The Administration Is Ruling by Decree

by Iain Murray

Yesterday, the Department of Labor unexpectedly issued a new rule (which it called an interpretation) that will upend thousands of businesses’ established practices. It did so with no notice, and no comment by affected businesses is either sought or allowed. Effectively, the administration is now ruling by decree.

The “administrator’s interpretation” is about an obscure categorization of employment called “joint employer.” Such a situation arises when two or more employers are jointly responsible and liable for a worker’s employment conditions. Over the past 40 years or so, new business practices have arisen whereby firms contract out or franchise parts of their business. The Department of Labor (and the National Labor Relations Board) have allowed this, treating the businesses as separate and the employees as having one employer. That is all changing very quickly.

Under the new interpretation, thousands of businesses will now be found responsible for the working conditions of employees of other firms they do business with. They will be liable for breaches of the Fair Labor Standards Act. For example, if you contract out a service to a staffing company and that company is found to be not paying enough overtime, your business will be liable for that as well.

The administrator of the DoL’s Wages and Hours Division, David Weil, is very clear that he will be looking to ensure that big businesses are on the hook for the decisions of smaller businesses. The inevitable result of this will be the bringing of more jobs back within corporations, with job losses at the margins. Small service companies and entrepreneurs will suffer. Labor unions will benefit. (I looked more closely at this dynamic in a recent article here.)

This is particularly rich given that a fifth of the jobs created over the past few years have been the sort of jobs that would not exist but for these arrangements. The administration is trying to kill the job growth it claims credit for creating.

However, it is not just the substance of this decision that is disturbing, but the manner of it. The administrator took a few words from a 1930s law, the Fair Labor Standards Act, and has interpreted them in a damaging manner without giving any of the affected businesses a chance to put their side of the case, a clear breach of procedural justice.

More to the point, such rulings are a breach of the spirit of the Administrative Procedure Act, which was agreed to in order to rein in the excesses of the New Deal and to avoid the creation of a fourth branch of government unsanctioned by the Constitution. That act provided for consultation in agencies’ adjudicative and rulemaking functions. Even informal adjudication was to be collaborative, with “inspections, conferences and negotiations” part of the process.

DoL’s interpretation of the law without consultation is an example of what my colleague Wayne Crews calls “regulatory dark matter.” As he puts it,

Regulations aren’t always clearly written, and the people drafting them can’t anticipate every problem or question that might come up. If a court has a question, an agency can issue a guidance document spelling out the agency’s intention or clearing up an ambiguous clause. Since many regulations are specialized and technical, judges routinely defer to the guidance documents, which means they have de facto force of law. Agencies know this, and will take advantage of it to sneak through regulatory requirements without having to put them before the public.

Given the massive amount of legislative authority Congress has delegated to the Executive and agencies over the years, this is increasingly the way we are governed.  You can easily lose your job as a result of a lawyer playing around with words in a government office building somewhere.

This president has finished what FDR started. And yet it isn’t and issue on the campaign trail.

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