firm and into the pockets of shareholders, and in order to keep share prices steadily rising—choices sweetened by the fact that CEOs were increasingly paid in company stock.

When investing in a stable and productive workforce is not essential, worker bargaining power declines. Before the 1970s, American corporations paid out 50% of profits to shareholders, while retaining the rest for investment. Now, shareholder payouts are over 100% of reported profits, because firms borrow in order to lift payouts even higher.

Thus the changing nature of work—the rise of the fissured workplace and the gig economy—is driven not just by a generic drive for profit or the attributes of the “knowledge economy,” but a structural shift within corporations from a productive to financialized use of corporate cash. The relentless search for short-term profits expresses itself through squeezing employees’ pay, transforming employees into independent contractors to avoid paying benefits or pensions, and outsourcing work to contracting firms that compete to pay lower and lower wages. If firms don’t count on their employees to come up with the next big productivity improvement or exciting product idea, there’s no reason to invest in employee efficiency or longevity with the firm.

Demands on firms intensified with the rise of ‘activist investors,’ formerly known as corporate raiders. As institutional investors became large shareholders of major corporations, they pressured firms to push up share prices by maximizing short-term profits. Since such institutional investors could move their investments around easily, firms grew more responsive to capital markets than to their customers. For public companies, key regulatory and legislative changes allowed for a greater focus on stock prices. In 1982, Congress passed the safe-harbor provision for buybacks, which formerly would have been considered market manipulation. Further, the shift to allow CEO ‘performance pay’ to be deducted from corporate tax incentivized corporations to pay CEOs in stock. On the private firm side, the rise of private equity and the increase in leveraged buyouts has led to extractive financial strategies in which private firms cut jobs and reduce wages in order to extract maximum wealth for the holders of equity.

Though the literature is still nascent, several scholars have examined the direct negative impact of corporate financialization on income inequality. One study found that financialization, net of other factors, could account for more than half of the decline in labor’s share of income in the nonfinancial sector of the economy, and is comparable to the effect of de-unionization, globalization, and technological shifts.  Others look directly at the impact of financialization on declining corporate investment, finding that the financial profit rate is correlated with a significant decline in investment, especially for large firms. Less investment can mean less to spend on improving the skills and productivity of one’s workforce.

Corporate financialization is not the only driver of labor market challenges. It has become impossible, though, to think about how to solve problems in the labor market without taking on the primacy of shareholders. It is not simply that firms want to spend less money on workers—it’s that they actually need them less, and so the incentive to invest in a high-quality workforce is much reduced. In order to have a stable and productive workforce, and for workers to have the bargaining power they need to take home a fair wage, the incentives that drive shareholder primacy must be reformed.

A modified version of this post will be published as part of the article, Eleven Things They Don’t Tell You About Law & Economics:  An Informal Introduction to Political Economy and Law, forthcoming in Volume XXXVII of Law and Inequality:  A Journal of Theory and Practice (Law & Ineq.) of the University of Minnesota.

Lenore Palladino is Senior Economist and Policy Counsel with the Roosevelt Institute, a Lecturer in Economics at Smith College, and Of Counsel with the Law Firm of Jason Wiener, p.c.

Libertarian Doublespeak: Obscuring Distributional Struggles Under the Banner of “Economic Liberty”

Jamee K. Moudud

The expression “economic liberty” is a form of conceptual doublespeak. The word doublespeak refers to a kind of “language used to deceive usually through concealment or misrepresentation of truth.” This strategy of redefining reality with the clever use of language is central to the way in which power is exercised in Orwell’s dystopian novel 1984. But it also applies to the Public Choice Economics literature. It requires obeisance to the rule of law and “economic liberty,” while ensuring that the majority of the population cannot reduce the wealth of the richest few. This effect evokes a1984-like dynamic, well described in Nancy MacLean’s Democracy in Chains. MacLean describes how Public Choice’s libertarian ideology aims to restrain society’s ability to regulate the controllers of capital under the guise of “economic liberty.” And of course, a crucial goal is to contain the power of labor. The ideological justification as MacLean put it is that “[I]n a true, undistorted market society, wages should only rise with increases in productivity.”

One could rephrase MacLean’s conclusion a little by saying that in the neoclassical paradigm, wages will rise with productivity under “free markets.” This conclusion follows from marginal productivity theory (MPT). In MPT, production and distribution occur in a context devoid of politics, in which output arises from a technological relationship called the production functionvia the inputs of the capital stock and labor. Given perfectly competitive markets (meaning those populated by small firms without any ability to set prices of their products or influence wages), each firm chooses that level of employment in which the additional cost of hiring one more worker equals the revenue that the output produced by that worker generates. This ensures the condition that real wages equal the marginal product (additional product) produced by each worker, in line with the Lockean view that each person should live by the fruits of their labor. The supplies and demands for the aggregate labor and capital stocks, respectively, determine wages and profits, i.e. the economy’s endowment structure determines the distribution of the output that arises from the production function.

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