Stetson Law Review

STETSON LAW REVIEW

VOLUME 45 WINTER 2015 NUMBER 1

INEQUALITY, OPPORTUNITY, AND THE LAW OF THE WORKPLACE SYMPOSIUM

INTRODUCTION Symposium Introduction and Dedication Jason R. Bent 1

ARTICLES AND REMARKS Can Dystopia Be Avoided? Increasing Economic Inequality Can Lead to Disaster Michael J. Zimmer 5

The increase in economic inequality, driven by the imbalance between capital and labor, is likely to lead to dystopia without intervention that would reverse the trend. This Article examines dystopian-bound societies, explaining disparities of wealth, income, and per capita growth in various regions of the world. The Author analyzes the reasons for the imbalance between capital and labor, particularly the expansion of economic globalization and technology. The Article explains how the substitution of capital for labor impacts manufacturing and service sectors of industry. The Author also points out that the inequality could erode democracy because of the detrimental effect on the middle class. The Author delves into the correlation between the increase in economic inequality and the exacerbation of social problems, including mental illness, life expectancy, obesity, teenage births, homicides, and imprisonment. The trend, the Author expounds, could be reversed by a political policy that would address the inequalities. Noting that economic inequality is worldwide, the Article also highlights other proposed solutions, including a globalized tax on capital and a symposium that addresses employment issues that feed into the economic inequality. The Author identifies gender and race discrimination, wage inequity, and the impact of unions as opportunities for employment-centric solutions that would address economic inequality. By identifying and examining the consequences of remaining on a path of increasing economic inequality that leads to dystopia, this Article offers multiple approaches to reverse the trend.

“Regilding the Gilded Age”: The Labor Question Reemerges Wilma B. Liebman 19

Former National Labor Relations Board Chair Wilma Liebman delivered the keynote address at the March 6, 2015 symposium titled Inequality, Opportunity, and the Law of the Workplace, hosted by Stetson Law Review. Chair Liebman spoke on the reemergence of worker activism and “the labor question.” Chair Liebman sees an opportunity to fundamentally reexamine labor law in the United States and to form a new approach to industrial democracy.

Indirect Threats to the Wages of Low-Income Workers: Garnishment and Payday Loans Steven L. Willborn 35

Professor Steven Willborn was a panelist at the March 6, 2015 symposium titled Inequality, Opportunity, and the Law of the Workplace, hosted by Stetson Law Review. His remarks at the symposium identify two frequently overlooked threats to the economic security of low-wage workers—wage garnishment and payday loan practices. Professor Willborn examines these two “indirect” threats to low- wage workers and argues that current regulation of these threats is outdated and insufficient. Professor Willborn sees an opportunity to improve some protections for low-wage workers, because at least for these two indirect threats, the interests of the employee and his or her employer tend to be aligned.

How to Raise Wages: Policies That Work and Policies That Don’t Lawrence Mishel and Ross Eisenbrey 43

This Article reviews America’s primary economic challenge: wage stagnation. As a result of public policy, workers’ wages have either remained stagnant or declined over the past thirty-five years. This is the trend despite an increase in both real gross domestic product and worker productivity. To understand this trend, the Ar- ticle begins by presenting two distinct sets of policy decisions that have stifled wage growth. The first set of policy decisions, aggregate factors, is described as causing excessive unemployment and disproportionate growth in executive pay. The second set, which is described as the weakening of workers’ ability to bargain for higher pay, has also kept wages from increasing. In response to the underlying policies driving this trend, the Authors propose alternative policy decisions that should be taken to create jobs and increase wages, including the introduction of a higher minimum wage, the reformation of labor standards, and the strengthening of workers’ rights to collective bargaining, and others. The Authors also discuss policies that will not be beneficial to reaching full employment and increasing workers’ pay, including corporate tax reform, tax cuts, and deregulation. The Article concludes that the current trend of wage stagnation may be reversed by implementing beneficial policies that prioritize full employment over the accruement of wealth at the executive level, and policies to raise wages to correlate to increased productivity and economic growth.

Income Inequality and Corporate Structure Matthew T. Bodie 69

This Article addresses the impact of the corporate structure on the perpetuation of income inequality. Specifically, the Author argues that income inequality stems from the way corporations distribute wealth—away from employees and towards executives and investments in capital. The Article begins by discussing the legal structure of the corporation, in which the employees stand on the outside and have neither a say in the decision-making process nor a claim to profits. The Author also explores the failure of labor and employment law to address the problems of corporate structure and wealth distribution by precluding employees from collective bargaining over topics like executive compensation and corporate financial structuring. The Author proposes that one way to solve the problem of income inequality is to reimagine the corporate structure—replacing shareholder primacy with employee primacy. To achieve this, the Author suggests that corporations either shift to employee ownership or allow employees to serve on the board of directors. The Author concludes by warning that without meaningful employee participation in the governance of corporations, high-level executives will continue to devour a large share of the economic gains, leaving little for their employees.

STUDENT WORKS The Employment Non-Discrimination Act After Hobby Lobby: Striving for Progress—Not Perfection Giovanni P. Giarratana 91

This Article analyzes the widespread, pressing issue of workplace discrimination based on sexual orientation and gender identity and the lack of federal legislation that explicitly prohibits such discrimination. In an effort to address this type of discrimination, the Employment Non-Discrimination Act (ENDA) was proposed

ii with the purpose to explicitly prohibit discrimination based on sexual orientation and gender identity. Although ENDA was passed by the Senate, it has yet to be heard by the House of Representatives. The Author argues that federal legislation like ENDA is needed to ensure workplace equality. The Article notes that some supporters of ENDA have withdrawn their support because of ENDA’s current religious exemption and the possible implications of the Supreme Court’s decision in Hobby Lobby. However, the Author argues that if ENDA is passed, the Supreme Court’s decision in Hobby Lobby will not affect ENDA’s enforcement. The Author also takes the position that ENDA’s current religious exemption is more beneficial than harmful. While the Author concedes that ENDA is not perfect, he concludes that passing ENDA is a necessary step to bringing workplace equality for the LGBT community.

Florida Workers’ Compensation Act: The Unconstitutional Erosion of the Quid Pro Quo Viktoryia Johnson 119

Workers’ compensation is a statutory “quid pro quo” mechanism that requires workers to relinquish their rights to sue employers in tort in exchange for employers paying for insurance that provides injured workers with medical benefits and loss-of-income protections. Workers gain by receiving simplified entitlement and expedited benefits, and employers gain by capping the risk of potentially devastating tort awards. Effective at first, Florida’s workers’ compensation legislation has not kept up with developments in tort and contract law, resulting in an imbalance in the quid pro quo transaction that pushes the scheme towards unconstitutionality. This Article explains how an “unholy trinity” of affirmative defenses available to the employer—contributory negligence, assumption of risk, and the fellow servant rule—historically rendered an injured worker’s tort recovery untimely and uncertain. Workers’ compensation arose to equitably balance workers’ relinquish- ment of highly unpredictable tort recovery against employer-provided benefits that were guaranteed, but limited. The Article shows, however, that the archaic quid pro quo justification can no longer support Florida’s Workers’ Compensation Act as an injured worker’s exclusive remedy in light of Hoffman v. Jones’s replace- ment of contributory negligence with comparative fault, a de facto merger of the assumption of risk into comparative negligence, and a near-complete erosion of the fellow servant rule. Noting that Florida’s Constitution only allows statutory denial of one’s “day in court” if a reasonable alternative is provided, the Author argues that Florida’s workers’ compensation law is no longer a constitutionally reasonable alternative to workers’ increased ability to recover in tort. To restore balance, the Author proposes that the Florida Legislature either re-introduce the original “opt-out” mechanism, abolished in 1970, which would allow workers to contract out of workers’ compensation, or adopt a “double-protection” system that would enable workers to subsequently recover in tort any shortfall between workers’ compensation benefits and the total value determined for tangible and intangible injuries.

iii STETSON LAW REVIEW

VOLUME 45 WINTER 2015 NUMBER 1

EXECUTIVE BOARD

Editor in Chief ALLISON STEVENSON

Executive Editor Managing Editor VIKTORYIA JOHNSON GIOVANNI P. GIARRATANA

Notes & Comments Editors Articles & Symposia Editors COURTNEY COX MARIA BABAJANIAN SARAH GOTTLIEB DARNESHA CARTER BENJAMIN T. LUTE TARA PETZOLDT KATRINA WOMBLE NICOLE SANTAMARIA COURTNEY TURNQUIST Research Editor JESSICA FORD Recent Developments Editor JESSICA VANDER VELDE Marketing Editor MEGAN M. JARRETT Assistant Editors A. EVAN DIX Faculty Advisors LARA E. MCGUIRE JASON R. BENT TAYLOR MCKINNON JOSEPHINE W. THOMAS GREGORY L. PIERSON ALICE M. PORCH

SENIOR ASSOCIATES

DANIELLE BREITER NATALIE GONDER JONES ALEXANDRA KARAPHILLIS KAYLI KEOUGH JOUNICE NEALY-BROWN AARON REICHELSON JEREMY RILL

ASSOCIATES

JEREMY BACZKIEWICZ JACOB BOEHNER COURTNEY CHAIPEL BROOKE CHARLAN KATHRYN COLLIER BRITTANY COVER BRENDON DE SOUZA DANIELLE DINEEN RYAN M. EDMISTON KASEY FELTNER ADRIANA H. FOREMAN BENJAMIN FUCHS MATTHEW GREETHAM CAMERON R. HALL JEFFREY KELLER ALEXANDRA PETERSON IZI PINHO NICOLE C. PRICE EDGARDO J. RODRIGUEZ KARA ROGERS JOSEPH RUPPEL ADAM SAUNDERS ADAM SHAPIRO TIMOTHY STELLA MONICA STRADY KATHERINE VINEZ DIANE VISNAW JULIANN WELCH NICOLE ZAWORSKA

iv FACULTY AND DEANS

CHRISTOPHER M. PIETRUSZKIEWICZ, B.S., J.D., LL.M., Dean; Professor of Law KRISTEN DAVID ADAMS, B.A., J.D., LL.M., Professor of Law MICHAEL P. ALLEN, B.A., J.D., Associate Dean for Academic Affairs; Professor of Law; Director, Veterans Law Institute THOMAS E. ALLISON, B.S., M.B.A., J.D., LL.M., Professor of Law Emeritus LINDA ANDERSON, A.B., J.D., Professor of Legal Skills ROBERT BATEY, B.A., J.D., LL.M., Professor of Law Emeritus CYNTHIA BATT, B.S., M.ED., J.D., Associate Professor of Law; Director, Clinical Education; Associate Director, Veterans Law Institute MARK D. BAUER, B.A., J.D., Professor of Law DOROTHEA A. BEANE, B.A., J.D., Professor of Law; Co-Director, Institute for Caribbean Law and Policy JASON R. BENT, B.A., J.D., Associate Professor of Law ROBERT D. BICKEL, B.A., J.D., Professor of Law PAUL J. BOUDREAUX, B.A., J.D., LL.M., Professor of Law BROOKE J. BOWMAN, B.S., M.S., J.D., M.L.I.S., Professor of Legal Skills; Associate Director, Center for Excellence in Advocacy; Moot Court Advisor CATHERINE JUNE CAMERON, B.A., M.A., J.D., Professor of Legal Skills CARLISS CHATMAN, B.A., J.D., Bruce R. Jacob Visiting Assistant Professor of Law JOHN F. COOPER, B.A., J.D., LL.M., Professor of Law Emeritus LEE A. COPPOCK, B.A., J.D., Visiting Professor of Law KIRSTEN K. DAVIS, B.A., J.D., PH.D., Professor of Law; Director, Legal Research and Writing; Director, Institute for the Advancement of Legal Communication CYNTHIA H. DEBOSE, B.A., J.D., Professor of Law WILLIAM R. ELEAZER, B.A., J.D., LL.M., Distinguished Professor of Law Emeritus KELLY M. FEELEY, B.S., J.D., Professor of Legal Skills MICHAEL S. FINCH, B.A., J.D., S.J.D., Professor of Law PETER L. FITZGERALD, B.A., J.D., LL.M., Professor of Law ROBERTA KEMP FLOWERS, B.A., J.D., Professor of Law; Co-Director, Center for Excellence in Elder Law JAMES W. FOX,JR., B.A., J.D., Leroy Highbaugh Sr. Research Chair; Professor of Law ROYAL C. GARDNER, A.B., J.D., Professor of Law; Director, Institute for Biodiversity Law and Policy RAFAEL GUZMAN, B.A., LL.B., Distinguished Professorial Lecturer CAROL E. HENDERSON, B.A., J.D., Professor of Law KEVIN HUGHES, B.S., Assistant Dean for Development and Alumni Engagement BRUCE R. JACOB, B.A., J.D., LL.M., S.J.D., LL.M., Dean Emeritus; Professor of Law MARCO J. JIMENEZ, B.A., B.S., J.D., Professor of Law AMELIA MICHELE JOINER, B.A., J.D., Associate Professor of Legal Skills TIMOTHY S. KAYE, LL.B., PH.D., Professor of Law; Faculty Advisor, Journal of Advocacy JOHN KEYSER, B.S., M.S., Assistant Dean for Administration and Decision Support PETER F. LAKE, B.A., J.D., Charles A. Dana Chair; Director, Center for Excellence in Higher Education Law and Policy JEROME C. LATIMER, B.A., J.D., Professor of Law Emeritus LANCE N. LONG, B.A., J.D., Professor of Legal Skills THOMAS C. MARKS,JR., B.S., LL.B., PH.D., Professor of Law Emeritus FELISHA MCCASTER, A.S., Registrar JANICE K. MCCLENDON, B.A., J.D., LL.M., Professor of Law LIZABETH A. MOODY, A.B., J.D., Distinguished University Professor Emeritus; Dean Emeritus HON.ANDREW G.T.MOORE II, B.B.A., J.D., Distinguished Professorial Lecturer REBECCA C. MORGAN, B.S.B.A., J.D., Boston Asset Management Chair in Elder Law; Co-Director, Center for Excellence in Elder Law JOSEPH F. MORRISSEY, B.A., J.D., Professor of Law LUZ ESTELLA NAGLE, LL.D., LL.M., M.A., J.D., Professor of Law HON.ANDREW J. NICHOLSON, Distinguished International Fellow MICHAEL D. OESER, B.A., J.D., LL.M., Visiting Professor of Legal Skills JASON PALMER, B.A., J.D., Professor of Legal Skills; Coordinator, Legal Research and Writing ANN M. PICCARD, B.A., J.D., LL.M., Professor of Legal Skills ELLEN S. PODGOR, B.S., J.D., M.B.A., LL.M., Gary R. Trombley Family White-Collar Crime Research Professor; Professor of Law THERESA J. PULLEY RADWAN, B.A., J.D., Professor of Law CHARLES H. ROSE III, B.A., J.D., LL.M., Professor of Excellence in Trial Advocacy; Director, Center for Excellence in Advocacy SUSAN D. ROZELLE, B.A., J.D., Associate Dean for Faculty; Professor of Law

v JUDITH A.M. SCULLY, B.A., J.D., Wm. Reece Smith Jr. Distinguished Professor of Law JAMES A. SHEEHAN, B.A., J.D., Distinguished Practitioner in Residence; Director, Tampa Law Center STACEY-RAE SIMCOX, B.S.C./B.A., J.D., Associate Professor of Legal Skills; Director, Veterans Advocacy Clinic BRADFORD STONE, B.A., J.D., Charles A. Dana Professor of Law Emeritus MICHAEL I. SWYGERT, B.A., J.D., LL.M., Professor of Law Emeritus RUTH FLEET THURMAN, B.A., J.D., LL.M., Professor of Law Emeritus CIARA TORRES-SPELLISCY, A.B., J.D., Associate Professor of Law REBECCA S. TRAMMELL, B.A., M.L.I.S., J.D., PH.D., Professor of Law; Director, Dolly & Homer Hand Law Library; Director, Electronic Education STEPHANIE A. VAUGHAN, B.A., J.D., Associate Dean for Student Engagement; Professor of Legal Skills LOUIS J. VIRELLI III, B.S.E., M.S.E., J.D., Professor of Law DARRYL C. WILSON, B.B.A., B.F.A., J.D., LL.M., Attorneys’ Title Insurance Fund Professor of Law; Co-Director, Institute for Caribbean Law and Policy J. LAMAR WOODARD, B.A., J.D., M.S.L.S., Professor of Law Emeritus; Law Librarian Emeritus CANDACE ZIERDT, B.A., J.D., LL.M., Professor of Law LAURA ZUPPO, B.A., M.B.A., M.S., Assistant Dean of Admissions and Student Financial Planning

LAW LIBRARIANS

ASHLEY KRENELKA CHASE, B.A., J.D., M.L.I.S., Associate Director REBECCA FRANK, B.S., M.L.I.S., Weekend Reference Librarian KRISTEN MOORE, B.A., J.D., M.L.I.S., Reference Librarian WANITA SCROGGS, B.A., J.D., M.L.I.S., Foreign and International Reference Librarian ANTHONY SMITH, B.A., M.L.I.S., Part-Time Reference Librarian SALLY G. WATERS, B.A., J.D., M.L.I.S., Reference Librarian

vi STETSON UNIVERSITY COLLEGE OF LAW

BOARD OF OVERSEERS

OFFICERS

JOSHUA MAGIDSON, CHAIR BENJAMIN H. HILL, IV, VICE CHAIR

ACTIVE MEMBERS

S. SAMMY CACCIATORE CHARLES S. LIBERIS,JR. ALEXANDER M. CLEM BERNARD J. MCCABE,JR. GREGORY W. COLEMAN HON.PEGGY A. QUINCE ROBERT E. DOYLE,JR. ROBERT G. RIEGEL,JR. GRACE E. DUNLAP ARTURO R. RIOS WIL H. FLORIN GREGORY K. SHOWERS BONNIE B. FOREMAN SCOTT STEVENSON LEO J. GOVONI MATTHEW A. TOWERY RICHARD A. HARRISON GARY R. TROMBLEY LAWRENCE P. INGRAM WILLIAM H. WELLER JENAY E. IURATO ROBERT G. WELLON RHEA F. LAW ROGER W. YOERGES

EMERITUS MEMBERS

WILLIAM F. BLEWS MARSHA G. RYDBERG ADELAIDE G. FEW HON.SUSAN F. SCHAEFFER THOMAS D. GRAVES CHRISTIAN D. SEARCY,SR. MICHAEL C. MAHER LESLIE REICIN STEIN R. MICHAEL MCCAIN HON.RAPHAEL STEINHARDT

EX-OFFICIO MEMBERS

MARC L. LEVINE CHRISTOPHER M. PIETRUSZKIEWICZ DR.WENDY B. LIBBY

HONORARY MEMBERS

HON.SUSAN C. BUCKLEW RICHARD J. MCKAY HON.CAROL W. HUNSTEIN JAMES C. SMITH HON.ELIZABETH A. KOVACHEVICH

FACULTY LIAISON

JASON PALMER

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viii SYMPOSIUM INTRODUCTION AND DEDICATION

Jason R. Bent*

There should always be hope.1

On March 6, 2015, the Stetson Law Review hosted a symposium titled Inequality, Opportunity, and the Law of the Workplace. The symposium brought together legal academics, economists, attorneys, journalists, and students to explore the relationship between rising economic inequality in the United States and the complex web of federal, state, and local laws that constitute the field of labor and employment law. This issue of the Stetson Law Review includes the written works and remarks from participants in that symposium. This symposium issue is dedicated to Professor Michael J. Zimmer, a preeminent employment law scholar and a participant in the symposium, who passed far too soon in September 2015. Mike’s impact on the field of employment law cannot be overstated. His impressive academic accomplishments can and should be compiled and listed,2 but such lists do not sufficiently convey Mike’s true importance to the employment law community. Perhaps the best testament to the esteem in which he was held by his academic colleagues is the selection of Mike as the recipient of the inaugural Paul Steven Miller award in 2011, an award that recognizes the lasting influence that a scholar has had on labor and employment law scholarship. Mike was an obvious choice as the first recipient of this award, given not only his own groundbreaking scholarship in the field, but also his tireless mentorship of those who would attempt to follow in his footsteps. Mike was the quintessential

