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Tough Times Ahead for Business Owners

Proposed administrative changes will confront CEOs with legal headaches and labor issues, warn labor law experts

With the advent of Obama Presidency, and the possibility of the new administration taking up few legislative initiatives, labor law experts are increasingly sounding a warning for CEOs to gear up for tough times ahead. They believe if Team Obama has its way as per the policies proposed during the presidential election campaign, CEOs will be confronted with increasing number of employment lawsuits, which have been declining of late. Additionally, companies have to shell out extra money for compliance with new regulations which may render businesses highly uneconomical.

“If the new administration goes ahead with its proposals, it will likely result in an increase in employment lawsuits, which had been on the decline lately, at least in the federal courts,” says James McDonald.

Speaking to CE Online, James J. McDonald, managing partner with the Irvine, California based employment law firm Fisher & Phillips, says that the new administration is hatching up number of legislative changes which may have an adverse impact on the businesses and their leadership, and that CEOs need to be prepared for such an eventuality.

“From the standpoint of labor and employment law, the most significant effect on businesses will come from the Employee Free Choice Act (EFCA) if it is enacted,” says McDonald. Labor experts point out that as proposed, this law would eliminate secret ballot elections in which a union seeks to represent a group of employees. Instead, the union will only have to show that a majority of employees have signed authorization cards. With EFCA, it will be much easier for unions to organize employees, he says.

Besides, the new admin is also likely to make amendments to the anti-discrimination laws that will make it easier for employees to sue for gender based pay discrimination. “With changes already made to the Americans with Disabilities Act, it has become easier for employees to file a suit against employers, which was not the case earlier,” says McDonald adding that all of these changes are likely to result in an increase in employment lawsuits. 

Commenting on the impact the proposed changes may have on CEOs and other business leaders, labor law pundits are of the opinion that anticipated changes will increase the cost burden for the companies as compliance to the new laws will be expensive. Besides, the changes may also force CEOs to concentrate on issues of non-priority, thereby resulting in wastage of their time, which can otherwise be utilized for critical decision making processes. 

“With the likely changes, CEOs will need to recognize the importance of ” traditional labor issues” for the first time in probably fifty years. If organized labor succeeds in obtaining even a portion of its legislative and policy agenda items – particularly the Employee Free Choice Act, CEOs and business leaders will need to put labor relations issues at the forefront of their agenda. For example, responding to employee issues and concerns will not only be an important part of doing business – it will need to become a core priority in the mission statement of every employer,” says John F Bowen, partner at the Minneapolis based employment law firm Ford & Harrison. 

McDonald also believes that anticipated changes in the laws will make it even more important that CEOs pay attention to human resources issues. He says that if EFCA is enacted, it will be essential for companies to see that the wages and other benefits given to employees are competitive in the industry. Managements should also ensure that employees are being treated fairly and that they are not being terminated arbitrarily. 

However, McDonald feels that ensuring job security might be a difficult task for employers given the state of the economy, where layoffs are the norm for reining in the burgeoning cost and declining profits. 

Employment law experts foresee an increased risk of severe penal action for non-compliance, besides the high cost of compliance with new laws. “There is a sense in the country that the pendulum has swung too far away from regulation during the Bush years.  Now the government will catch up. Compliance with these new regulations will be expensive in many instances, but the consequences of non-compliance will likely be more severe than in the past, and not just in terms of fines and legal penalties,” warns McDonald. 

Bowen believes that public perception of business will also have an impact on the role of a CEO, especially on such companies which have received bailout money. He says that the general public has a very negative perception of companies that provide large payouts to executives or dividends to shareholders at the expense of public money. 

“Consequently, businesses will need to adjust to a new type of market. Although the U.S. economy has been built on capitalist principles, the future may be that showcasing increased business profits may not always be in a company’s best interests because of the public backlash,” reiterates Bowen. 

Corroborating McDonald’s view, Bowen, is also of the opinion that each of the proposed changes will significantly increase the cost of doing business in the U.S. According to him, employers in the U.S will be either forced to layoff employees or offshore the business processes to other locations outside U.S. 

“Employers will be forced to consider downsizing their U.S. operations and/or moving significant portions of their business overseas,” says Bowen adding that the increase in operating costs and labor costs associated with a higher percentage of unionization will many businesses to become uncompetitive, either forcing the company out of business altogether or impelling them to shift operations out of the country. 

According to Bowen if the proposed changes come into effect the major concern for the business owners will be the increased influence of the organized labor and the impact it will have on the labor policy and legislation over the next several years. 

“Based on the increased political clout, organized labor is advancing a very aggressive agenda. With the senate approving the Employee Free Choice Act it will effectively eliminate the secret ballot elections and will result in significant increase in union represented employees in the private sector,” explains Bowen.

Likewise, Bowen says that, the EFCA’s “mandatory arbitration” provision will fundamentally alter the way employers and unions bargain first contracts – effectively stripping away employee leverage at the bargaining table to negotiate acceptable contracts resulting in arbitrators imposing contract terms that may put companies at serious risk of becoming non-competitive.

In addition to EFCA, organized labor is also promoting legislation that will reduce the number of supervisors – making it more difficult to manage the workforce. They are also pursuing to eliminate the right of employers to hire permanent strike replacements, which means unions henceforth, will have unprecedented power at the bargaining table.

“All these provisions will effectively increase the relative power and influence of organized labor at the employer’s expense,” points out Bowen.

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