* © 2015, Jason R. Bent. All rights reserved. Associate Professor of Law, Stetson University College of Law. J.D., University of Michigan Law School, 2000; B.A., Grinnell College, 1997. 1. Michael J. Zimmer, Inequality, Individualized Risk, and Insecurity, 2013 WIS. L. REV. 1, 65 (2013) (24th Annual Thomas E. Fairchild Lecture at the University of Wisconsin Law School). Following his graduation from Marquette University Law School, Professor Zimmer served as a law clerk to Judge Thomas E. Fairchild on the United States Court of Appeals for the Seventh Circuit. 2. These scholarly accomplishments include (among many others) authoring leading casebooks on Employment Discrimination, International and Comparative Employment Law, and Employment Law, as well as dozens of influential and widely cited articles. 2 Stetson Law Review [Vol. 45 mentor, and like nearly every other scholar in the field, I know this from firsthand experience. When Mike first generously offered his time to provide feedback on my early written works and listen to my early presentations, I naively assumed that he had simply taken an interest in the particular subject of my work or had chosen, for whatever reason, to assist me in my professional development. Only after hearing from many other scholars in the field did I later discover that Mike actually offered that kind of personal mentorship to everyone. That was just the kind of person, colleague, and mentor that Mike was. As I repeatedly told him, I personally owe Mike a great deal for my development as a teacher, a scholar, and an attorney. I know that many others in the field do as well. Sadly, this symposium afforded me the last opportunity to tell him that in person. Mike characteristically deflected the praise with an excess of modesty. Mike will be deeply missed, but those of us who knew him will cherish the opportunities that we had to learn from him. At least in recent years, Mike’s presentations would often include grim forecasts about the direction of labor and employment and its potential impact on society. The ominous title of his contribution to this symposium is illustrative: Can Dystopia Be Avoided? Increasing Economic Inequality Can Lead to Disaster.3 But Mike would invariably search to identify reasons for optimism in the face of, in his view, a series of unfortunate developments in the law. After lamenting the rise of economic inequality and worker insecurity in his 2012 Thomas E. Fairchild Lecture at the University of Wisconsin Law School, he concluded by drawing inspiration from the career arc of Judge Thomas E. Fairchild, the namesake of the lecture and the judge for whom Mike clerked following law school. Judge Fairchild rose from a politically motivated, Calvin Coolidge-supporting twelve-year-old, to a member of the Young Republicans in college, to a trailblazing force in the Wisconsin Democratic party, and later, to one of the most distinguished jurists of his time.4 The twists in Judge Fairchild’s story meant to Mike that, no matter how daunting our challenges appear in the moment, times change, views change, and seemingly unattainable goals are ultimately within reach. “There should always be hope,” he concluded.5 This simple but

3. Michael J. Zimmer, Can Dystopia Be Avoided? Increasing Economic Inequality Can Lead to Disaster, 45 STETSON L. REV. 5 (2016). 4. See Joan H. Lefkow, Thomas E. Fairchild: A Judge’s Legacy, 2007 WIS. L. REV. 1, 1–2 (2007) (highlighting events in Judge Fairchild’s youth and young adulthood); Zimmer, supra note 1, at 65 (discussing Judge Fairchild’s accomplishments at various points in his life). 5. Zimmer, supra note 1, at 65. 2015] Introduction and Dedication 3 powerful statement was emblematic of Mike’s views on the law as well as his approach to life. Likewise, in his contribution to this symposium, Mike outlines the problem of growing economic inequality globally and identifies some new approaches to unionization and employment policy that, if undertaken, could stem the tide of widening inequality. While recognizing that the solutions he presents may seem politically impossible at this particular time in history, he emphasizes: “No matter how impossible it seems at the moment, new politics could reverse the present trends.”6 In her keynote address at the symposium, former National Labor Relations Board Chair Wilma Liebman similarly finds room for hope.7 Revived worker activism suggests to her the reemergence of true labor power and “the labor question.”8 Chair Liebman sees an opportunity to fundamentally reexamine labor law in the United States and to form a new approach to industrial democracy. Also included in the symposium is the work of the Economic Policy Institute’s Dr. Lawrence Mishel and Ross Eisenbrey, How to Raise Wages: Policies That Work and Policies That Don’t.9 Dr. Mishel and Mr. Eisenbrey consider a host of potential policy changes that have been advanced by observers from across the political spectrum, ranging from employment law to tax policy to education policy, and offer their assessment of the efficacy of such policy proposals in addressing persistent wage stagnation. Professor Steven Willborn’s remarks at the symposium identify two frequently overlooked threats to the economic security of low-wage workers—wage garnishment and payday loan practices.10 Professor Willborn examines these two “indirect” (i.e., non-employer) threats to low-wage workers and argues that current regulation of these threats is outdated and insufficient. Professor Willborn sees an opportunity to improve some protections for low-wage workers, because at least for these two indirect threats, the interests of the employee and his or her employer tend to be aligned.

6. Zimmer, supra note 3, at 13. 7. Wilma B. Liebman, “Regilding the Gilded Age”: The Labor Question Reemerges, 45 STETSON L. REV. 19 (2016). 8. Id. at 30–31. 9. Lawrence Mishel & Ross Eisenbrey, How to Raise Wages: Policies That Work and Policies That Don’t, 45 STETSON L. REV. 43 (2016). 10. Steven L. Willborn, Indirect Threats to the Wages of Low-Income Workers: Garnishment and Payday Loans, 45 STETSON L. REV. 35 (2016). 4 Stetson Law Review [Vol. 45

Professor Matthew Bodie identifies the corporate form, and its separation of labor from ownership in the firm, as the root cause of inequality.11 Professor Bodie posits that employment laws setting minimum protections for employees are largely a response to the problems created by this underlying separation of labor from ownership. He concludes that addressing economic inequality will require not just reforming selected employment regulations, but also rethinking firm structure and governance. The symposium was moderated by Pulitzer Prize winning author and Professor David Cay Johnston and, in addition to the foregoing, included presentations by Politico’s Timothy Noah, the Cato Institute’s Michael D. Tanner, the National Employment Law Project’s Paul Sonn, Professor Samuel Bagenstos, Professor Charlotte Garden, and Professor Katherine Stone. Finally, this symposium issue features two outstanding student contributions in the field of employment law by Stetson Law Review editors Viktoryia Johnson and Giovanni P. Giarratana. Thank you to the symposium participants, to the editors of the Stetson Law Review, to Dean Christopher Pietruszkiewicz and the administration of the Stetson University College of Law for continued support of the symposium, and above all, to my friend and mentor, Mike Zimmer.

11. Matthew T. Bodie, Income Inequality and Corporate Structure, 45 STETSON L. REV. 73 (2016). CAN DYSTOPIA BE AVOIDED? INCREASING ECONOMIC INEQUALITY CAN LEAD TO DISASTER

Michael J. Zimmer

It always seems impossible until it’s done.

— Nelson Mandela

Thomas Piketty, in Capital in the Twenty-First Century,1 demonstrates the long-term trend of ever increasing economic inequality.2 If that trend continues unabated, the entire economy will be owned by capital, leaving little or no participation by labor.3 A present example of what that future dystopia could look like can be found in Equatorial Guinea.4 Based on the discovery of oil in 1996, “[b]y 2006, Equatoguineans had the third highest per capita income in the world.”5 But most citizens remain very poor with “nearly half of all children under five . . . malnourished[] and even major cities lack[ing] clean water and basic sanitation.”6 The entire economy is based almost exclusively on capital with little labor value contributing to the overall economy.7 Most of the capital, and therefore

 © 2015, Michael J. Zimmer. All rights reserved. Professor of Law, Loyola University Chicago. LL.M., Columbia University; J.D., Marquette University; A.B., Marquette University. Recipient of the First Annual Paul S. Miller Award for Contributions to Labor and Employment Law 2011.  Jessica Durando, 15 of Nelson Mandela’s Best Quotes, USA TODAY NETWORK (Dec. 6, 2013, 8:26 AM), http://www.usatoday.com/story/news/nation-now/2013/12/05/nelson-mandela-quotes/ 3775255/. 1. THOMAS PIKETTY,CAPITAL IN THE TWENTY-FIRST CENTURY (Arthur Goldhammer trans., Belknap Press of Harvard Univ. Press 2014). 2. The exception from some two hundred years of data is the period from World War I through the post-World War II period, ending in the latter part of the 1970s. Id. at 15, 41. 3. See id. at 195–96 (predicting that by the end of the twenty-first century the world capital/income ratio could be close to 700%). 4. Frank Pasquale, Capital’s Offense: Law’s Entrenchment of Inequality,BOUNDARY2 (Oct. 1, 2014), http://boundary2.org/2014/10/01/capitals-offense-laws-entrenchment-of-inequality/. 5. Id. As of 2014, Equatorial Guinea’s gross domestic product per capita was an estimated $32,300. Cent. Intelligence Agency, The World Factbook, CIA.GOV, https://www.cia.gov/ library/publications/the-world-factbook/fields/2004.html (last visited Dec. 13, 2015). 6. Pasquale, supra note 4 (internal quotation marks and alterations omitted). 7. See AFR.ECON.OUTLOOK 2012, EQUATORIAL GUINEA 2012, at 2, 11, available at http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Equatorial%20Guinea% 6 Stetson Law Review [Vol. 45 most of the economy, is controlled by the President, Teodoro Obiang, and his small group of associates.8 If the present status of Equatorial Guinea is the future for the world economy, that future is grim—a dystopia in the making.9 At the worldwide level, economic inequality is extreme and growing worse, so the world economy appears to be continuing on its path to dystopia.10 In 2014, the richest 1% of people in the world owned 48% of global wealth, leaving just 52% to be shared between the other 99% of adults on the planet. Almost all of that 52% is owned by those included in the richest 20%, leaving just 5.5% for the remaining 80% of people in the world.11 In two-thirds of countries that are part of the Organisation for Economic Co-operation and Development (OECD), “[t]he inequality of capital income has increased sharply over the past two decades.”12 Since the end of the Great Recession in 2009, economic inequality continues to worsen in the United States. From 2009 to 2012, “incomes actually fell for the bottom 90[%] of earners, even as they rose nicely for the top 10[%].

20Full%20PDF%20Country%20Note.pdf (stating that, in 2006, “the chief cause of poverty was the lack of jobs” and reporting that “[o]il accounts for 78% of GDP, but employs only 4% of the [labor] force”). 8. See Pasquale, supra note 4 (noting that, while President Obiang’s “salary was reported to be $60,000 a year, he had a net worth of roughly $600 million by 2011” and that a “[U.S.] Senate report blasted him for personally taking $96 million of his nation’s $130 million in oil revenue in 1998, when a majority of his subjects were malnourished”). 9. See Mark Bittman, Op-Ed., Why Not Utopia?, N.Y. TIMES (Mar. 20, 2015), http://www.nytimes.com/2015/03/22/opinion/sunday/why-not-utopia.html (“No one knows what the world will look like in [fifty] years, but if we resign ourselves to dystopia—in which capital has full control, as it nearly does now—[we will] surely have one.”). 10. See OXFAM,WEALTH:HAVING IT ALL AND WANTING MORE 2 (Jan. 2015), available at https://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/ib-wealth-having-all- wanting-more-190115-en.pdf (stating that “[i]f [the] trend continues of an increasing wealth share to the richest, the top 1% will have more wealth than the remaining 99% of people in just two years”). 11. Id. (internal citations omitted). White men largely control that wealth. See Kathleen Geier et al., How Gender Changes Piketty’s ‘Capital in the Twenty-First Century,’ NATION (Aug. 6, 2014, 12:50 PM EST), http://www.thenation.com/article/how-gender-changes-pikettys-capital-twenty-first- century/ (“[T]he wealth gap between black and white America has increased over the past few decades. . . . [We have] developed social markers for what makes a ‘high-tier’ worker. For example, big financial firms tend to hire and reward predominately white men from a small slice of the economic strata.”). Additionally, “in 2014, only one in ten [U.S.] billionaires were women, but of those, women were more likely than men to inherit that wealth, as one-third of billionaires who inherited their wealth are women (34.1[%]). The female share of self-made billionaires is only 3.1[%].” Id. 12. Chris Pinney, Economic Growth and Inequality: Why It Matters and What’s Coming Next, J. APPLIED CORP.FIN., Spring 2014, at 30, 35. 2015] Can Dystopia Be Avoided? 7

The result: [t]he top 10[%] captured an impossible-seeming 116[%] of income gains during that span.”13 Economic growth has been weak in the developed world. “Europe’s per capita growth dropped to just below 2[%] from 1980 to 2012; the United States’ [per capita growth] was even slower, coming in at 1.3[%].”14 In contrast, there has been significant economic growth in some parts of the developing world, particularly China and India.15 Economic globalization has “lifted hundreds of millions of people in developing economies out of poverty as they have entered the global workforce”:16

[R]apid rates of economic growth in parts of the developing world, particularly China and India, have dragged many people out of abject poverty despite rising inequality. . . . [D]uring the past [thirty] years, the fraction of the world’s population that survives on a dollar a day or less has fallen from an estimated 40% to under 15%.17

While China and India are catching up economically with the more developed world, their economic growth will probably slow down as their use of technology increases to levels that are similar to the more developed world.18 “All around the world, labor is losing out to capital.”19 Despite the rapid increase in wages in several developing countries,20 “the [labor] income share [with capital of the total economy] in China has decreased since the early 2000s” because the growth in capital exceeds even the substantial gains of labor that is reflected in the total economic growth.21 Looking back to the late 1970s, workers in the United States shared about 70% of total income while capital earned about 30%.22 “[B]etween 1979

13. Neil Irwin, The Benefits of Economic Expansions Are Increasingly Going to the Richest Americans, N.Y. TIMES (Sept. 26, 2014), http://www.nytimes.com/2014/09/27/upshot/the-benefits-of- economic-expansions-are-increasingly-going-to-the-richest-americans.html?abt=0002&abg=1. 14. Timothy Shenk, Thomas Piketty and Millennial Marxists on the Scourge of Inequality,NATION (Apr. 14, 2014), http://www.thenation.com/article/thomas-piketty-and-millennial-marxists- scourge-inequality/. 15. Pinney, supra note 12, at 33. 16. Id. at 31. 17. Id. at 33. 18. Shenk, supra note 14. 19. Pinney, supra note 12, at 37. 20. See INT’L LABOUR ORG., GLOBAL WAGE REPORT 2014/15: WAGES AND INCOME INEQUALITY xv (2015) [hereinafter GLOBAL WAGE REPORT 2014/15] (“Global wage growth in recent years was driven by emerging and developing economies, where real wages have been rising— sometimes rapidly—since 2007.”). 21. Id. at 15. 22. Pinney, supra note 12, at 30–31. 8 Stetson Law Review [Vol. 45 and 2007, the share of national income for the top 20[%] increased by 10% while other income groups saw their share fall by 2[–]3%.”23 Ever increasing economic inequality has been bolstered by two main factors: expanding economic globalization24 and technology.25 The larger the geographic area and population within an economy, the greater the potential for growth overall and depth of interaction.26 With neoliberal economic policies in place across the globalized economy, enterprise has the ability to organize its activities in ways that make the most business sense because the present legal order imposes few restraints on the ability of business to organize itself wherever across the globalized economy it finds desirable.27 American businesses not only offshore operations with their own employees, but also frequently combine offshoring with outsourcing.28 Apple, which is quite profitable,29 is a good example. It combines offshoring and outsourcing.30 “Apple employs 43,000 people in the United States and 20,000 overseas. . . . Many more people work for Apple’s contractors: an additional 700,000 people engineer, build[,] and assemble iPads, iPhones[,] and Apple’s other products.”31

23. Id. at 30. 24. JEFFREY D. SACHS,THE PRICE OF CIVILIZATION:REAWAKENING AMERICAN VIRTUE AND PROSPERITY 88 (2011). 25. Jeff Madrick, Op-Ed., Our Misplaced Faith in Free Trade, N.Y. TIMES (Oct. 3, 2014), http://www.nytimes.com/2014/10/04/opinion/sunday/our-misplaced-faith-in-free-trade.html?_ _r=0. 26. See Brian A. Langille, Seeking Post-Seattle Clarity—and Inspiration, in LABOUR LAW IN AN ERA OF GLOBALIZATION 137, 143 (Joanne Conaghan, Richard Michael Fischl & Karl Klare eds. 2002), which states:

To get to the real phenomenon of globalization . . . we must shift from a world in which not only goods, but services, ideas, money, markets, and production are truly global and mobile by virtue of advances in communication and transportation technologies. We must move from the model of shallow economic integration to a model of deep economic integration in which advancements in transportation and technology enable capital to see the whole world as its stage.

27. Michael J. Zimmer, Inequality, Individualized Risk, and Insecurity, 2013 WIS. L. REV. 1, 9–10 (2012). 28. Id. at 13–14. Outsourcing involves the contracting out of a business fu nction—commonly one previously performed in-house—to an external provider. See Outsource,MERRIAM- WEBSTER.COM, http://www.merriam-webster.com/dictionary/outsource (last visited Dec. 13, 2015) (defining “outsource” as “to send away (some of a company’s work) to be done by people outside the company”). 29. In 2011, Apple “earned over $400,000 in profit per employee.” Charles Duhigg & Keith Bradsher, How the U.S. Lost out on iPhone Work, N.Y. TIMES (Jan. 21, 2012), http://www.nytimes.com/2012/01/22/businesss/apple-america-and-a-squeezed-middle-class .html?scp=2&sq=Apple%20profits%20&st=cse. 30. Zimmer, supra note 27, at 14. 31. Duhigg & Bradsher, supra note 29. 2015] Can Dystopia Be Avoided? 9

In deciding where to site different aspects of a company’s operations, labor costs are only one factor and not always determinative.32 Thus, even without free movement of labor across national boundaries, the labor market is coextensive with the globalized economy. Substituting lower cost labor in another country is one basic strategy of business. Thus, in the United States,

half of the 7.5 million jobs lost during the Great Recession were in industries that pay middle-class wages, which are defined as ranging from $38,000 to $68,000. . . . [S]ince the “official” end of the recession . . . , only about 70,000, or 2%, of the 3.5 million jobs gained have been in such mid-paying industries. .. . [N]early 70% of the restored jobs have been in low-paying industries.33

A substantial portion of this loss of middle-class jobs involved manufacturing jobs. “The share of American employment in manufacturing has declined sharply since the 1950s, from almost 30% to less than 10%.”34 As an alternative to outsourcing or offshoring jobs to take advantage of lower labor costs directly, businesses also rely on the substitution of capital for labor by implementing available technological changes.35 “[S]ubstituting capital for [labor] through automation is increasingly attractive; as a result[,] owners of capital have captured ever more of the world’s income since the 1980s, while the share going to [labor] has fallen.”36 This substitution is not a new trend. For example,

in 1900, 41% of Americans were employed in agriculture. Today, less than 2% of Americans work in an agricultural industry that now feeds a population four times as large as in 1900. At the same time, the price

32. See The Future of Jobs: The Onrushing Wave,ECONOMIST (Jan. 18, 2014), http://www.economist.com/news/briefing/21594264-previous-technological-innovation-has- always-delivered-more-long-run-employment-not-less [hereinafter The Future of Jobs] (“[T]he mere fact that a job can be automated does not mean that it will be; relative costs also matter. When Nissan produces cars in Japan, . . . it relies heavily on robots. At plants in India, by contrast, the firm relies more heavily on cheap local [labor].”). 33. Pinney, supra note 12, at 31; see also MICHAEL E. PORTER &JAN W. RIVKIN,AN ECONOMY DOING HALF ITS JOB:FINDINGS OF HARVARD BUSINESS SCHOOL’S 2013–14 SURVEY ON U.S. COMPETITIVENESS 3 (2014), available at http://www.hbs.edu/competitiveness/ Documents/an- economy-doing-half-its-job.pdf (“[J]obs lost during the 2008–10 employment contraction were disproportionately in higher-wage industries such as construction and electronics manufacturing, while jobs gained during the recovery have been concentrated in low-wage industries such as food service and nursing home care.”). 34. The Future of Jobs, supra note 32. 35. Id. 36. Id. 10 Stetson Law Review [Vol. 45

of food as percentage of the average American[’]s budget has declined dramatically.37

The net impact of offshoring, outsourcing, and substituting capital for labor is that productivity has been unlinked from employment:

[D]uring the 80-year period from 1929[–]2009, the relationship between productivity growth and private sector employment (in terms of numbers of jobs) was overwhelmingly positive. .. .

Starting in the 1970s, we saw the beginnings of a disconnect between productivity and wages in developed countries; while productivity continued to increase, wages stagnated and in some cases fell.38

Beth Macy, in Factory Man, describes in concrete detail the effect of economic globalization and technological change on the United States’ furniture industry and traces the industry’s transformation in response to it.39 In the 1980s, Chinese manufacturers started to export furniture to the United States to compete based, in part, on the lower labor costs paid to Chinese workers.40 In general, the response of the American manufacturers was to largely give up making furniture.41 They instead transformed themselves into importers and retailers of the less expensive Chinese furniture.42 As part of this transformation, the United States manufacturers shared technology with their Chinese suppliers, thus hastening the demise of much of American furniture manufacturing.43 This all had a devastating effect on the economies in parts of Virginia and North Carolina that had long been the focus of American furniture production.44 What is unusual about the story is that it focuses on an heir to the American furniture business who fought back and has been able to sustain the manufacturing capacity, and the American employment, of the company he ran.45 The Factory Man story is the exception that proves the rule. The substitution of capital through implementation of automation has not stopped at manufacturing but has also extended to service

37. Pinney, supra note 12, at 38 (internal citations omitted). 38. Id. at 36–37. 39. BETH MACY,FACTORY MAN ch. 12 (2014). 40. Id. at 161–63. 41. Id. at 166. 42. Id. at 162–63, 165. 43. Id. at 163. 44. Id. 45. Id. at 388. 2015] Can Dystopia Be Avoided? 11 industries where almost 70% of American workers are now employed.46 This substitution will obviously continue as long as technological developments present new and ever more efficient ways to provide goods and services.47 And, the substitution of lower cost labor and capital will continue in both the developed and the developing worlds.48 Where capital substitutes for labor, the owners of capital increase their share of the total economy even in the absence of growth in the overall economy.49 Even some in America’s business world are concerned about excessive and growing economic inequality. A recent survey by the Harvard Business School of its MBA alumni concluded that ever increasing economic inequality is “unsustainable.”50 While the Harvard report did not specify what the consequences would be if this trend continued, one can infer that the survival of a capitalist economy is at stake.51 From another point of view, the continued existence of democracy—in those places where it presently exists—may be at risk if increased inequality undermines a robust middle class that is thought to

46. The Future of Jobs, supra note 32. 47. Bittman, supra note 9.

[W]e face the challenge of decreasing real wages resulting, among other factors, from automation and outsourcing, which will itself be automated before long. .. .

The result is that [we are] looking at fewer jobs that pay the equivalent of what an autoworker or a teacher made in the ’60s and ’70s.

Id. 48. See Pinney, supra note 12, at 31 (“The transformation of our economy by globalization and machine intelligence will increasingly pose fundamental challenges to our current public policy and fiscal model, which is premised on maintaining a strong consumer economy and ‘full employment.’”). 49. The Future of Jobs, supra note 32. 50. PORTER &RIVKIN, supra note 33, at 2. While Piketty, in Capital in the Twenty-First Century, did not connect the period from the beginning of World War I through the Great Recession as the result of the preceding extreme economic inequality of the Gilded Age, these events should caution policy makers to conclude there is no downside to ever increasing economic inequality. 51. See Benjamin Kunkel, Paupers and Richlings,LONDON REVIEW OF BOOKS (July 3, 2014), http://www.lrb.co.uk/v36/n13/benjamin-kunkel/paupers-and-richlings (“Socialist revolution frankly seems more likely. . . . The notion of such a revolution—first in one country, then gatheringly international but not yet universal—is fanciful right now. But . . . [t]he longer global capitalism goes unreformed the more likely nations and regions are to reject it.”). 12 Stetson Law Review [Vol. 45 be an essential condition for democracy.52 Equatorial Guinea is not a democracy.53 What is clear is that increased economic inequality correlates with lowered economic growth. The OECD recently published a report titled In It Together: Why Less Inequality Benefits All.54 “[G]rowing inequality is harmful for long-term economic growth. The rise of income inequality between 1985 and 2005, for example, is estimated to have knocked 4.7 percentage points off cumulative growth between 1990 and 2010, on average across OECD countries for which long time series are available.”55 The International Labour Organization has concluded: “Inequality has . . . been shown to undermine economic growth.”56 Increased economic inequality also correlates with increases in a wide variety of problems faced by society that are not always seen as related to the distribution of economic resources.57 The range of social problems that worsen as economic inequality increases includes: lowered levels of trust; higher levels of mental illness; lowered life expectancy and higher rates of infant mortality; more obesity; lowered levels of educational performance in children; more teenage births; homicides and imprisonments; and lower levels of social mobility.58 For example, the United States, which is highly unequal economically, has increasingly low levels of social mobility:

The probability that a child of a poor American family will be in the poorest group upon reaching adulthood is nearly 50%. The probability that he will end up in the second poorest group stands at about 27%; then a child from a family in the lowest income quintile in the United States has three out of four chances . . . of ending up in

52. Joseph Fishkin & William E. Forbath, Wealth, Commonwealth, & the Constitution of Opportunity: A Story of Two Traditions (Apr. 1, 2015) (forthcoming) (manuscript at 1), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2620920 (“[W]e cannot keep our constitutional democracy—our ‘republican form of government’—without two essentials: constitutional restraints against oligarchy; and a political economy that maintains a broad middle class, accessible to everyone.”). 53. Equatorial Guinea: Freedom in the World 2013,FREEDOM HOUSE, https://freedomhouse.org/report/freedom-world/2013/equatorial-guinea#.VZFOR_1VhBc (last visited Dec. 19, 2015). 54. OECD, IN IT TOGETHER:WHY LESS INEQUALITY BENEFITS ALL (2015) [hereinafter OECD REPORT]. 55. Id. at 15. 56. GLOBAL WAGE REPORT 2014/15, supra note 20, at 19; see also Bittman, supra note 9 (“[A]s you have more and more people who are getting paid relatively little, the question in most economic heads is, where is the aggregate demand going to come from? If no one can buy, [there is] very little to sell; again, relative to their income, rich people [do not] buy much.” (internal quotations omitted)). 57. RICHARD WILKINSON &KATE PICKETT,THE SPIRIT LEVEL:WHY GREATER EQUALITY MAKES SOCIETIES STRONGER 18 (2009). 58. Id. at 19. 2015] Can Dystopia Be Avoided? 13

either the poorest group, or the group of those who are just slightly less poor. Obviously, the phenomenon also plays a similar role for the children of rich families.59

So what can be done to turn back the long-term trend of ever increasing economic inequality? First, it is necessary to realize that “[t]he evolution of inequality is not a natural process.”60 That the level of economic inequality is a question of politics becomes clear by looking at the United States experience in the period starting with World War II and ending in the early 1980s. While economic inequality was being reduced until the late 1970s, the Reagan Revolution that radically reduced taxes at the high end of the income pyramid also resulted in the reversal of the trend toward less inequality and replaced it with the ever increasing inequality seen since then.61 No matter how impossible it seems at the moment, new politics could reverse the present trends. That the problem is political does not, of course, make it simple to solve. Added to the political challenges within any particular country that is active in the globalized economy is the fact that the problem of economic inequality is essentially a worldwide problem, requiring at least a coordinated, if not uniform, response by the major countries.62 Some proposals, beyond the scope of this Article, would reduce the growth of capital holdings at the top end of the economic pyramid. For example, in order to begin to reduce extreme economic inequality, Piketty has proposed a “global tax on

59. YVAN ALLAIRE &MIHAELA FIRSIROTU,INEQUALITY AND EXECUTIVE COMPENSATION: WHY THOMAS PIKETTY IS WRONG? 25 (2014), available at http://igopp.org/wp- content/uploads/2014/06/Allaire_et_Firsirotu-Economic-Inequality-Why-Piketty-is-wrong-June- 25-2014-YA-30-juin.pdf. 60. James K. Galbraith, Kapital for the Twenty-First Century?,DISSENT (Spring 2014), https://www.dissentmagazine.org/article/kapital-for-the-twenty-first-century. 61. See id. (“The massive equalization in the United States between 1941 and 1945 was due to mobilization conducted under strict price controls alongside confiscatory top tax rates. The purpose was to double output without creating wartime millionaires. Conversely, the purpose of supply-side economics after 1980 was (mainly) to enrich the rich. In both cases, policy largely achieved the effect intended.”). See also Roger L. Martin, The Rise (and Likely Fall) of the Talent Economy,HARV.BUS. REV. (Oct. 2014), https://hbr.org/2014/10/the-rise-and-likely-fall-of-the-talent-economy, which states:

[S]upply-side thinking justified a major shift in tax policy. The top marginal rate plummeted from 70% in 1981, to 50% in 1982, to 38.5% in 1987, to 28% in 1988. Thus, in a mere seven years, $1 million earners saw the amount they kept after federal taxes increase from $340,000 to $725,000, while the $3.0 million that $10 million earners had been keeping grew to $7.2 million.

62. PIKETTY, supra note 1, at 515. 14 Stetson Law Review [Vol. 45 capital.”63 Even in absence of any coordinated attempt to reduce economic inequality at the global level, individual countries could adopt policies directed at the specific causes of inequality in their societies. For example, the United States could reduce its comparatively high rate of economic inequality by returning to pre-Reagan era tax policies that impose higher rates on top earners.64 Another way to reduce growing inequality would be to undertake policies to promote economic growth to such an extent that it exceeds the growth in capital.65 More appropriate for a symposium devoted to inequality and employment are policy changes that directly impact employment. The OECD report describes the problem of increasing economic inequality as the result of what is happening at the bottom, not the top, of the wealth and income pyramid.66 “The key driver is the growing gap between lower-income households—the bottom 40% of the distribution—and the rest of the population.”67 The first recommendation that the OECD makes is that “governments need to pursue policies to eliminate the unequal treatment of men and women in the [labor] market and to remove barriers to female employment and career progression.”68 In addition to reducing the economic impact of gender and race discrimination, a policy of imposing an obligation on government to create full employment would help the economy generally and would particularly aid those near the bottom of the economic pyramid who are most vulnerable to the loss of jobs. The International Labour

63. Id. In the 1970s, Nobel-prize-winning economist James Tobin proposed a small tax—for example, 1% to be levied on every currency exchange across the world. Paul Bernd Spahn, The Tobin Tax and Exchange Rate Stability,GLOBAL POL’Y F. (June 1996), https://www.globalpolicy.org/social-and-economic-policy/global-taxes-1-79/currency- transaction-taxes/45999-the-tobin-tax-and-exchange-rate-stability.html. The purpose was to create stability in currency during a period of time when countries could not regulate their economies because of excessive volatility. Id. The Tobin Tax has yet to come to pass. Id. 64. The recent OECD report states: “Adequately designed redistribution via taxes and transfers is a powerful instrument to contribute to more equality and more growth... . Policies need to ensure that wealthier individuals but also multinational firms pay their share of the tax burden.” OECD REPORT, supra note 54, at 17. 65. Two cautionary points: first, China has had stunning economic growth, yet the growth of capital has still exceeded the rate of overall economic growth; second, unconstrained economic growth may further endanger the health of the planet. See NAOMI KLEIN,THIS CHANGES EVERYTHING:CAPITALISM VS.THE CLIMATE 186 (2014) (arguing that capitalism is inconsistent with a healthy planet). Nevertheless, policies promoting economic growth need to be sustainable. GLOBAL WAGE REPORT 2014/15, supra note 20, at xix. 66. OECD REPORT, supra note 54, at 15. 67. Id. 68. Id. at 16. “This includes measures for increasing the earnings potential of women on low salaries and to address the glass ceiling.” Id. In countries like the United States where there are substantial differences in the earning capacities of people of color from the rest of the population, diminishing employment discrimination based on race is another step to be taken to reduce overall economic inequality. 2015] Can Dystopia Be Avoided? 15

Organization supports creating full employment policies: “[P]ursuit of full-employment policies is an important aspect of reducing inequality. The promotion of sustainable enterprises is key in this regard.”69 In the United States, the proposed Full Employment Act of 1945 would have created such an obligation on the government, and the mechanisms by which full employment was to be achieved, if the economy faltered.70 Needless to say, that Act never passed but instead was replaced by a toothless version in the Full Employment Act of 1946.71 More directly raising minimum wages would increase the income of workers near the bottom of the economic pyramid that would reduce inequality and help move people out of poverty and into the lower middle class. While some micro-economists believe that imposing minimum wages reduces economic growth and therefore employment opportunities, the International Labour Organization counters that conclusion and supports raising minimum wages:

Recent research suggests that governments have considerable space for using minimum wages as a policy tool. On the one hand, research shows that there is either no trade-off between increased minimum wages and employment levels or that such increases have very limited effects on employment, which can be either positive or negative. On the other, it shows that minimum wages do contribute effectively to reducing wage inequality.72

Because economic inequality is an issue across the globalized economy, raising the minimum wage levels in any particular country faces challenges.73 None of the developing countries want to sacrifice their comparative advantage based on lower labor costs, which might be at risk if labor costs rose.74 Perhaps a better concept at the broad international

69. GLOBAL WAGE REPORT 2014/15, supra note 20, at xix. 70. See generally G.J. Santoni, The Employment Act of 1946: Some History Notes,FED.RES.BANK OF ST.LOUIS (Nov. 1986), available at https://research.stlouisfed.org/publications/review/ article/2977 (providing a synopsis of the Full Employment Act of 1945). 71. See id. at 11–12 (criticizing the Full Employment Act of 1946). See also ROGER BLANPAIN ET AL., THE GLOBAL WORKPLACE:INTERNATIONAL AND COMPARATIVE EMPLOYMENT LAW 69 (2d ed. 2012) for a description of the way the Full Employment Act would supposedly work. 72. GLOBAL WAGE REPORT 2014/15, supra note 20, at xix. The ILO Minimum Wage Fixing Convention, 1970 (No. 131) has been available to its member states as a standard for establishing minimum wages, and it has been adopted by fifty-one countries, but it seems not to have had a significant impact. 73. See Minimum Wage Systems,INT’L LABOUR OFF. 177–78 (2014), available at http://www.ilo.org/wcmsp5/groups/public/---ed_norm/---relconf/documents/meetingdocument /wcms_235287.pdf, for a full report on the minimum wage convention and a discussion on the obstacles of implementing minimum wage reforms. 74. See World Trade Org., Labour Standards: Consensus, Coherence and Controversy, WTO.ORG, https://www.wto.org/english/thewto_e/whatis_e/tif_e/bey5_e.htm (last visited Dec. 13, 2015) 16 Stetson Law Review [Vol. 45 level is to attempt to establish a “living wage” for each country and use that to establish the appropriate minimum wage in each country. Even defining what constitutes a “living wage” has, however, been fraught so that even the International Labour Organization has yet to reach any kind of consensus about it.75 It is clear, however, that setting a living wage as a minimum can be done, at least if the circumstances support it. For example, Burger King workers in Denmark earn a living wage—the equivalent of about $20 per hour—and that has not been shown to have had any negative economic impact on Burger King or the general economy of Denmark.76 Finally and perhaps most significantly, the best way to turn around the ever increasing economic inequality would be to turn around the virtually worldwide decline in the union movement or to create a new transnational social movement aimed at using the collective strength of workers to protect and enhance their employment opportunities. There are proposals to reform the labor laws of the United States to give workers a better chance of achieving the benefits of unionization. Former Labor Secretary Robert Reich has proposed several reforms to make it more likely that the choice of workers to organize a union will be implemented.77 He suggests procedural reforms to diminish the ability of employers to delay recognition that a union represents its workers until support of the union dissipates.78 To do that, he proposes imposing real penalties for employers that violate the labor laws so such violations are no longer viewed simply as the cost of doing business.79 More substantively significant, he proposes the elimination of the provision in the national labor law that allows states to enact “right to work” or, more accurately, “right to free ride” laws that diminish the ability of unions to maintain their organizational strength.80 Chicago labor lawyer and

(discussing the World Trade Organization’s role in raising labor standards across the globe and noting that many developing countries are opposed to the WTO’s involvement because it could “undermine [their] comparative advantage”). 75. See RICHARD ANKER,ESTIMATING A LIVING WAGE:AMETHODOLOGICAL REVIEW 11 (2011), available at http://is.muni.cz/repo/1131138/anker_2011_ilo.pdf (stating that “there is no such thing as a definitive estimate for a living wage”). 76. See Liz Alderman & Steven Greenhouse, Living Wages, Rarity for U.S. Fast-Food Workers, Served Up in Denmark, N.Y. TIMES (Oct. 27, 2014), http://www.nytimes.com/2014/10/28/ business/international/living-wages-served-in-denmark-fast-food-restaurants.html?_r=0 (“We see from Denmark that [it is] possible to run a profitable fast-food business while paying workers these kinds of wages.” (internal quotation marks omitted)). 77. Robert Reich, Strengthen Unions, ROBERTREICH.ORG (May 28, 2015), http://robertreich.org/post/ 120107784670. 78. Id. 79. Id. 80. Id. 2015] Can Dystopia Be Avoided? 17 author, Thomas Geoghegan, in Only One Thing Can Save Us: Why America Needs a New Kind of Labor Movement,81 would add more reforms to United States labor law by eliminating the “exclusive bargaining representative” rule that prevents a union from bargaining on behalf of its members working for an employer, when it does not represent a majority of them, and allowing the creation of works councils as they exist in Germany.82 Even if the United States reformed its labor laws to give workers a better chance at organizing a union, that is unlikely to do all that much to turn the worldwide decline in unionization around. The problem is that unions are all nationally based in terms of organization as well as laws and culture. Part of the decline of unionization across most of the globalized economy is the result of the weakening of all national institutions that results from the increased free market world of the present day. Beyond that, with national unions working to do the best for their members and the workers in their countries, it puts them in competition with each other: What is good for German workers and German union members may be at the cost of workers and their unions in other countries. What is needed is a new form of worker organization based on a collective sense of international identity across national borders. In conclusion, the challenges facing the world with its downward plunge toward ever increasing economic inequality with potentially dire results are daunting. But, as Nelson Mandela said as to the challenge that apartheid presented, “It always seems impossible until it’s done.”83

81. THOMAS GEOGHEGAN,ONLY ONE THING CAN SAVE US:WHY AMERICA NEEDS A NEW KIND OF LABOR MOVEMENT (2014). 82. Id. at 223–24. 83. Durando, supra note .

“REGILDING THE GILDED AGE”: THE LABOR QUESTION REEMERGES

Wilma B. Liebman*

I am delighted to have been invited to participate in this important symposium on inequality, opportunity, and the law of the workplace, and I am honored to be in the company of such impressive speakers. Let me express my gratitude to the Stetson University College of Law and its Law Review for sponsoring this symposium and for affording me the privilege of giving this luncheon keynote address. I particularly want to thank Dean Christopher Pietruszkiewicz and Professor Jason Bent, who organized this symposium, but I am especially appreciative of the students who are here today. Thank you for your interest in labor law and the promise of that law. This year, as we celebrate the eightieth anniversary of the passage of the Wagner Act—our nation’s basic law that guarantees workers the right to organize and bargain collectively with their employers—organized labor is, as a percentage of the private sector workforce, at a historic low, in steady decline since the 1950s. Workers’ bargaining power is, as a consequence, sharply reduced, and income inequality is at levels not seen since the Gilded Age. I leave it to other speakers on this program to document the nature and extent of present-day wealth and income disparity. I will confine my remarks to outlining the relevance of labor law to this serious challenge, the limits of existing law, and what the future might hold for restoring the promise of labor law.

***

An article in last weekend’s New York Times travel section, entitled “Regilding the Gilded Age,” described Gilded-Age buildings that are

* © 2015, Wilma B. Liebman. All Rights Reserved. Chairman, National Labor Relations Board, 2009–2011; Member, National Labor Relations Board, November 1997–January 2009. These remarks were delivered as a luncheon keynote address at the Stetson Law Review Symposium on Inequality, Opportunity, and the Law of the Workplace, on March 6, 2015. They have been revised for publication. 20 Stetson Law Review [Vol. 45 being rehabbed and put back in service in New York City.1 It struck me that an apt title for my remarks would be “‘Regilding the Gilded Age’: The Labor Question Reemerges.” In studying the disturbing threat posed by income and power inequality today, a glance backwards to the Gilded Age would make sense. A hundred years ago, on the eve of World War I, Louis Brandeis, who was about to become a United States Supreme Court Justice, observed that “‘[t]he labor question is and for a long time must be the paramount economic question in this country.’”2 That sentiment was echoed a bit later as the Great War ended, when President Wilson cabled from Versailles:

The question which stands at the front of all others . . . amidst the present great awakening is the question of labour[:] . . . how are the men and women who do the daily labour of the world to obtain progressive improvement in the conditions of their labour, to be made happier, and to be served better by the communities and the industries which their labour sustains and advances?3

Everyone at that time—on all sides—seemed to acknowledge that the “‘labor question’ was not merely the supreme economic question but the constitutive moral, political, and social dilemma of the new industrial order.”4 America’s rapid industrialization and technological innovation during the late nineteenth century led to glaring inequality, a series of periodic depressions, and massive labor strife—often bloody.5 The

1. Tony Perrottet, Regilding the Gilded Age in New York, N.Y. TIMES (Feb. 27, 2015), http://www.nytimes.com/2015/03/01/travel/regilding-the-gilded-age-in-new-york.html?_r=0. The term “Gilded Age” was coined by Mark Twain to satirize an era that was glittering on the surface, masking serious social problems underneath. See MARK TWAIN &CHARLES DUDLEY WARNER,THE GILDED AGE:ATALE OF TODAY x–xiv (New Am. Library, Inc. 1969) (describing the 1873 edition of the “The Gilded Age” as a satirical novel criticizing society’s greed). The term now refers to a period of “tumultuous social change that ran from roughly the 1870s to the early 1900s” or sometimes up to the 1929 stock market crash. Perrottet, supra. 2. Steve Fraser, The ‘Labor Question,’ in THE RISE AND FALL OF THE NEW DEAL ORDER 1930– 1980, at 55 (Steve Fraser & Gary Gerstle eds., Princeton Univ. Press 1989); NELSON LICHTENSTEIN, STATE OF THE UNION:ACENTURY OF AMERICAN LABOR 13 n.25 (Princeton Univ. Press 2002). 3. Letter from Woodrow Wilson to the Congress, in 59 THE PAPERS OF WOODROW WILSON 289, 290 (Arthur S. Link ed., Princeton Univ. Press 1988) (May 20, 1919). 4. Fraser, supra note 2, at 55. 5. See generally PHILIP DRAY,THERE IS POWER IN A UNION:THE EPIC STORY OF LABOR IN AMERICA 225–33 (Random House, Inc. 2010) (discussing “industrial democracy” and how America coped with strikes, technological progress, and economic depressions); STEVE FRASER,THE AGE OF ACQUIESCENCE:THE LIFE AND DEATH OF AMERICAN RESISTANCE TO ORGANIZED WEALTH AND POWER 39–67 (Little, Brown & Co. 2015) (discussing how the Industrial Revolution led to progress in America, but how that progress and industrialization came at societal costs); Louis D. Brandeis, The Living Law, 10 ILL. L. REV. 461, 463 (1916) (stating “while invention and discovery created the possibility of releasing men and women from the thralldom of drudgery, there actually came, with 2015] "Regilding the Gilded Age" 21

Gilded Age, in turn, sparked in the early twentieth century the Progressive Era—a period of political and cultural reform that sought to address the gap between the promise of democracy and the grim realities of life for so many. In 1912, Congress established the U.S. Commission on Industrial Relations to study the causes of labor conflict.6 The Commission found that “[o]nly [two] percent of the nation owned [sixty] percent of its wealth. Sixty-five percent of the population owned but [two] percent of the wealth[,] . . . and most toilers in basic industries were jobless for more than two months each year.”7 Its report, issued in 1915, analyzed the social conditions of the period, and “caused a sensation in the midst of a decade of labor upheaval by condemning the maldistribution of wealth, calling for measures to stem unemployment.”8 The report argued that the “‘only hope for the solution’ of labor conflict lay in ‘the rapid extension of the principles of democracy to industry.’”9 Importantly, it declared that “‘[p]olitical freedom can exist only where there is industrial freedom; political democracy only where there is industrial democracy.’”10 What “industrial democracy” meant was open for debate, subject to diverse interpretations and experimentation, but everyone seemed to be talking about it. In Labor’s Great War, the historian Joseph McCartin eloquently tells the story of how “industrial democracy” eventually came to have meaning in our country, through the institution and practice of collective bargaining.11 But, it did not happen overnight. The notion of industrial democracy—a “big idea” that emerged from the Progressive Era’s struggles—was not to be fully realized until the economic crisis of the 1930s with the array of New Deal legislation, including the Wagner Act.12

the introduction of the factory system and the development of the business corporation, new dangers to liberty”). 6. JOSEPH A. MCCARTIN,LABOR’S GREAT WAR:THE STRUGGLE FOR INDUSTRIAL DEMOCRACY AND THE ORIGINS OF MODERN AMERICAN LABOR RELATIONS, 1912–1921, at 18–19 (Univ. of N. Carolina Press 1997). 7. Id. at 24. 8. Id. at 12. 9. Id. 10. Id. (quoting the U.S. Comm’n on Indus. Relations, Final Report of the Commission on Industrial Relations (Aug. 23, 1915), available at https://archive.org/details/ cu31924002663197). 11. Id.; see also Clyde W. Summers, Industrial Democracy: America’s Unfulfilled Promise, 28 CLEV. ST. L. REV. 29, 32–33 (1979) (describing experimentation with forms of employee representation in the 1920s and the “battle lines” over “which form industrial democracy should take,” resulting finally in 1935, when the “irrepressible plea for industrial democracy . . . became an affirmed promise by the federal government” with the passage of the Wagner Act). 12. MCCARTIN, supra note 6, at 225; Summers, supra note 11, at 33–34. 22 Stetson Law Review [Vol. 45

***

On July 5, 1935, in the midst of the Great Depression, Congress enacted the Wagner Act,13 named for its chief sponsor New York Senator Robert Wagner. It is worth recalling why. An express goal was to promote economic growth and stimulate the nation’s economy by equalizing bargaining power between labor and capital.14 Through collective bargaining with their employers, workers would increase their incomes. Congress stated expressly in Section One of the Wagner Act that the “inequality of bargaining power between employees . . . and employers . . . substantially burdens and affects the flow of commerce, and tends to aggravate recurrent business depressions, by depressing wage rates and the purchasing power of wage earners.”15 In other words, this law was seen as a means of restoring the nation to economic prosperity by increasing the purchasing power of workers. But a central purpose was also to give employees an effective voice through collective bargaining in determining their working conditions. In explaining the underlying philosophy of the statute, its sponsor, Senator Robert Wagner, said, echoing the Progressive Era declaration:

The principles of my proposal were surprisingly simple. They were founded upon the accepted facts that we must have democracy in industry as well as in government; that democracy in industry means fair participation by those who work in the decisions vitally affecting their lives and livelihood; and that the workers in our great mass production industries can enjoy this participation only if allowed to organize and bargain collectively through representatives of their own choosing.16

And Professor Clyde Summers has explained:

The expectation and promise of the Wagner Act was to make possible for all employees a system of industrial democracy. Collective bargaining would become the established and accepted form of industrial relations. Through collective bargaining employees would have an effective voice, would be able to protect their own interests, and would achieve human dignity. They would find freedom from the autocratic control of employers, and unilateral dictation would be

13. 29 U.S.C. §§ 151–169 (2012). 14. Id. 15. Id. § 151. 16. Supreme Court Findings Hailed by Wagner as Most Significant Since Marshall: Wagner Asks Unity Behind Labor Law, N.Y. TIMES. Apr. 13, 1937, at 20. 2015] "Regilding the Gilded Age" 23

replaced by mutually accepted rules. The divine right of employers would give way to democratic industrial government.17

Unquestionably, this law generated enormous optimism about its promise of collective bargaining, and it worked for a while. For several decades it promised, and to some extent delivered, workplace democracy and economic advances through equality of bargaining power. Collective bargaining became an established part of our life. Millions of workers voted for union representation in elections conducted by the National Labor Relations Board (NLRB or the Board), the agency created by Congress to enforce the Labor Act. And, millions achieved a middle-class way of life through collectively bargained agreements that provided fair wages and benefits in major industries. The labor law regime contributed to creating the widely shared prosperity that prevailed after World War II for several decades. As Nobel Prize winning economist Paul Krugman has written: “Once upon a time, back when America had a strong middle class, it also had a strong union movement. These two facts were connected.”18 But now, eighty years later—and a hundred years after the nation debated the labor question—it is fair to ask what remains of this law’s original promise.19 The story of faded trust in American labor law unfolded gradually. It lies in the gap between the original promise and later results.

***

What happened is well known. The economy changed in dramatic ways—foreign trade surged; major domestic industries were deregulated; technological innovation accelerated; financial, product, and labor markets globalized; manufacturing shrunk, and the service sector exploded. The role of finance and Wall Street expanded dramatically, with a shift from managerial capitalism to financial capitalism, treating companies as assets to be bought and sold, and as vehicles for maximizing profits through financial strategies. At the same time, corporate governance changed, elevating shareholder value over the interests of other stakeholders, especially labor; organized labor steadily

17. Summers, supra note 11, at 34. 18. Paul Krugman, State of the Unions, N.Y. TIMES (Dec. 24, 2007), http://www.nytimes.com/ 2007/12/24/opinion/24krugman.html?_r=0. 19. Wilma B. Liebman, Decline and Disenchantment: Reflections on the Aging of the National Labor Relations Board, 28 BERKELEY J. EMP.&LAB. L. 569, 572–76 (2007) (describing the decline of the National Labor Relations Act and what remains of its original promise). 24 Stetson Law Review [Vol. 45 declined as a percentage of the private sector workforce, and workers’ bargaining power eroded. “The regulated and more equitable capitalism of the mid-[twentieth] century has morphed into a far harsher system.”20 Responding to accelerating competitive pressures, firms seeking “flexibility” began to alter their business models and the nature of the employment relationship. For workers, what once was secure became uncertain. Katherine Stone, a speaker at this conference, has written about this transformation in her book From Widgets to Digits,21 as has David Weil, now serving as the Department of Labor’s Wage and Hour Administrator, in his book The Fissured Workplace.22 Ownership of capital became more distant from workers. As vertically integrated corporations began to “dis-integrate,” employment relationships “fissured,” to use Weil’s terms. Non-core functions were moved to other entities and risk shifted away from the corporation to complicated networks of smaller business units, with increasing use of subcontractors, independent contractors, and franchising. At the same time, employment became more precarious, with regular full-time work becoming less common. With all of these changes—it seems—came a greater willingness by some employers not just to bend the law, but to break it, to defeat unions, and to frustrate collective bargaining. That resistance by employers was a matter of both ideology and economic rationality, as companies faced competition—both domestic and foreign—from nonunion or low-cost rivals. Low-union density itself is both a cause and consequence of employer resistance. And, as a cause and consequence of all this upheaval, politics and government were shifting as well, as deregulatory laissez faire economic policies were taking hold. The result is a New Deal Era labor law increasingly at war with our economy, society, and workplace realties. Nonetheless, the last major revision to U.S. labor law occurred in 1947, at the end of World War II. Professor James Brudney has vividly described the state of affairs: “Congress has made virtually no changes in [labor law] since Jackie Robinson integrated major league baseball, since television arrived in American homes, or since well before the creation of

20. Harold Meyerson, Harold Meyerson: Democrats Lost Because They Didn’t Deliver Broad Prosperity,WASH.POST (Nov. 5, 2014), http://www.washingtonpost.com/opinions/harold- meyerson-democrats-lost-because-they-didnt-deliver-broad-prosperity/2014/11/05/db11a196- 6517-11e4-9fdc-d43b053ecb4d_story.html. 21. KATHERINE V.W. STONE,FROM WIDGETS TO DIGITS:EMPLOYMENT REGULATION FOR THE CHANGING WORKPLACE (Cambridge Univ. Press 2004). 22. DAVID WEIL,THE FISSURED WORKPLACE:WHY WORK BECAME SO BAD FOR SO MANY AND WHAT CAN BE DONE TO IMPROVE IT (Harv. Univ. Press 2014). 2015] "Regilding the Gilded Age" 25 the interstate highway system.”23 For years, commentators and scholars have been describing this law with words like death or dying, decline, or ossification.24 As early as 1983, Professor Paul Weiler wrote, “American labor law more and more resembles an elegant tombstone for a dying institution.”25 On the occasion of the Wagner Act’s seventy-fifth anniversary, labor economist Richard Freeman wrote that “the law no longer fits American economic reality and has become an anachronism irrelevant for most workers and firms.”26 Nor is there anything close to a consensus on how to update it. Efforts over the last forty years to amend the statute in any broad fashion all ended in legislative stalemate. Opponents of this law view it as a New Deal relic, out of sync with a globalized economy.27 But even many supporters have lost confidence in the law. Some say that it is contributing to the demise of the rights that it was intended to protect.28 They believe that the law is a hindrance and not merely unhelpful.

***

As the basic labor law has proven completely resistant to legislative change, the Board is left to apply existing law, struggling to adapt it to emerging realities. But, the Board itself is limited in what it can do—even a Board committed to a dynamic interpretation of this law. A variety of factors and forces constrain its discretion. First, there is the statutory text itself. The law was written during an industrial era in the context of a much more stable economy and with a very different kind of employment relationship in mind. The model for

23. James J. Brudney, Gathering Moss: The NLRA’s Resistance to Legislative Change, 26 A.B.A. J. LAB.&EMP. L. 161, 161 (2011). 24. See, e.g., James J. Brudney, Reflections on Group Action and the Law of the Workplace, 74 TEX. L. REV. 1563, 1563 (1996) (noting that collective action seems “moribund”); Cynthia L. Estlund, The Ossification of American Labor Law, 102 COLUM. L. REV. 1527, 1527 (2002) (explaining the scope of the article and Professor Estlund’s argument “that the ineffectuality of American labor law and the shrinking scope of collective representation are partly traceable to the law’s ‘ossification’”); Liebman, supra note 19, at 570–73 (collecting sources). 25. Paul Weiler, Promises to Keep: Securing Workers’ Rights to Self-Organization Under the NLRA, 96 HARV. L. REV. 1769, 1769 (1983). 26. Richard B. Freeman, What Can We Learn from the NLRA to Create Labor Law for the Twenty- First Century?, 26 ABA J. LAB.&EMP. L. 327, 330 (2011). 27. See The NLRB’s Unfair Labor Practice,WASH.TIMES (May 10, 2013), http://www.washingtontimes.com/news/2013/may/10/the-nlrbs-unfair-labor-practice/ (“The National Labor Relations Board is a New Deal relic that has outlived its purpose.”); Richard A. Epstein, Senseless in Seattle,HOOVER INST. (Apr. 26, 2011), http://www.hoover.org/ research/senseless-seattle-0 (discussing that the NLRA is no longer necessary, and stating that “[t]here is no good reason to spend public funds to create massive rigidities in labor markets”). 28. See, e.g., James J. Brudney, A Famous Victory: Collective Bargaining Protections and the Statutory Aging Process, 74 N.C. L. REV. 939, 941 n.4 (1995) (listing legal scholars and their concerns). 26 Stetson Law Review [Vol. 45 the law was a factory and going to work for the corporation at one physically centralized workplace for a lifetime, ascending a hierarchical structure. Some of the provisions in the law, and some of the doctrines that have evolved over the decades, now seem out of sync with present- day realities. For example, the law’s “bargaining unit” basis of union representation and collective bargaining seems misaligned with an economy, business models, and workplace relationships that are in constant flux. Representation based on a “bargaining unit” also seems guaranteed to diminish workers’ bargaining leverage. Similarly, the definitions of who is an “employee” or “employer” covered by the Act, or an “independent contractor,” “supervisor,” or “manager” excluded from the Act’s protections, often seem a poor fit with modern business practices, the evolving nature of work, and varied employment arrangements—at least from the perspective of the people doing the work. The “employee” status of graduate teaching assistants, or the joint employer allegations currently pending against McDonalds and its franchisees, are but two examples of long-standing doctrine being tested by diverse ways of doing business or organizing work.29 One can only imagine how the NLRB will grapple with the “employee” status of gig or on-demand economy workers. Recently, two federal district court judges were presented with cases alleging Uber and Lyft drivers to be “employees” under California’s wage and hour laws.30 Faced with the defense that these drivers are independent contractors, the judges questioned whether the traditional test was past its prime, especially when compared to these companies’ business models.31 “As should now be clear, the jury in this case will be handed a square peg and asked to choose between two round holes,” district court Judge Vince Chabria observed in the Lyft decision, concluding: “The test the California courts have developed over the [twentieth] [c]entury for classifying workers is not very helpful in addressing this [twenty-first] [c]entury problem.”32 These cases arose under wage and hour laws, but the dilemma is the same under our industrial era labor law.

29. See Browning-Ferris Indus. of Cal., Inc., 362 NLRB No. 186, at *2 (N.L.R.B. Aug. 27, 2015) (modifying the test for joint employer status in a representation case involving a subcontracting arrangement). 30. Uber and Lyft are two American transportation network companies whose mobile phone applications enable “ridesharing” by connecting passengers who need a ride with drivers who have a car. Lyft, How Lyft Works,LYFT.COM, https://www.lyft.com (last visited Dec. 13, 2015); Uber, The Company,UBER.COM, https://www.uber.com/about (last visited Dec. 13, 2015). 31. Cotter v. Lyft, Inc., 60 F. Supp. 3d 1067, 1081–82 (N.D. Cal. 2015); O’Connor v. Uber Tech., Inc., 2015 U.S. Dist. LEXIS 30684, *25–27 (N.D. Cal. 2015). 32. Cotter, 60 F. Supp. 3d at 1081. 2015] "Regilding the Gilded Age" 27

Also inherent in the statute itself is the weakness of the available remedies, which fail to adequately deter wrongdoers or compensate victims of discrimination under the statute. And a quirky, little-known statutory provision added by the 1947 Taft-Hartley amendments to the law prevents the Board from spending any of its budget to hire economic analysts and researchers.33 Why? Because some members of Congress suspected the agency’s economic researchers of being Communists.34 By design or happenstance, this handicap effectively promotes the Board’s obsolescence. It would seem to make the Board ill-equipped to examine the economic consequences of its decisions or to modernize labor law doctrines in response to changing economic conditions—let alone, to make informed decisions based on economic realities. It is hard to imagine any other administrative agency with this kind of constraint. Second, the Board’s ability to innovate is constrained not only by the statutory text, but also by well-established doctrines and eighty years of precedent, which the Board must navigate. While it is free to change precedent, it must do so carefully. It acts at its peril if it side steps precedent without reconciling conflicts in the caselaw and without justification. At the same time, of course, rigidly adhering to precedent that no longer makes sense is the antithesis of reasoned decision-making. A third constraint is the ever-present prospect of judicial review. Some courts insist on strict statutory construction, limiting the Board’s ability to adapt the law in light of policy considerations. Writing for the majority in NLRB v. Kentucky River Community Care, Inc.,35 a case involving nurses attempting to unionize, Justice Scalia rejected the Board’s attempt to narrowly define a “supervisor” excluded from the Act’s provisions. While acknowledging that the Board’s interpretation was based on a sound policy argument, he said the problem was that “the policy cannot be given effect through this statutory text.”36 Moreover, as the percentage of the workforce represented by unions has declined, and with it the Board’s caseload, members of the judiciary are less often exposed to such New Deal concepts as solidarity and collective action. They may know the laws that prohibit discrimination or protect individual rights, but they are likely unversed, if not skeptical or even hostile, to collective rights. Take, for example, the views on labor

33. 29 U.S.C. § 154(a) (2012) (stating that “[n]othing in this subchapter shall be construed to authorize the Board to appoint individuals for the purpose of . . . economic analysis”). 34. JAMES A. GROSS,THE RESHAPING OF THE NATIONAL LABOR RELATIONS BOARD: NATIONAL LABOR POLICY IN TRANSITION 1937–1947, at 219–21 (State Univ. of N.Y. Press 1981). 35. 532 U.S. 706, 720 (2001). 36. Id. 28 Stetson Law Review [Vol. 45 law of Judge Edith Brown Clement who said, albeit in dissent: “[C]ompanies struggle to remain competitive and efficient . . . under the fear of being sued for labor violations. . . . We are far removed from the era in which unions were the necessary, staunch defenders of employee rights in the face of abusive, domineering, and exploitive employers.”37 While the federal appellate courts enforce the vast majority of the NLRB’s decisions, in whole or in part, the Board does face occasional resistance. Indeed, certain pre-New Deal Era jurisprudential strains have proven resilient, like freedom of contract and economic freedom. A leaning towards these principles can be in tension with the rigorous enforcement of labor law rights, not to mention with the Board’s ability to innovate under the statute. For example, District of Columbia Circuit Court Judge Janice Brown, in a caustic concurrence in Hettinga v. United States,38 condemned the Supreme Court’s consigning of economic liberty and property rights “to a lower echelon of constitutional protection than personal or political liberty.”39 As she wrote, “America’s cowboy capitalism was long ago disarmed by [the] democratic process . . . [a]nd the courts, from which the victims of burdensome regulation sought protection, have been negotiating the terms of surrender since the 1930s.”40 And, in language reminiscent of thinking from a century ago, she revealed her disdain for “redistribution”:41 “Civil society, ‘once it grows addicted to redistribution, changes its character and comes to require the state to feed its habit.’”42

37. El Paso Elec. Co. v. NLRB, 681 F.3d 651, 670, 677 (5th Cir. 2012) (Brown Clement, J., dissenting). 38. 677 F.3d 471, 480 (D.C. Cir. 2012) (Brown, J., concurring) (involving a system of milk- market price controls dating back to the New Deal). 39. Id. 40. Id. 41. In Coppage v. Kansas, 236 U.S. 1 (1915), the Supreme Court made clear that the states must not declare that the public good requires the removal of inequalities between workers and employers:

No doubt, wherever the right of private property exists, there must and will be inequalities of fortune. . . . [Thus it is] impossible to uphold freedom of contract and the right of private property without at the same time recognizing as legitimate those inequalities of fortune that are the necessary result of the exercise of those rights.

Id. at 17. 42. Hettinga, 677 F.3d at 483 (internal quotation marks omitted). 2015] "Regilding the Gilded Age" 29

So, while the Supreme Court’s 1937 decisions upholding New Deal legislation, like the Wagner Act,43 led to a dramatic change in the vision of national power to regulate business, resistance remains.44 A fourth constraint on the Board comes from external pressures, particularly politics. The NLRB is, of course, no stranger to rancor. Controversial from the start, labor law has once again entered what American historian Richard Hofstadter once described as “an arena [of] angry minds.”45 A major political battle erupted at the start of the Obama Administration with the attempt to enact the Employee Free Choice Act, intended to reform labor law and strengthen its protections. Ultimately, the proposed legislation stalled in Congress, suffering the fate of labor law reform efforts for the last four decades. In its wake, heated political battles erupted on multiple fronts. These involved the budget of the NLRB—including a move to completely defund the “New Deal Relic,” which, although unsuccessful, still garnered 176 votes in the House of Representatives,46 and constant Congressional oversight of the Board’s activities. For ten years, from 2003 until 2013, the Board operated without a full five-member, Senate confirmed composition. Senate confirmation of the President’s nominees to head the agency became nearly impossible, and for twenty-seven months, the Board operated with only two (out of five) Board members because of Senate gridlock over nominees. One Obama-nominee to the Board was filibustered in the Senate, and recess appointments were made by the President. Eventually, two adverse Supreme Court decisions issued—New Process Steel, L.P. v. NLRB,47 invalidating the decisions of the two-member Board, and NLRB v. Canning,48 ruling that the President’s January 2012 recess appointments to the NLRB were unconstitutional.

43. See, e.g., NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1, 49 (1937) (upholding the Wagner Act). 44. See, e.g., Brian Beutler, The Rehabilitationists: How a Small Band of Determined Legal Academics Set out to Persuade the Supreme Court to Undo the New Deal—And Have Almost Won,NEW REPUBLIC (Aug. 30, 2015), http://www.newrepublic.com/article/122645/rehabilitationists-libertarian- movement-undo-new-deal (noting that opposition about the “proper role of government . . . was never completely vanquished”); Greg Sargent, So Who Wants to Roll Back the New Deal?,WASH.POST (Aug. 31, 2015), https://www.washingtonpost.com/blogs/plum-line/wp/2015/08/31/so-who- wants-to-roll-back-the-new-deal/ (discussing the possibility of a Republican presidential nominee attempting to restore pre-New Deal concepts that could potentially undermine economic state regulations). 45. Richard Hofstadter, The Paranoid Style in American Politics,HARPER’S MAG., Nov. 1964, at 77. 46. See, e.g., Ryan Grim, NLRB Amendment Beaten by GOP, Dem Coalition,HUFFINGTON POST, (Feb. 17, 2011, 5:19 PM EST), http://www.huffingtonpost.com/2011/02/17/nlrb-amendment- beaten-by-gop_n_824783.html?. 47. 560 U.S. 674, 676 (2010). 48. 134 S. Ct. 2550, 2578 (2014). 30 Stetson Law Review [Vol. 45

Battles with the Board persist. Except for the most routine, the Board’s ongoing activities spark strong reaction, especially its recent initiative to update rules that govern the conduct of workplace representation elections. The United States Chamber of Commerce has appropriated the rhetoric of battle, vowing earlier this year to engage in “guerrilla warfare” against the NLRB with a variety of weapons including litigation, congressional oversight hearings, legislation, and appropriations riders—all in an effort to obstruct the Board’s actions.49 For the Board’s opponents, nothing short of neutering the agency is the goal, and anything that it does, however modest, will trigger a skirmish and overheated rhetoric. In that sense, labor law is emblematic of the political world and the profound values—the divide in which we live.

***

Given these constraints, is there hope for this law and its promise of equality of bargaining power between labor and business? I do not think there is yet cause for doom. The history of American labor would argue otherwise. Unions were formed, grew, and survived in a legal order that was actively hostile to them. Moreover, despite persistent challenges, the fundamental values of our labor law endure—the rule of law as a substitute for often bloody labor battles, freedom of association, the goal of economic advancement through collective bargaining, and the underlying notion of industrial democracy. Moreover, there is a silver lining to all of this controversy. Out of it has come renewed awareness and attention to issues like stagnating wages and inequality that had been marginalized for years. Public discourse has changed, and the labor question is once again in the public eye. “One reason we should be more optimistic is that we have finally become aware of just how lousy the past several decades were for the average U.S. worker . . . .”50 Most promising, perhaps, we are seeing signs of life not seen for decades—a revival of worker activism. Gradually, working people in

49. John A. Logan, Right Wing Declares ‘Guerrilla War’ on NLRB, Again,HILL (Feb. 17, 2015, 10:00 AM), http://thehill.com/blogs/pundits-blog/labor/232917-right-wing-declares-guerrilla- war-on-nlrb-again; Chris Opfer, Slowing Down the NLRB ‘Quickie’ Election Rule: A Preview of Congressional Review,LAB.&EMPL.BLOG,BLOOMBERG BNA (Jan. 28, 2015), http://www.bna.com/slowing-down-nlrb-b17179922551/. 50. Zachary A. Goldfarb, Why the Economy Isn’t Doomed,WASH.POST (Feb. 14, 2014), https://www.washingtonpost.com/opinions/why-the-economy-isnt-doomed/2014/02/14/ afabb292-8c84-11e3-95dd-36ff657a4dae_story.html. 2015] "Regilding the Gilded Age" 31 every imaginable type of workplace and occupation are emerging from years of acquiescence, and joining together, with and without unions, to improve life on the job despite the odds and the obstacles. Just in the last year we have seen: drivers who transport Silicon Valley entrepreneurs to join the Teamsters—a striking symbol of confronting inequality; labor strife at West Coast ports, Texas oil refineries, and a New England telephone company; workers at Volkswagen’s Chattanooga facility continue their effort to unionize and establish a German-style works council with co-determination rights, despite an early 2014 NLRB election loss;51 Northwestern University football players seeking to unionize, as well as National Football League cheerleaders and adjunct faculty;52 and farmworkers, home healthcare workers, fashion models, and others excluded from the basic labor law’s coverage mobilizing for better pay and improved working conditions; not to mention the remarkable walkout by thousands of workers and managers at Market Basket, a family-owned New England grocer chain, who joined together to protest the ouster of a worker-friendly CEO.53 And, of course, the fast food workers’ “Fight for $15” campaign has gained momentum in city after city and even abroad.54 The campaign has triggered a wave of minimum-wage hikes around the country. It has also, little by little, introduced hundreds, if not thousands, of workers to collective action and the notion of “organizing” for improved working

51. Matthew Finkin & Thomas Kochan, The Volkswagen Way to Better Labor-Management Relations, L.A. TIMES (Jan. 20, 2014), http://articles.latimes.com/2014/jan/20/opinion/la-oe- finkin-vw-work-councils-20140120; Andy Sher, Sen. Bo Watson Slams VW over Labor Policies, UAW Recognition,TIMES FREE PRESS (Mar. 18, 2015), http://www.timesfreepress.com/news/ business/aroundregion/story/2015/mar/18/watsquestions-volkswagen-over-labor-policies/ 293841/; Brent Snavely, UAW Certified to Represent VW Workers in Tennessee,DET.FREE PRESS (Dec. 9, 2014, 7:14 AM EST), http://www.freep.com/story/money/cars/2014/12/08/uaw-union- certified-vw/20111791/; UAW Charters Local 42 at Volkswagen in Chattanooga,CHATTANOOGAN (July 10, 2014), http://www.chattanoogan.com/2014/7/10/280066/UAW-Charters-Local-42-At- Volkswagen.aspx. 52. Nw. Univ. and College Athletes Players Ass’n (Capa), 362 NLRB No. 167, at *1 (N.L.R.B. Aug. 17, 2015). 53. Thomas A. Kochan, What the Market Basket Deal Says About American Workers,FORTUNE (Aug. 28, 2014, 10:08 AM EDT), http://fortune.com/2014/08/28/what-the-market-basket-deal- says-about-american-workers/. 54. The “Fight for $15” is a worker movement started by fast food industry workers in late 2012, seeking to bring attention to their stagnant wages and poor working conditions through a series of one-day rallies and strikes. These have spread from a few cities to many more across the country and globally. Their stated goal is fifteen dollars an hour and the establishment of a union. There has been extensive media coverage of this movement. See, e.g., Steven Greenhouse, How to Get Low-Wage Workers into the Middle Class,ATLANTIC (Aug. 19, 2015), http://www.theatlantic.com/business/archive/2015/08/fifteen-dollars-minimum-wage/401540/ (discussing the potential success of the movement); Steven Greenhouse & Jana Kasperkevic, Fight for $15 Swells into Largest Protest by Low-Wage Workers in US History,GUARDIAN (Apr. 15, 2015, 5:40 PM EDT), http://www.theguardian.com/us-news/2015/apr/15/fight-for-15-minimum-wage- protests-new-york-los-angeles-atlanta-boston (describing the demonstrations across cities). 32 Stetson Law Review [Vol. 45 conditions. These are workers who probably had no prior exposure to this kind of activity, let alone a notion of worker rights or unions. They will presumably lead this movement going forward, and over time it will likely spread. With each of the minimum wage victories, their efforts will be rewarded. All of these stories demonstrate that the data on declining union density ignores the developing story about workers who are organizing and how grassroots mobilization can move an issue into the mainstream. It is important to recognize the limits of the law, as I have outlined. Modest but meaningful efforts can be made to keep the law current, to adapt it to changing economic and workplace realities, and, in the words of Justice Brandeis, to keep the law “living.”55 But, even an active Board, committed to labor law’s potential, cannot solve the underlying problems of stagnant wages, inequality, and lack of worker bargaining power. Comprehensive labor law reform is not politically viable for now. That said, were an opportunity to arise, there are questions that we should be considering. A fundamental re-examination of American labor law would have to address a wide range of issues, but a few stand out:

• What changes in the law’s coverage provisions should be made so that workers performing services for employers have protections and can effectively organize and bargain collectively, taking into consideration sweeping changes in business models, the nature and organization of work, and the employment relationship? • Does the bargaining-unit model of representation, based on majority rule and exclusive representation, still make sense, especially given an economy where workplaces are in constant flux, where bargaining units disappear through business transformations, and where jobs are constantly churning? Is the model too restrictive of employee voice at work and of employees’ ability to exert bargaining power? • How might the statute’s famously weak remedial scheme be overhauled? • How can we create an enabling environment for collective bargaining? Is the current scope of mandatory collective bargaining too narrow to adequately take into account workers’ interests and competencies?

55. Brandeis, supra note 5, at 464, 467 (blaming the failure of the law to keep pace with the prior fifty years of revolutionary political, social and economic changes, and stating that “[c]ourts continued to ignore newly arisen social needs,” reasoning from abstraction and not from life). “No law, written or unwritten, can be understood without a full knowledge of the facts out which it arises and to which it is to be applied.” Id. 2015] "Regilding the Gilded Age" 33

• And, how can the process for securing union representation be made less adversarial and more streamlined for those workers who desire it?

These are questions that may not be taken up any time soon, I realize. Real solutions begin with revived worker activism. A stronger law would follow from a stronger labor movement, not the other way around. The law did not create labor power—labor did. Whether you look at the Gilded Era and its massive labor strife, or the labor battles of the 1930s, today’s labor laws were the product of tremendous struggle. While we do not yet have a full-fledged sustained social movement, or anything resembling those earlier eras, still there is surely ample evidence of restiveness and discontent. We do well not to ignore these signs. It is easy to give up hope, but that would be wrong.

***

In concluding, let me just pose a question for the business community—and Republicans. You express concern about stagnant wages and inequality, but you do not like solutions that involve expanding government or taxes on the wealthy or interfere, in your view, with business or the free market. I would then ask: Why not start by supporting the voluntary, largely laissez faire institution of collective bargaining? It is compatible with free market principles. It is a process left to the private parties to work out for themselves. It is consistent with democracy. So, if we care about democracy—and everyone on the right, the left, and the middle does—why not “giv[e] collective bargaining a serious chance”?56 While certainly not a panacea for all of our economic woes, it might be a start. A hundred years ago, Justice Brandeis cautioned: “‘We must make our choice. . . . We may have democracy [in this country], or we may have wealth concentrated in the hands of a few, but we cannot have both.’”57 Today, again, we must make that choice. The Labor Question

56. Jim Tankersley, Robots Are Hurting Middle Class Workers, and Education Won’t Solve the Problem, Larry Summers Says,WASH.POST (Mar. 3, 2015), http://washingtonpost.com/blogs/ wonkblog/wp/2015/03/03/robots-are-hurting-middle-class-workers-and-education-wont-solve- the-problem-larry-summers-says/. 57. RAYMOND LONERGAN,MR.JUSTICE BRANDEIS: GREAT AMERICAN,PRESS OPINION AND PUBLIC APPRAISAL 42 (Modern View Press 1941). 34 Stetson Law Review [Vol. 45 is reemerging,58 and an industrial democracy suited to twenty-first century realities should be part of the solution.

58. See, e.g., Rich Yeselson, Labor at a Crossroads: Will Diversity Foster a New Solidarity and Save the Movement?,AM.PROSPECT (Jan. 20, 2015), http://prospect.org/authors/rich-yeselson (discussing that labor has the best chance it has had in over forty years to put the labor question before the public). INDIRECT THREATS TO THE WAGES OF LOW- INCOME WORKERS: GARNISHMENT AND PAYDAY LOANS

Steven L. Willborn*

The theme of this conference is Inequality, Opportunity, and the Law of the Workplace. For reasons that I will discuss, I will approach that topic from a somewhat off-kilter perspective. I hope you will agree that there is some value in looking at the issue in this way. First, let me set the framework. When one talks about “inequality,” one can focus on some workers being paid too little, or others being paid too much. Working on either dimension could reduce inequality. I will focus on the workers-being-paid-too-little side of that equation. When we think of workers being paid “too little,” the discussion normally begins, and sometimes ends, with discussions of how to increase the income that low-income workers earn from their employers. Increases in the minimum wage would be the prime example: if we increase it, low-income workers might receive more income from their employers. When discussing topics such as garnishment and payday loans, the narrative becomes complicated in two main ways. First, we are not talking about the total amount those workers are owed—for example, the number of hours they work times the minimum wage. Rather, we are talking about the amount they actually receive at the end of the day. We are talking about a different kind of threat to the earnings of low-wage workers—not only the direct threat of simply being paid too little, but also the indirect threat of not getting all of those meager wages. To state it somewhat differently, if a worker needs $X/month to survive, she might fail to get there because the minimum wage is too low, or she might fail to get there because—even though the minimum wage is sufficient— the amounts taken out of her check through garnishment will cause her

* © 2015, Steven L. Willborn. All rights reserved. Judge Harry A. Spencer Professor of Law, University of Nebraska College of Law. Reporter for the Uniform Garnishment Act, a current project of the Uniform Law Commission. These remarks were delivered at the Stetson Law Review Symposium on Inequality, Opportunity, and the Law of the Workplace on March 6, 2015. They have been revised for publication. 36 Stetson Law Review [Vol. 45 to fall below that amount. The two scenarios are equally problematic for the worker, but the second tends to be less on the radar screen than the first. Second, the narrative is complicated because we are no longer talking only about the employer and worker. A third party—a creditor in the case of garnishment or a lender in the case of payday lending—is also involved. I will come back to these points later, but I will begin by pointing out why I am calling garnishment and payday loans indirect threats and why I think these examples reveal new ways of thinking about inequality and limited opportunity, and new problems in addressing them. Let me begin by providing a brief sketch of garnishment and payday loans. For both, there are two primary take-away points. First, I think you will be surprised by how common and widespread these practices are. These are bigger threats to low-income workers than generally perceived. Second, the threat is targeted at a group of workers that is especially vulnerable. People whose wages are garnished or who take out payday loans are not the poorest of the poor, nor are they even the lowest earning tier of low-income workers. To be “garnished” or to take out a payday loan, one has to at least have some stability of employment and some level of income to make those actions viable. So, we are generally talking about people who earn $15,000–$40,000/year—people who work hard and regularly, but who make barely enough to live a halfway decent life.1 Let us take a quick look at garnishment first: 1. From 2001 to 2012, the National Labor Relations Board (NLRB) received roughly 20,000 to 30,000 charges of unfair labor practices each year.2 2. For that same period, the Equal Employment Opportunity Commission (EEOC) received about 80,000 to 100,000 charges of illegal discrimination each year.3

1. See Consumer Fin. Prot. Bureau, Payday Loans and Deposit Advance Products: A White Paper of Initial Data Findings,CONSUMERFINANCE.GOV 17–18 (Apr. 24, 2013), http://files.consumerfinance.gov/f/201304_cfpb_payday-dap-whitepaper.pdf (reporting that 72% of borrowers from payday lenders had annual incomes between $10,000 and $40,000). 2. Nat’l Labor Relations Bd., Charges and Complaints, NLRB.GOV, https://www.nlrb.gov/ news-outreach/graphs-data/charges-and-complaints/charges-and-complaints (last visited Dec. 14, 2015) (providing number of charges for 2005–2012); Nat’l Labor Relations Bd., Annual Reports, NLRB.GOV, https://www.nlrb.gov/reports-guidance/reports/annual-reports (last visited Dec. 14, 2015) (providing number of charges for 2001–2004). 3. U.S. Equal Emp’t Opportunity Comm’n, Charge Statistics FY 1997 Through FY 2014, EEOC.GOV, http://eeoc.gov/eeoc/statistics/enforcement/charges.cfm (last visited Dec. 14, 2015) (providing the charge statistics for 1997–2014). 2015] Indirect Threats To the Wages of Low-Income Workers 37

3. Over the same period, the number of garnishments ranged between 160,000 and 180,000, which roughly doubled the number of EEOC charges and considerably exceeded the number of NLRB and EEOC charges combined.4 4. And, that count of garnishments is for Virginia only.5 The following chart depicts Virginia garnishments, EEOC, and NLRB charges for 2001–2012:

Virginia Garnishments, EEOC, and NLRB Charges, 2001–2012 200,000 150,000 Garnishments 100,000 (Virginia) 50,000 EEOC 0 NLRB 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Number of Charges Years

The garnishment statistics are for Virginia only because, to my knowledge, Virginia is the only state that records garnishments as a separate category in its court statistics, and that is a function of how garnishment works in that state.6 I have done various back-of-the-envelope calculations to estimate the nationwide incidence of garnishment based on a study by the ADP Research Institute,7 extrapolations from the Virginia data,8 and a

4. Caseload Statistical Information,COURTS.STATE.VA.US, http://www.courts.state.va.us/ courtadmin/aoc/judpln/csi/home.html (last visited Dec. 14, 2015) (providing garnishment statistics by year in Virginia circuit, district, and juvenile and domestic relations courts). 5. Id. 6. See generally Charles J. Nabit, Garnishment in Virginia, 21 WM.&MARY L. REV. 793 (1980) (discussing the development of garnishment and the Virginia statutory scheme). 7. The ADP study estimated that 7.2% of all workers had their wages garnished each year. ADP Research Inst., Garnishment: The Untold Story, ADP.COM 8 (2014), available at http://www.adp.com/tools-and-resources/adp-research-institute/insights/~/media/RI/pdf/ Garnishment-whitepaper.ashx. The civilian labor force in December 2013 was 154 million. Labor Force Statistics from the Current Population Survey, U.S. DEP’T OF LABOR, http://data.bls.gov/pdq/SurveyOutputServlet?request_action=wh&graph_name=LN_cpsbref1 (last visited Dec. 14, 2015). This produces an estimate of about 11 million garnishments. 8. In 2013, there were 196,000 garnishments in Virginia. Caseload Statistical Information, supra note 4. Virginia’s population was 2.36% of the total population of the United States. Id. This produces an estimate of about 7.5 million garnishments nationally. 38 Stetson Law Review [Vol. 45 snapshot report I received from a very large national retailer,9 to estimate that between five and eleven million workers have their wages garnished each year. This is a wide range, and these are all rough estimates, but even if they are considerably off, a very large number of people undoubtedly have their wages garnished every year. The focus of all of these garnishments is not on the very poorest of the poor. Perhaps that is a blessing, or perhaps it is just a signal of how hopelessly desperate that class is. Instead, the focus is precisely on a group that is struggling to maintain a stable and decent life. Workers earning between $25,000 and $40,000 annually have the highest garnishment rate by income;10 workers between the ages of thirty-five and forty-four have the highest garnishment rate by age.11 With regard to payday loans, the story is roughly similar to that of garnishment. The payday loan industry is large: over 22,000 payday advance locations nationwide are estimated to make about $17 billion in loans annually.12 The borrowers tend to have low incomes of about $23,000 to $26,000 annually.13 The mean and median loan amounts are $392 and $350, and the mean and median fees are $56 and $53.14 Because the loans are very short term, these fees translate into very high annual percentage rates of 339% and 322%, respectively.15 The loans are not generally made for frivolous, beyond-the-necessities purposes. Rather, they are generally used to cope with the travails of a low-income life. The most common reasons given by borrowers for taking out the loans are unplanned expenses (including medical expenses)—49% of borrowers— and the inability to pay ordinary expenses between paydays—44% of borrowers.16 Thus, both garnishment and payday loans are threats to opportunity, equality, and fair pay—both are pretty widespread, both

9. The large national retailer reported that 3.7% of all garnishments occurred in Virginia (on file with the Author). If the 196,000 garnishments in Virginia in 2013 were 3.7% of all garnishments in the United States, there would have been about 5.3 million nationally. 10. ADP Research Inst., supra note 7, at 12. 11. Id. at 10. 12. Robert B. Avery, Payday Loans Versus Pawnshops: The Effects of Loan Fee Limits on Household Use,BD. OF GOVERNORS OF THE FED.RESERVE SYS. 6–7 (May 13, 2011), available at http://www.frbsf.org/community-development/files/2-avery-handout.pdf. 13. Consumer Fin. Prot. Bureau, supra note 1, at 18 (reporting that the median and mean loan amounts were $22,476 and $26,167, respectively). 14. Id. at 17. 15. Id. (providing the mean and median duration of loans as eighteen and fourteen days, respectively). 16. Cmty. Fin. Servs. Ass’n of Am., Payday Loans and the Borrower Experience, CFSAA.COM 7 (Dec. 2013), available at http://cfsaa.com/Portals/0/Harris_Interactive/CFSA_HarrisPoll_ SurveyResults.pdf. 2015] Indirect Threats To the Wages of Low-Income Workers 39 have significant impacts on the already low wages of these workers, and both are fairly targeted at a vulnerable group. The second part of my thesis is that legal regulation of these threats to low-income workers is old and outdated. So, let me begin with the garnishment laws. This is a real backwater and the fact that few know about it speaks for itself. The modern history of garnishment laws begins in 1968 with the Consumer Credit Protection Act (the Act),17 and the key thing to remember about the Act, and about garnishment laws in general, is that they are worker protection laws. The Act sets a national floor of protection—no wages can be garnished until a worker earns at least thirty times the federal minimum wage, and no more than 25% of disposable earnings can be garnished.18 When the Act was enacted, it was explicitly viewed in that way—to protect workers,19 and like other federal statutes, it merely provided a floor of protection, inviting states to provide greater protections. Many states have expanded the protections, but the federal floor is still the most common level of protection at the state level.20 More significantly, perhaps, garnishment laws are not generally viewed as a means of protecting workers today. Rather, while the invitation to states to enter the field has not led to enormously increased consumer protection, it has led to a hellishly complicated and very inefficient set of laws that do little to protect workers. Some readers might know that the Uniform Law Commission is currently embarked on a project to bring some efficiency and organization to state garnishment laws.21 Even though I am supportive of the effort, the primary emphasis of the proposed changes is improved uniformity and, hence, efficiency—which is very good for employers and only sort of good for employees. However, there is likely only a small chance that the effort will lead to any stronger or better worker protections. Those protections are likely to stay at about the level provided by the Consumer Credit Protection Act almost a half a century ago. So, the threats to workers are, at best, about the same as they have

17. 15 U.S.C. §§ 1671–1693r (2012). 18. Id. § 1673(a)(1)–(2). 19. See H.R. Rep. No. 1040, 90th Cong., 1st Sess. 10 (1968) (noting that wage garnishment restrictions were intended to protect “unwitting” workers from “unscrupulous” lenders). 20. AMORETTE NELSON BRYANT,COMPLETE GUIDE TO FEDERAL AND STATE GARNISHMENT 9-40 to 9-45 (2015 ed., 2014) (depicting a table showing that the garnishment limitations in seventeen states mirror the federal protections, which is the most common level of state protection). 21. Unif. Law Comm’n, Wage Garnishment Act,UNIFORMLAWS.ORG, http://www.uniformlaws.org/Committee.aspx?title=Wage%20Garnishment%20Act (last visited Dec. 14, 2015). I am the reporter (principal drafter) for this Committee, but the views expressed here are mine alone. 40 Stetson Law Review [Vol. 45 been for the past fifty years, and maybe a bit more daunting given the increased use of garnishment to collect debts of various kinds. For payday loans, the story is similar. First, there is direct regulation of payday loans in most states. Four or five states do not regulate payday loans and maybe another twelve or thirteen effectively limit them through strict interest-rate ceilings.22 But, most states permit it—although many with an interest-rate ceiling that provides some protection—and some explicitly authorize it through their regulation.23 In addition to interest-rate regulation, some states have limits on the size of a payday loan (for example, no more than $400 per loan), limits on rollover of loans (for example, loans cannot rollover more than three times), or limits on collection practices.24 At the federal level, the current regulation is a mixed blessing. On the one hand, there are laws that apply and provide some protections— like the Truth in Lending Act, which requires disclosures, and the Fair Debt Collection Practices Act, which regulates collection practices.25 On the other hand, the National Bank Act governs federally insured banks and the interest-rate ceilings applicable to those banks are those of their home states.26 So, banks can support payday loans, or do an equivalent type of loan, with interest-rate limits that are generous because the banks choose states to locate in based on their lenient regulations.27 An interesting aspect of the payday-loan problem for low-wage workers is that it is a problem that was addressed by most states a century ago. Then, states were worried about employers that took improper deductions from worker wages or forced them to borrow from employers, and so on. That resulted in a wave of wage-payment laws in the first quarter of the twentieth century,28 which led to a wave of Lochner-type

22. Nat’l Conference of State Legislatures, Payday Lending Statutes, NCSL.ORG (Jan. 14, 2015), http://www.ncsl.org/research/financial-services-and-commerce/payday-lending-state-statutes .aspx. 23. Id. 24. Id. 25. See 15 U.S.C. § 1601 (2012) (discussing the importance of the informed use of credit and meaningful disclosure of lease terms); see also id. § 1692 (discussing the purpose of the Fair Debt Collection Practices Act as “eliminat[ing] abusive debt collection practices” and promoting consistent action by the states). 26. 12 U.S.C. § 85 (1980). 27. The federal government is beginning to consider more effective protections for workers. See Consumer Fin. Prot. Bureau, CFPB Considers Proposal to End Payday Debt Traps, CONSUMERFINANCE.GOV (Mar. 26, 2015), http://www.consumerfinance.gov/newsroom/cfpb- considers-proposal-to-end-payday-debt-traps (discussing the beginning of a rule-making process to regulate payday loans). 28. See Claudio J. Katz, Protective Labor Legislation in the Courts: Substantive Due Process and Fairness in the Progressive Era, 31 LAW &HIST.REV. 275, 286–94 (2013). 2015] Indirect Threats To the Wages of Low-Income Workers 41 legal challenges.29 But, at the end of the day, state wage-payment statutes survived to restrict the ability of employers to do what payday lenders do—that is, make loans to low-wage workers at high interest rates.30 Given this history, it is ironic that the payday loan industry had arisen to do almost exactly what employers were doing prior to the state wage- payment laws. This is not what David Weil means when he talks about the fissured workplace. Rather, he is talking about employers contracting out work that was formerly done by employees.31 But, that is one way of viewing this.32 In the past, workers would look to employers for this sort of loan, and were exploited in doing so. Now, that function has been fissured off to other providers. Interestingly, employers sometimes serve as brokers in this process, setting up formal programs to give payday lenders access to workers and then assisting the lenders by facilitating wage assignments to help ensure that the loans are repaid. Maybe there is something useful in this excursion across these aspects of equality and opportunity for low-wage workers. I hope that there are at least some seeds here that might be worth further thought. First, thinking about the earnings of low-wage workers should extend beyond consideration of their gross income alone. At the least, it should also include thinking about the amount that actually makes it through to them in their paycheck—that is, their gross income minus any amounts deducted for garnishments and payday loan obligations. Second, in theory at least, regulation of these aspects of the pay of low-wage workers should be easier than other aspects. In contrast to the minimum wage, in these cases the interests of employers in protecting their workers’ wages generally align with the interests of those workers. So, in the Uniform Law Commission project on garnishment, it is employers who are trying to make that process more transparent, efficient, and rational—and that cuts in the direction of helping low-wage workers. In theory at least, the same should be true for payday loan protections.

29. Lochner v. New York, 198 U.S. 45 (1905). Lochner held that a state-labor regulation violated the due process clause. Id. at 64. Before Lochner was overturned in the 1930s, it was relied on to overturn hundreds of labor laws. For good reviews of the Lochner era, see David E. Bernstein, Lochner’s Legacy’s Legacy, 82 TEX. L. REV. 1 (2003); Cass Sunstein, Lochner’s Legacy, 87 COLUM. L. REV. 873 (1987). For a list of cases overturning labor laws during the Lochner era, see WILLIAM FORBATH,LAW AND THE SHAPING OF THE AMERICAN LABOR LAW MOVEMENT 177–92 app. A (1991). 30. Katz, supra note 28, at 305, 316. 31. DAVID WEIL,THE FISSURED WORKPLACE:WHY WORK BECAME SO BAD FOR SO MANY AND WHAT CAN BE DONE TO IMPROVE IT 8–14 (Harv. Univ. Press 2014). 32. Id. 42 Stetson Law Review [Vol. 45

On the other hand, protecting low-wage workers from these indirect threats is more complicated because the game has more players. Unlike the minimum wage, for example, where we are generally attending only to employee and employer interests, in these cases we also have third parties with deep interests in whatever protections might seem appropriate. These third parties include those with direct interests, such as the many types of creditors who might seek garnishment and the payday lending industry, itself. But, they also include those with less direct interests, such as those who might offer substitutes for payday lending were it to be restricted—for example, those engaged in pawn shop lending or advance deposits. In sum, addressing the issue of low pay for workers through direct action is important and necessary. But, broadening the view to consider the full range of threats to the wages of low-wage workers is also important and necessary if we want to avoid having the direct efforts undermined by other types of threats. And yet, broadening the view in that way makes the task even more difficult and daunting. HOW TO RAISE WAGES: POLICIES THAT WORK AND POLICIES THAT DON’T

Lawrence Mishel* and Ross Eisenbrey**

I. INTRODUCTION AND EXECUTIVE SUMMARY

There is now widespread agreement across the political spectrum that wage stagnation is the country’s key economic challenge. The Economic Policy Institute (EPI) has documented for nearly three decades that wages for the vast majority of American workers have stagnated or declined since 1979.1 This is despite real gross domestic product (GDP) growth of 149% and net productivity growth of 64% over this period.2 In short, the potential has existed for adequate, widespread wage growth over the last thirty-five years, but these economic gains have not trickled down to the vast majority.3 As this Article explains, wage stagnation is not inevitable. It is the direct result of public policy choices on behalf of those with the most power and wealth that have suppressed wage growth for the vast majority in recent decades. Thus, because wage stagnation was caused by policy, it can be alleviated by policy. In particular, policymakers must address two distinct sets of policies.

© 2015, Lawrence Mishel. All rights reserved. President of the Economic Policy Institute. Ph.D., University of Wisconsin at Madison. Dr. Mishel is a nationally recognized economist and co-author of all twelve editions of The State of Working America. Prior to becoming President of the EPI in 2002, he served as EPI’s first Research Director and also as Vice President. His articles have appeared in a variety of academic and non-academic journals. His areas of research include labor economics, wage and income distribution, industrial relations, productivity growth, and the economics of education. © 2015, Ross Eisenbrey. All rights reserved. Vice President of the Economic Policy Institute. J.D., University of Michigan. Ross Eisenbrey is a lawyer and former commissioner of the U.S. Occupational Safety and Health Review Commission. Prior to joining EPI, Mr. Eisenbrey worked for many years as a staff attorney and legislative director in the U.S. House of Representatives and as a committee counsel in the U.S. Senate. He served as policy director of the Occupational Safety and Health Administration from 1999 until 2001. Mr. Eisenbrey has testified numerous times in the House of Representatives and the Senate, and has written scores of articles, issue briefs, and policy memos on a wide range of labor issues. 1. Josh Bivens, Elise Gould, Lawrence Mishel & Heidi Shierholz, Raising America’s Pay: Why It’s Our Central Economic Policy Challenge,ECON.POL’Y INST. 5 (June 4, 2014), available at http://s3.epi.org/files/pdf/65287.pdf. 2. Id. 3. Id. 44 Stetson Law Review [Vol. 45

One set of policies that has stifled wage growth includes aggregate factors, which have led to excessive unemployment over much of the last four decades, as well as others that have driven the financialization of the economy and excessive executive pay growth.4 Policymakers can help to deliver broadly shared wage growth through monetary and budgetary policies that prioritize full employment—thereby tightening the labor market so that employers must offer pay increases to get, and keep, the workers they need—as well as tax and other policies that help ensure economic gains do not accrue mainly to the top 1%. Policies that will help create jobs and reach full employment include keeping interest rates unchanged until wage growth reaches 3.5% to 4%; enacting employment programs targeted toward hard-hit communities; increasing public investment in transportation, broadband, research and development (R&D), and education; and reducing the U.S. trade deficit.5 Policies that will not help create jobs or reach full employment include corporate tax reform, lowering tax rates on individuals or corporations, raising interest rates,6 and pursuing trade deals harmful to U.S. workers.7 Another set of policies concerns the business practices, eroded labor standards, and weakened labor market institutions that have reduced workers’ individual and collective power to bargain for higher wages. Policymakers can help grow wages by raising the minimum wage; updating overtime rules; strengthening rights to collective bargaining; regularizing undocumented workers; ending forced arbitration; securing workers’ access to sick leave and paid family leave; closing race and gender inequities; awarding government contracts only to firms that adhere to wage, health, and safety laws; and tackling workplace abuses such as misclassification and wage theft. Policies that will not help raise wages include individual or corporate tax cuts, austerity, increasing

4. See id. at 50 (describing how the upward redistribution resulting from aggregate factors “has clearly damaged income growth at the bottom and middle”). 5. See generally Josh Bivens, The Short- and Long-Term Impact of Infrastructure Investments on Employment and Economic Activity in the U.S. Economy,ECON.POL’Y INST. (July 1, 2014), available at http://www.epi.org/files/2014/impact-of-infrastructure-investments.pdf (estimating the positive impact that debt-financed infrastructure investments would have on employment and economic activity, including an increase in GDP, an economy-wide increase in productivity, and a net increase in the number and types of jobs available). 6. See Janet L. Yellen, Semiannual Monetary Policy Report to Congress,BD. OF GOVERNORS FED. RESERVE SYS. (July 15, 2015), http://www.federalreserve.gov/newsevents/testimony/ yellen20150715a.htm (referencing a possible increase in the federal funds rate). 7. See The Economist, The Trans-Pacific Partnership: Into the Home Stretch,ECONOMIST.COM (July 25, 2015), http://www.economist.com/news/finance-and-economics/21659716-all-its-flaws- biggest-trade-deal-years-good-news-world (discussing some of the benefits and problems of the Trans-Pacific Partnership as negotiations continue). 2015] How To Raise Wages 45 college or community college completion,8 deregulation, and policies aimed at increasing long-term growth.

II. CREATING JOBS AND REACHING FULL EMPLOYMENT

The good news is that an average of 246,000 jobs were created each month in 2014, representing faster job growth than any year in the last recovery and since 2007.9 This job growth lowered the unemployment rate to 5.6% in December 2014.10 Unfortunately, we still have far to go before we recover from the financial crisis of 2008 and the recession that started after December 2007 (the Great Recession).11 Specifically, “the Great Recession and its aftermath has left us with a jobs shortfall of 5.6 million.”12 “[That is] the number of jobs needed to keep up with growth in the potential labor force since 2007.”13 Current job creation rates will get us to pre-Great Recession labor market health by August 2017.14 However, even attaining this pre-Great Recession labor market health is an insufficiently ambitious goal. Instead, we should strive to reach genuine full employment, with roughly 4% unemployment.15 Much is at stake.16 If we do not attain robust full employment, many communities, particularly those of color, will be left out of the recovery.17 Moreover, under current policy conditions, significant wage growth for the vast majority may only occur when we achieve much lower unemployment than we now have.18 The reason for this is simple: employers do not need to offer significant wage increases to attract and retain employees because

8. President Barack Obama has called for the federal and state governments to fund community college for all. E.g., Kyla Calvert Mason, Obama: Community College Should Be ‘As Free and Universal in America as High School,’ PBSNEWSHOUR.ORG (Jan. 20, 2015, 9:36 PM EDT), http://www.pbs.org/newshour/rundown/community-college-tuition-top-theme-state-union- speech/. 9. Elise Gould, At an Average of 246,000 Jobs a Month in 2014, It Will Be the Summer of 2017 Before We Return to Pre-Recession Labor Market Health,ECON.POL’Y INST.BLOG (Jan. 9, 2015, 10:41 AM), available at http://www.epi.org/blog/at-an-average-of-246000-jobs-a-month-in-2014-it-will-be-the- summer-of-2017-before-we-return-to-pre-recession-labor-market-health/. 10. The Employment Situation––December 2014,BUREAU OF LABOR STATS. 1 (Dec. 2014), available at http://www.bls.gov/news.release/archives/empsit_01092015.pdf. 11. Gould, supra note 9. 12. Id. 13. Id. 14. Id. 15. Tejvan Pettinger, The Natural Rate of Unemployment,ECON.HELP, http://www.economicshelp.org/macroeconomics/unemployment/natural_rate/ (last visited Dec. 14, 2015). 16. Lawrence Katz, What’s at Stake if the Fed Prematurely Raises Rates,ECON.POL’Y INST.BLOG (Aug. 18, 2014, 10:00 AM), available at http://www.epi.org/blog/fed-shouldnt-tighten-anytime/. 17. Id. 18. Id. (indicating that current levels of employment are insufficient to create real wage growth). 46 Stetson Law Review [Vol. 45 the number of willing workers is far greater than the number of available jobs.19

A. Policies That Will Help Achieve Full Employment

1. Monetary Policy That Targets Full Employment, with Wage Growth Matching Productivity Gains

The most important economic policy decisions being made about job growth in the next few years are those of the Federal Reserve Board (FRB), as it determines the scale and pace at which it raises interest rates.20 The decision to raise interest rates is essentially a decision to slow the economy and weaken job and wage growth. There are many false concerns about accelerating wage growth and exploding inflation based on the mistaken sense that we are at, or near, full employment. Policymakers should not seek to slow the economy until wage growth is comfortably running at a 3.5% to 4% rate—wage growth consistent with a 2% inflation target (since trend productivity is 1.5% to 2%, wage growth two percentage points faster than this yields rising unit labor costs, and therefore inflation of 2%).21 Thereafter, the FRB should pursue monetary policy conducive to allowing wage growth to match productivity gains. In short, the key danger is slowing the economy too soon, rather than too late.

2. Targeted Employment Programs

Even at 4% unemployment, there will be many communities that will still suffer substantial unemployment, especially low-wage workers and many black and Hispanic workers.22 To obtain full employment for all, we will need to undertake policies that can direct jobs to areas of high unemployment. The tool for this is the public and non-profit employment programs that several members of Congress have introduced in the last several years, which create jobs by meeting unmet needs.23

19. Id. (describing record-low employment rates for young workers and minorities). 20. Id. 21. Id. 22. Margaret Simms, Karina Fortuny, Marla McDaniel & William Monson, Education and Employment of Disconnected Low-Income Men, U.S. DEP’T OF HEALTH &HUMAN SERVS. 1, 3 (Aug. 2013), available at http://aspe.hhs.gov/hsp/13/LowIncomeMen/Education/rpt_ EducationAndEmployment.pdf. 23. See Local Jobs for America Act, H.R. 2889, 113th Cong. §1 (2013) (creating local jobs through appropriations for the retention, restoration, or expansion of services needed by local communities); Emergency Jobs to Restore the American Dream Act, H.R. 1617, 113th Cong. §1 2015] How To Raise Wages 47

3. Public Investment and Infrastructure

There is widespread agreement that we face a substantial shortfall of public investment in transportation, broadband, R&D, and education.24 Undertaking a sustained program of public investment, for at least a decade, can create jobs and raise our productivity and growth.25 In the early years, this program would most effectively create jobs if we borrowed to finance it; however, as we approach full employment, we can raise revenues to cover its costs. In this way, budget policy can be a tool that allows us to raise productivity and bring us closer to full employment.

4. Reducing Our Trade Deficit

The annual U.S. trade deficit in goods and services increased from $476.4 billion in 2013 to $505 billion in 2014, an increase of $28.7 billion, or 6%.26 That deficit represents a huge reduction in U.S. GDP and employment.27 By making imports cheaper and U.S. exports more expensive, currency manipulation inflates the trade deficit and leads to huge job losses.28 Eliminating currency manipulation could reduce the U.S. global trade deficit by $200 billion to $500 billion each year, which could increase overall U.S. GDP by $288 billion to $720 billion, creating between 2.3 million and 5.8 million U.S. jobs.29

B. Policies That Do Not Help Us Reach Full Employment

1. Corporate Tax Reform

There are many false claims that corporate tax reform is necessary to make the U.S. competitive and bring us growth. First off, the evidence shows that the corporate tax rates that U.S. firms actually pay, also

(2013) (creating jobs through grants for public school modernization, public land improvement, and community service). 24. Josh Bivens, Public Investment: The Next ‘New Thing’ for Powering Economic Growth,ECON. POL’Y INST. 1–3 (Apr. 18, 2012), available at http://s4.epi.org/files/2012/bp338-public- investments.pdf. 25. Id. at 2. 26. U.S. International Trade in Goods and Services, U.S. CENSUS BUREAU, at 1, 3 (Feb. 5, 2015, 8:30 AM EST) http://www.census.gov/foreign-trade/Press-Release/2014pr/12/ft900.pdf [hereinafter 2015 U.S. Census]. 27. Id. 28. Robert E. Scott, Currency Manipulation and the 896,600 U.S. Jobs Lost Due to the U.S.–Japan Trade Deficit, ECON.POL’Y INST. 3 (Feb. 4, 2015), available at http://s4.epi.org/files/2014/ JapanCurrencyManipulation.pdf. 29. Id. 48 Stetson Law Review [Vol. 45 described as “effective rates,” are not higher than those of other advanced countries.30 Second, the tax reform that is being discussed is “revenue- neutral,” necessarily meaning that average tax rates are not actually being reduced; for every firm or sector that will see a lower tax rate, another will see a higher tax rate.31 It is hard to see how such tax reform sparks growth.

2. Cutting Taxes

There will surely be many efforts in Congress to cut corporate taxes and reduce taxes on capital income (e.g., capital gains, dividends) and individual marginal tax rates, especially on those with the highest incomes.32 It is easy to see how those strategies will not work. Look at Figure A, which shows that these taxes have been reduced over the last thirty-five years since 1980.33 Yet, economic growth was slower since 1980 than in the preceding thirty years, when tax rates were much higher.34 Another useful comparison is to the last recovery, following the Bush-era tax cuts, which had slower job growth than the current recovery.35

30. Thomas L. Hungerford, Policy Responses to Corporate Inversions: Close the Barn Door Before the Horse Bolts,ECON.POL’Y INST. 5 (Sept. 8, 2014), available at http://s4.epi.org/files/2014/ corporate- inversions.pdf. 31. Id. at 6. 32. See Emmanuel Saez, Joel B. Slemrod & Seth H. Giertz, The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review fig.A, tbl.A1 (Nat’l Bureau of Econ. Research, Working Paper No.15012, 2009), available at http://www.nber.org/papers/w15012.pdf (outlining trends of income share and marginal tax rates on the top one percent from 1960 to 2006 and listing top federal marginal tax rates from 1952 to 2009 for ordinary income, earned income, capital gains, and corporate income). See generally Lawrence Mishel, I Can’t Tolerate the Nonsense on Corporate Tax Reform Any More,ECON.POL’Y INST.BLOG (Aug. 12, 2014, 2:07 PM), available at http://www.epi.org/blog/tolerate-complete-corporate-tax-reform/ (discussing the economic erosion resulting from corporate inversions and the difficulties in implementing a workable, meaningful tax reform). 33. Saez et al., supra note 32, at 18. 34. Id. at tbl.A1; Gross Domestic Product,FED.RESERVE BANK OF ST.LOUIS (Sept. 25, 2015, 9:59 AM CDT), https://research.stlouisfed.org/fred2/series/A191RP1Q027SBEA. 35. Annenberg Pub. Pol’y Ctr., Obama’s Numbers (January 2015 Update),FACTCHECK.ORG (Jan. 9, 2015), http://www.factcheck.org/2015/01/obamas-numbers-january-2015-update/. 2015] How To Raise Wages 49

Figure A36

3. Raising Interest Rates

Those worried about inflation are calling on the FRB to raise interest rates soon and steadily thereafter.37 Their fears are unfounded. But we should be clear that those seeking higher interest rates are asking our monetary policymakers to slow economic growth and job creation, reflecting a far-too-pessimistic assumption of how far we can lower unemployment and seemingly aiming for unemployment at current levels of between 5.0% and 5.5%. We can do better than that, and the failure to seek significantly lower unemployment would stifle opportunities for wage growth and employment for many who otherwise would not benefit from this recovery.38

36. Saez et al., supra note 32, at tbl.A1. 37. Mark Thoma, Should the Federal Reserve Raise Interest Rates?, CBSNEWS.COM (June 15, 2015, 5:15 AM), http://www.cbsnews.com/news/should-the-fed-raise-interest-rates/; Janet L. Yellen, Statement Before the Committee on Financial Services,FED.RES. (July 15, 2015, 8:30 AM), http://www.federalreserve.gov/newsevents/testimony/yellen20150715a.pdf. 38. See Bivens et al., supra note 1, at 14–16 (discussing the impact of high unemployment rates on women, black workers, and Hispanic workers). 50 Stetson Law Review [Vol. 45

4. More Bad Trade Deals

The North American Free Trade Agreement (NAFTA) cost U.S. workers almost 700,000 jobs.39 Additionally, since the United States signed KORUS, a free-trade agreement with Korea, the U.S. trade deficit with Korea has nearly doubled, rising from $14.7 billion in 2011 to $26.6 billion in 2014, an increase of $11.8 billion or 80.4%.40 The Obama administration promised that “tariff cuts alone in the U.S.-Korea trade agreement will increase exports of American goods by $10 billion to $11 billion.”41 To date, increased exports have achieved less than 8% of this goal, dwarfed by the growth of Korean imports and the growing bilateral trade deficit, which has displaced nearly 60,000 U.S. jobs.42 Furthermore, China’s admission to the World Trade Organization (WTO) has been a disaster for U.S. manufacturing workers; the U.S. goods trade deficit with China increased by $23.9 billion, or 7.5%, in 2014, to $342.6 billion.43 Clearly, further trade deals that follow the NAFTA and KORUS pattern should be avoided. Their failure to address currency manipulation or to effectively address labor standards, while exalting the interests of multinational corporate investors, has been a disaster that should not be repeated. These trade treaties are not even about trade, given that tariffs are already very low; they are about backroom deals to protect corporate profits and establish new rights. Giving the President fast-track authority to negotiate the Trans-Pacific Partnership (TPP) would be a mistake.44

39. Robert E. Scott, Heading South: U.S.-Mexico Trade and Job Displacement After NAFTA, ECON.POL’Y INST. (May 3, 2011), available at http://s2.epi.org/files/page/-/BriefingPaper308.pdf. 40. Robert E. Scott, U.S.–Korea Trade Deal Resulted in Growing Trade Deficits and More Than 75,000 Lost U.S. Jobs,WORKING ECON.BLOG (Mar. 30, 2015, 2:31 PM), http://www.epi.org/ blog/u-s- korea-trade-deal-resulted-in-growing-trade-deficits-and-more-than-75000-lost-u-s-jobs/; USITC Interactive Tariff and Trade DataWeb, U.S. INT’L TRADE COMM’N, http://dataweb.usitc.gov (last visited Dec. 14, 2015) [hereinafter USITC Data]. 41. The U.S.-South Korea Free Trade Agreement: More American Jobs, Faster Economic Recovery Through Exports,WHITEHOUSE.GOV 1, available at http://www.whitehouse.gov/sites/ default/files/fact_sheet_overview_us_korea_free_trade_agreement.pdf (last visited Dec. 14, 2015). 42. Scott, supra note 39; USITC Data, supra note 40. 43. 2015 U.S. Census, supra note 26. 44. TPP negotiations were held in Hawaii on July 28–31, 2015, but failed to result in a deal. See Kit Tang, Top U.S. Trade Expert: Massive Trans-Pacific Deal Will Get Done, CNBC (Aug. 10, 2015, 7:01 PM ET), http://www.cnbc.com/2015/08/10/top-us-trade-expert-massive-trans-pacific-deal-will- get-done.html. However, many trade experts believe that the TPP will eventually become a reality and will be “the most sweeping trade deal in a generation and a legacy-defining achievement for U.S. President Barack Obama.” Id. 2015] How To Raise Wages 51

C. Wage Growth

It is a welcome development that policymakers and presidential candidates in both parties have now acknowledged that stagnant wages are a critical economic challenge.45 This will generate an important debate on the best way to lift wages for the vast majority, which is necessary to raise households into the middle class and fuel middle-class incomes.46 That wage trends lay at the heart of income stagnation is just common sense. After all, middle-class families rely almost completely on what they earn from their jobs to support their consumer spending.47 These families do not own many financial assets that produce income; at best they have a little stock (only one-third of households have more than $10,000 of stock), and their home accounts for most of their wealth.48 This is also true for low-income households, which obtain 70% of their income from wages (including the Earned Income Tax Credit).49 It is useful to establish some of the basic facts on wage stagnation. Figure B illustrates the tremendous gap between the 138% wage growth enjoyed by the top 1% since 1979, and wages for the bottom 90%, which grew just 15%, with most of that growth occurring in the late 1990s.50

45. David Lauter, Income Inequality Emerges as Key Issue in 2016 Presidential Campaign, L.A. TIMES (Feb. 5, 2015, 7:00 AM), http://www.latimes.com/nation/la-na-campaign-income-20150205- story.html#page=1 (describing “the economy’s failure to produce rising incomes for the middle class” as the leading issue in the 2016 presidential campaign). 46. Id. 47. See The Middle-Class Tax Cuts’ Impact on Consumer Spending & Retailers,NAT’L ECON. COUNCIL &COUNCIL OF ECON.ADVISERS 3 (Nov. 2012), https://www.whitehouse.gov/sites/ default/files/uploads/consumer_report_embargo.pdf (discussing the decline in consumption resulting from the rise in taxes for the middle class). 48. Bivens et al., supra note 1, at 43–45; Stephan Richter, Stock Ownership: Who Benefits?,SALON (Sept. 19, 2013, 8:42 AM EDT), http://www.salon.com/2013/09/19/stock_ownership _who_benefits_partner/; Laura Shin, The Racial Wealth Gap: Why a Typical White Household Has 16 Times the Wealth of a Black One,FORBES (Mar. 26, 2015, 8:00 AM), http://wwwforbes.com/sites/ laurashin/2015/03/26/the-racial-wealth-gap-why-a-typical-white-household-has-16-times-the- wealth-of-a-black-one/. 49. Bivens et al., supra note 1, at 6. 50. Wojciech Kopczuk, Emmanuel Saez & Jae Song, Earnings Inequality and Mobility in the United States: Evidence from Social Security Data Since 1937, 125 Q. J. ECON. 91, 114 (Feb. 2010), available at http://eml.berkeley.edu//~saez/kopczuk-saez-songQJE10mobility.pdf; Soc. Sec. Admin, Wage Statistics for 2013, SSA.GOV, http://www.ssa.gov/cgi-bin/netcomp.cgi (last visited Dec. 14, 2015); Lawrence Mishel & Will Kimball, The Top 1 Percent of Wage Earners Falters in 2013– Was It a Temporary Event?,ECON.POL’Y INST.BLOG (Oct. 24, 2014, 2:20 PM), available at http://www.epi.org/blog/top-1-percent-wage-earners-falters-2013/. 52 Stetson Law Review [Vol. 45

Figure B51

Figure C presents the divergence between productivity—the growth of the output of goods and services per hour worked—and the pay of a typical worker. Over the forty years since 1973, there has been productivity growth of 73%, yet the compensation (wages and benefits) of a typical worker grew far less, at just 8.9% (again, mostly in the late 1990s).52

51. Bivens et al., supra note 1, at 19; Kopczuk et al., supra note 50, at 108. 52. Bivens et al., supra note 1, at fig.A. 2015] How To Raise Wages 53

Figure C53

Thus, wage and benefit stagnation is a long-term trend that is not due to insufficient economic growth, since the economic growth over the last four decades did little to produce rising pay for the vast majority (Figure D).54 Last, it is important to note that there has been widespread wage stagnation for the last ten years or so, affecting both blue-collar and white-collar workers, as well as both high school and college graduates.55 Wage stagnation occurred over the last recovery from 2002–2003 until 2007, as well as during the Great Recession and its aftermath.56

53. Id. 54. Elise Gould, Why America’s Workers Need Faster Wage Growth—And What We Can Do About It,ECON.POL’Y INST. fig.F (Aug. 27, 2014), available at http://s4.epi.org/files/2014/why-americas- workers-need-faster-wage-growth-final.pdf. 55. Id. at fig.F, fig.L. 56. Id. at fig.F. 54 Stetson Law Review [Vol. 45

Figure D57

Wage stagnation is conventionally described as being about globalization and technological change.58 Many say these are trends we neither can—nor want—to restrain.59 In fact, technological change has had very little to do with wage stagnation.60 Such an explanation is grounded in the notion that workers have insufficient skills, so employers are paying them less; meanwhile, those with higher wages and skills— including college graduates—are highly demanded, resulting in employers bidding up their wages.61 We know that this pattern of wage growth and job creation has not been evident over the last fifteen years.62 Many studies have shown that the best-paying occupations have not expanded their share of employment since 1999–2000,63 and that job

57. Id. 58. Michael J. Zimmer, Can Dystopia Be Avoided? Increasing Economic Inequality Can Lead to Disaster, 45 STETSON L. REV. 5, 8 (2016). 59. See Int’l Monetary Funds, Globalization: A Brief Overview, IMF.GOV (May 2008), http://www.imf.org/external/np/exr/ib/2008/053008.htm (discussing the many benefits of globalization and technological development including increased efficiency, diversified markets, and greater access to healthcare, among others). 60. Gould, supra note 54, at 20–21. 61. Id. at 20. 62. Bivens et al., supra note 1, at 63. 63. See Frank Levy & Richard J. Murnane, Dancing with Robots: Human Skills for Computerized Work,THIRD WAY 18–19 (July 17, 2013), available at http://content.thirdway.org/ publications/714/Dancing-With-Robots.pdf (describing the impact of formal education on 2015] How To Raise Wages 55 growth has been centered upon low-wage occupations.64 The so-called job polarization, which has eroded jobs in middle-wage occupations but expanded jobs at the top and bottom, has been much discussed but has not been present in the United States since the 1990s.65 So, employers are not creating jobs at the high end, yet we see wages grow far faster for those at the top (the top 1%, as well as the top 10%) than in the middle or bottom of the wage scale.66 It is also important to note that the inflation-adjusted wages of college graduates have been stagnant since 2002–2003,67 the wages and benefits earned by recent college graduates have been plummeting for every new cohort since 2000,68 and the Federal Reserve Bank of New York has documented that an increasing share of recent college graduates work in jobs that do not require a college degree.69 Last, there are hundreds of thousands of college students and recent college graduates working in internships that provide no wage.70 A number of these unpaid internships in the private sector are likely illegal, but that is another matter.71 The presence of college graduates in a wide variety of fields healthcare support occupations); Lawrence Mishel, Heidi Shierholz & John Schmitt, Don’t Blame the Robots: Assessing the Job Polarization Explanation of Growing Wage Inequality 4 (Econ. Pol’y Inst., Working Paper, Nov. 19, 2013), available at http://www.epi.org/publication/technology-inequality- dont-blame-the-robots/ (noting how occupational wages among the bottom occupational quintile have increased at the same rate as other quintiles despite the expansion of low-wage employment occupations). See generally David H. Autor, Polanyi’s Paradox and the Shape of Employment Growth (Mass. Inst. Tech., Working Paper No. 20485, Sept. 3, 2014), available at http://economics.mit.edu/files/9835 (describing a decrease in routine task-intensive occupations for middle-skilled workers); Paul Beaudry, David A. Green & Benjamin M. Sand, The Great Reversal in the Demand for Skill and Cognitive Tasks (Nat’l Bureau Econ. Research, Working Paper No. 18901, Mar. 2013), available at http://www.nber.org/papers/ w18901 (discussing the impact of the de- skilling process, including the resulting trend of high-skilled workers pursuing low-skill occupations). 64. Bivens et al., supra note 1, at 63. 65. Id. 66. Id. at 9–12. 67. Id. at 60–61. 68. Id. 69. Jaison R. Abel, Richard Deitz & Yaqin Su, Are Recent College Graduates Finding Good Jobs?, 20 CURRENT ISSUES ECON.&FIN. 1, 1 (2014), available at http://www.newyorkfed.org/research/ current_issues/ci20-1.pdf. 70. Bivens et al., supra note 1, at 63. 71. See Glatt v. Fox Searchlight Pictures, Inc., 791 F.3d 376, 379 (2d Cir. 2015) (vacating the district court’s decision to grant partial summary judgment and certify a class of unpaid Black Swan interns who raised a matter of first impression: whether—and when—an unpaid intern is entitled to compensation as an employee under the Fair Labor Standards Act). The Glatt analysis rested upon guidance from the Department of Labor, which laid out a six-factor test to determine if an intern is an employee. Id. at 382. The six factors are as follows: (1) whether the internship is similar to a training or occurs in an educational environment, (2) whether the internship is for the benefit of the intern, (3) whether the intern displaces regular employees, (4) whether the employer derives an “immediate advantage” from the intern’s activities, (5) whether the intern is entitled to the job when the internship ends, and (6) whether the employer and intern understand that the intern is not entitled to wages. Id.; see Dep’t of Labor, Wage & Hour Div., Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act (Apr. 2010), available at http://www.dol.gov/whd/regs/ 56 Stetson Law Review [Vol. 45 working for free indicates that there is not a generalized excessive, unmet demand for their skills.72 In other words, there is no skill shortage that is generating wage inequalities. As for globalization, it has, in fact, served to suppress wage growth for non-college-educated workers,73 who constitute roughly two-thirds of the workforce.74 However, trends such as import competition from low- wage countries did not naturally develop; they were pushed by trade agreements and the tolerance of misaligned and manipulated exchange rates that undercut U.S. producers.75 In short, wage stagnation is not inevitable; it is a direct result of policy decisions. As such, it can be remedied by policy. There are two sets of policies that have greatly contributed to wage stagnation that receive far too little attention. One set is aggregate factors, which include factors that lead to excessive unemployment and others that have driven the financialization of the economy and excessive executive pay growth (which fueled the doubling of the top 1%’s wage and income growth). The other set of factors are the business practices, eroded labor standards, and weakened labor market institutions that have suppressed wage growth. These are examined in turn.

D. Aggregate Factors

Unemployment substantially above full employment and rapidly escalating pay for finance professionals and executives are both directly related to wage stagnation for the vast majority.

1. Excessive Unemployment

Unemployment has remained substantially above full employment for much of the last forty years, especially relative to the post-war period

compliance/whdfs71.pdf. See generally Jessica L. Curiale, Note, America’s New Glass Ceiling: Unpaid Internships, the Fair Labor Standards Act, and the Urgent Need for Change, 61 HASTINGS L.J. 1531 (2010) (discussing the legal status of unpaid internships as well as their societal and economic ramifications). 72. Bivens et al., supra note 1, at 63. 73. Josh Bivens, Using Standard Models to Benchmark the Costs of Globalization for American Workers Without a College Degree,ECON.POL’Y INST. 2 (Mar. 22, 2013), available at http://s3.epi .org/files/2013/standard-models-benchmark-costs-globalization.pdf. 74. Chad Brooks, The Surprising Jobs That Now Require a Bachelor’s Degree,BUS.NEWS DAILY (Sept. 9, 2014, 5:48 PM EST), available at http://www.businessnewsdaily.com/7103-no-degree-no- job.html. 75. Bivens et al., supra note 1, at 70. 2015] How To Raise Wages 57 before then.76 Since high unemployment depresses wages more for low- wage than middle-wage workers, and more for middle-wage than high- wage workers, these slack conditions generate wage inequality.77 This reinforces the need to achieve full employment, as delineated above. The excessive unemployment in recent decades reflects a monetary policy overly concerned about inflation relative to unemployment and hostile to any signs of wage growth.78 Budget policy has sometimes exacerbated our unemployment problem. For example, in the last few years, budgets at the state level have been cut so dramatically that hundreds of thousands of public employees were laid off.79 At the federal level, deficit hysteria caused a failure to adequately focus on job creation to counter the recession and a weak recovery.80

2. Unleashing the Top 1%: Finance and Executive Pay

The major forces behind the extraordinary income growth and the doubling of the top 1%’s income share since 1979 were the expansion of the finance sector (and escalating pay in that sector) and the remarkable growth of executive pay.81 Notably, CEO pay grew more than twice as fast as profits and three times faster than the pay of other very high-wage earners—the top 0.1% of wage earners.82 The increased incomes in finance and for executives do not reflect a corresponding increase in national output.83 Thus, restraining the growth of such income will not adversely affect the size of our economy.84 Moreover, the failure to restrain these incomes leaves less income available to the vast majority, the 90% of wage earners who have seen little wage growth since 1979.85

76. Thomas Palley, The Federal Reserve and Shared Prosperity: Why Working Families Need a Fed That Works for Them,ECON.POL’Y INST. 9–10 (Feb. 9, 2015), http://s2.epi.org/files/2014/ TheFederalReserveAndSharedProsperity.pdf. 77. Bivens et al., supra note 1, at 56. 78. Palley, supra note 76, at 10. 79. Nicholas Johnson, Phil Oliff & Erica Williams, An Update on State Budget Cuts: At Least 46 States Have Imposed Cuts That Hurt Vulnerable Residents and Cause Job Loss,CTR.FOR BUDGET &POL’Y PRIORITIES 2 (Feb. 9, 2011), available at http://www.cbpp.org/sites/default/files/atoms/files/3-13- 08sfp.pdf. 80. Josh Bivens, Andrew Fieldhouse & Heidi Shierholz, From Free-Fall to Stagnation: Five Years After the Start of the Great Recession, Extraordinary Policy Measures Are Still Needed, but Are Not Forthcoming,ECON.POL’Y INST. 17–18 (Feb. 14, 2013), available at http://s3.epi.org/files/2013/ bp355-five-years-after-start-of-great-recession.pdf. 81. Lawrence Mishel & Alyssa Davis, CEO Pay Continues to Rise as Typical Workers Are Paid Less, ECON.POL’Y INST. 10 (June 12, 2014), available at http://s1.epi.org/files/2014/ceo-pay-continues- to-rise.pdf. 82. Id. at 1–2. 83. Id. 84. Id. at 2. 85. See supra Figure B (depicting the cumulative change in annual wages from 1979–2013). 58 Stetson Law Review [Vol. 45

For these reasons—and not because of envy—we cannot ignore the top 1% as we seek to increase wages for the vast majority. What the top 1% has taken in income growth has largely come at the expense of other income groups. There are various policies that can help accomplish a restraint on income growth of the 1%. Tax preferences for executive pay can be eliminated, or the use of tax preferences can be tied to the executive’s firm, giving wage increases equal to productivity growth.86 Others have recommended tying corporate tax rates to the ratio of executive-to- median worker pay.87 Imposing a financial transactions tax can steer investments toward productive uses, direct investments away from speculation, and restrain unproductive financial activity.88

E. Labor Standards, Labor Market Institutions, and Business Practices

There are a variety of policies related to labor standards, labor market institutions, and business practices that can greatly help to lift wage growth.

1. Raising the Minimum Wage

Erosion of the value of the minimum wage—a policy undertaken in the 1980s that has never fully been reversed—is the main reason wages at the lowest levels lag behind those at the middle.89 The inflation- adjusted minimum wage is now about 25% below its 1968 level,90 despite the fact that productivity has doubled and the education and skills of those in the bottom one-fifth have greatly improved.91 Moving the

86. Josh Bivens & Lawrence Mishel, The Pay of Corporate Executives and Financial Professionals as Evidence of Rents in Top 1 Percent Incomes,ECON.POL’Y INST. 16 (June 20, 2013), available at http://s3.epi.org/files/2013/pay-corporate-executives-financial-professionals.pdf. 87. See S. 1372, 2013–2014 Leg., Reg. Sess. (Cal. 2014), available at http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140SB1372 (illustrating the course of action taken by the California senate). 88. Rebecca Thiess, Many Options Exist for Raising Revenue in a Smart and Progressive Manner, ECON.POL’Y INST. 2, 6 (Apr. 18, 2013), available at http://s4.epi.org/files/2013/options-exist- raising-revenue-smart-progressive.pdf. 89. David Cooper, Raising the Federal Minimum Wage to $10.10 Would Lift Wages for Millions and Provide a Modest Economic Boost,ECON.POL’Y INST. 4–5 (Dec. 19, 2013), available at http://s1.epi.org/files/2014/EPI-1010-minimum-wage.pdf. 90. Id. at 4–6. 91. Id. at 5; Heidi Shierholz, Fix It and Forget It: Index the Minimum Wage to Growth in Average Wages,ECON.POL’Y INST. 13 (Dec. 17, 2009), available at http://s4.epi.org/files/page/- /pdf/bp251.pdf. 2015] How To Raise Wages 59 minimum wage to $12.00 by 2020 would benefit about one-fourth of the workforce directly and indirectly.92

2. Updating Overtime Rules

The share of salaried workers eligible for overtime has fallen from 65% in 1975 to just 11% today.93 Someone who spends a small share of his or her time supervising others can spend the bulk of that time doing work that hourly workers do (e.g., unloading trucks or filling shelves with products), work far in excess of forty hours, and yet still receive no overtime pay. This is because the salary threshold, the salary level beneath which you are guaranteed overtime pay, has eroded such that the Fair Labor Standards Act covers only those earning less than $23,660 per year (a poverty-level wage).94 Fortunately, President Obama has instructed the Department of Labor to revise the salary threshold.95 Moving that threshold to the value it held in 1975—roughly $51,000 today—would provide overtime protection to 6.1 million workers, providing workers with higher pay, more leisure, and more time with their families.96

92. David Cooper, Raising the Minimum Wage to $12 by 2020 Would Lift Wages for 35 Million Workers,ECON.POL’Y INST. 2 (July 14, 2015), available at http://www.epi.org/files/2015/ raising-the-minimum-wage-to-12-dollars-by-2020-would-lift-wages-for-35-million-american- workers.pdf. 93. Donté Donald & Ross Eisenbrey, The Department of Labor Should Set the Overtime Salary Threshold at No Less Than $1,122 Per Week,ECON.POL’Y INST. (Oct. 22, 2014), available at http://www.epi.org/publication/the-department-of-labor-should-set-the-overtime-salary-threshold- at-no-less-than-1122-per-week/. 94. Why It’s Time to Update Overtime Pay Rules: Frequently Asked Questions,ECON.POL’Y INST. 2 (Aug. 4, 2015), available at http://www.epi.org/publication/time-update-overtime-pay-rules- answers-frequently/. 95. Ross Eisenbrey, Where Should the Overtime Threshold Be Set? A Comparison of Four Proposals to Increase Overtime Coverage,ECON.POL’Y INST. 1 (Dec. 23, 2014), available at http://www.epi.org/ publication/where-should-the-overtime-salary-threshold-be-set-a-comparison-of-four-proposals-to- increase-overtime-coverage/. The U.S. Department of Labor recently issued a Notice of Proposed Rulemaking, announcing its intention to increase the salary and compensation levels required to exempt an employee from receiving overtime pay. Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, 80 Fed. Reg. 38516 (July 6, 2015). The proposed changes would “set the standard salary level at the [fortieth] percentile of weekly earnings for full-time salaried workers”; “increase the total annual compensation requirement needed to exempt highly compensated employees . . . to the annualized value of the [ninetieth] percentile of weekly earnings of full-time salaried workers”; and “establish a mechanism for automatically updating the salary and compensation levels” in the future. Fact Sheet: Proposed Rulemaking to Update the Regulations Defining and Delimiting the Exemptions for “White Collar” Employees, U.S. DEP’T OF LABOR, available at http://www.dol.gov/whd/overtime/ NPRM2015/factsheet.htm (last visited Dec. 14, 2015). 96. Eisenbrey, supra note 95, at 1–2. 60 Stetson Law Review [Vol. 45

3. Strengthening Rights to Collective Bargaining

The single largest factor suppressing wage growth for middle-wage workers over the last few decades has been the erosion of collective bargaining, which can explain one-third of the rise of wage inequality among men and one-fifth among women.97 One of the greatest impacts of the decline of collective bargaining has been that non-union workers in industries or occupations that previously had extensive collective bargaining no longer receive the higher pay that their employers used to provide (given concerns that their best workers might leave for a union job or for fear their workers would choose collective bargaining).98 Thus, the erosion of collective bargaining has affected both union and non- union workers alike. In the United States, many more workers want collective bargaining than are able to benefit from it.99 If all who wanted to pursue collective bargaining could in fact do so, the United States would have as much collective bargaining as Germany.100 There are a wide variety of proposals to strengthen and rebuild our collective bargaining system.101

4. Regularizing Undocumented Workers

Undocumented immigrant workers are vulnerable to exploitation. Consequently, they earn lower wages than documented workers, who have greater access to legal protections and can switch jobs more readily.102 Executive actions, such as those the current administration are

97. LAWRENCE MISHEL,JOSH BIVENS,ELISE GOULD &HEIDI SHIERHOLZ,THE STATE OF WORKING AMERICA,AN ECONOMIC POLICY INSTITUTE BOOK 176, 277 (12th ed. 2012). 98. Id. at 276–77. 99. See Richard B. Freeman, Do Workers Still Want Unions? More Than Ever,ECON.POL’Y INST. 2 (Feb. 22, 2007), available at http://www.gpn.org/bp182/bp182.pdf (stating that in 2005, approximately 53% of non-union workers favored union representation). 100. See id. (noting that if American non-union workers were provided the collective bargaining representation they wanted in 2005, the approximate overall collective bargaining rate would have been 58%); L. Fulton, Worker Representation in Europe,WORKER-PARTICIPATION.EU (2013), available at http://www.worker-participation.eu/National-Industrial-Relations/Countries/Germany/ Collective-Bargaining (stating that “59% of all German employees are directly covered by collective agreements”). 101. See generally Freeman, supra note 99, at 12 (describing the United States workforce as a “system in crisis” and advocating for collective bargaining policies similar to those of other English- speaking countries, such as Canada and Australia). 102. Lauren A. Apgar, Authorized Status, Limited Returns: The Labor Market Outcomes of Temporary Mexican Workers,ECON.POL’Y INST. 1–2 (May 21, 2015), available at http://www.epi.org/files/ pdf/86437.pdf; Walter Ewing, Immigration Reform and Job Growth: Legalizing Unauthorized Immigrants Would Boost the U.S. Economy,IMMIGR.POL’Y CTR. 3 (Jan. 20, 2011), http://www.immigrationpolicy.org/sites/default/files/docs/Immigration_Reform_and_Job_ Growth_012011.pdf. 2015] How To Raise Wages 61 pursuing,103 or comprehensive immigration reform that provides a path to citizenship, are policies that would lift wages.104 Regularizing undocumented workers would not only lift their wages, but would also lift the wages of documented workers in the same fields of work.105

5. Ending Forced Arbitration

One way for employees to challenge discriminatory or unfair personnel practices and wages is to go to court or to a government agency that oversees such employment discrimination. However, many large firms force their workers to give up their access to public court and government agency remedies, and to agree to settle employment disputes over wages and discrimination only in arbitration systems set up and overseen by the employers themselves.106 These systems can impose unaffordable costs on workers and limit their use of class actions.107 Such practices limit workers’ options and facilitate discrimination and violations of wage and hour laws.108

6. Modernizing Labor Standards: Providing Earned Sick Leave and Paid Family Leave

After the New Deal,109 labor standard protections eroded and the United States failed to adopt new labor standard protections to meet

103. See, e.g., Memorandum from Janet Napolitano, Sec’y Dep’t of Homeland Sec., to David Aguilar, Acting Comm’r, U.S. Customs & Border Prot., et al. (Jun. 15 2012), available at http://www.dhs.gov/xlibrary/assets/s1-exercising-prosecutorial-discretion-individuals-who-came- to-us-as-children.pdf (describing criteria and standards for prosecutorial discretion under Deferred Action for Childhood Arrivals (DACA)); Memorandum from Jeh Johnson, Sec’y Dep’t of Homeland Sec., to Leon Rodriguez, Dir., U.S. Citizenship & Immigration Servs., et al. (Nov. 20, 2014), available at http://www.dhs.gov/sites/default/files/publications/12_1120_memo_ deferred_action.pdf (listing immigration enforcement priorities and describing criteria and standards for prosecutorial discretion under Deferred Action for Parents of Americans and Lawful Permanent Residents (“DAPA”)). Individuals eligible for deferred action under DACA and DAPA are also eligible to apply for work permits that authorize the individual to work during the deferred action period. Executive Actions on Immigration, U.S. DEPT. OF HOMELAND SEC., http://www.uscis.gov/immigrationaction#1 (last visited Dec. 14, 2015). However, the implementation of DAPA and certain expansions of DACA have been temporarily enjoined by a federal court. See Texas v. United States, 787 F.3d 733, 743 (5th Cir. 2015) (denying stay of the preliminary injunction). 104. Ewing, supra note 102, at 2. 105. Id. at 3–4. 106. Martha Halvordson, Employment Arbitration: A Closer Look, 64 J. MO. B. 174, 174–75 (2008). 107. Lisa A. Nagele-Piazza, Unaffordable Justice: The High Cost of Mandatory Employment Arbitration for the Average Worker, 23 U. MIAMI BUS. L. REV. 39, 41–42 (2014). 108. Id. 109. The New Deal refers to the reform efforts executed by President Franklin Delano Roosevelt following the Great Depression in which the United States government attempted to aid the American people in economic recovery. The New Deal, PBS, http://www.pbs.org/wgbh/ 62 Stetson Law Review [Vol. 45 emerging needs. In particular, we need updated standards to assist workers and their families to achieve a better balance between work and family.110 The most prominent examples are standards relating to earned sick leave and paid family leave.111 More support for child care is also necessary to assist workers and their families, especially low-to-moderate wage workers whose child-care choices are not only limited, but also of unequal quality.112

7. Closing Race and Gender Inequities

Generating broader-based wage growth must also include efforts to close race and gender inequities ever-present in our labor markets.113 Many of the policies already mentioned—raising the minimum wage, updating overtime rules, pursuing full employment, legalizing undocumented workers, and increasing workers’ bargaining power— though not overtly race- or gender-based, would disproportionately raise wages for women and people of color, who are more likely to work the kinds of jobs impacted by such policies.114 Beyond these broader efforts, we need consistently strong enforcement of antidiscrimination laws in the hiring, promotion, and pay of women and minority workers. This enforcement includes greater transparency in the ways these decisions are made (including improved collection of pay data by race, ethnicity, and gender), as well as ensuring that the processes available for workers to pursue claims against violations of their rights are effective.115 Finally, we must tackle social issues like mass incarceration, which limit employment opportunities and earnings for countless ex-offenders, particularly African-American men.116 Improving adult education opportunities could help better integrate immigrant workers into our economy and our communities as well.117 americanexperience/features/general-article/dustbowl-new-deal/ (last visited Dec. 14, 2015). 110. Robin R. Runge, Redefining Leave from Work, 19 GEO. J. ON POVERTY L. & POL’Y 445, 445 (2012). 111. Id. at 447–49. 112. Angela Hooton, From Welfare Recipient to Childcare Worker: Balancing Work and Family Under TANF, 12 TEX. J. WOMEN & L. 121, 131–33 (2002). 113. Gowri Ramachandran, Pay Transparency, 116 PENN ST. L. REV. 1043, 1049 (2012). 114. See, e.g., Bivens et al., supra note 1, at 12–14 (explaining that a recent increase in minimum wage helped to shrink the gender wage gap since “low-wage earners are disproportionately female”). 115. Ramachandran, supra note 113, at 1063–65. 116. Dorothy E. Roberts, The Social and Moral Cost of Mass Incarceration in African American Communities, 56 STAN. L. REV. 1271, 1293–94 (2004). 117. Peter A. Creticos, James M. Schultz, Amy Beeler & Eva Ball, The Integration of Immigrants in the Workplace,INST. FOR WORK &ECON. 18–19 (July 2006), available at http://www.workandeconomy.org/images/The_Integration_of_Immigrants_in_the_Workplace_P re-publication_Release_7-31-06.pdf. 2015] How To Raise Wages 63

8. Ensuring Fair Contracting

In the summer of 2014, President Obama signed The Fair Pay and Safe Workplaces Executive Order, a new framework that governs the awarding of federal contracts, which the Department of Labor estimates will apply to 24,000 businesses employing twenty-eight million workers.118 These new rules “will require prospective federal contractors to disclose labor law violations and will give agencies more guidance on how to consider labor violations when awarding federal contracts.”119 The framework

also ensures that workers are given the necessary information each pay period to verify the accuracy of their paycheck and workers who may have been sexually assaulted or had their civil rights violated get their day in court by putting an end to mandatory arbitration agreements at corporations with large federal contracts.120

These new contracting rules can help reduce wage theft, obtain greater racial and gender equity, and generally support wage growth.121 According to a 2010 Government Accountability Office report, “almost two-thirds of the [fifty] largest wage-and-hour violations and almost 40[%] of the [fifty] largest workplace health-and-safety penalties issued between [Fiscal Year] 2005 and [Fiscal Year] 2009 were at companies that went on to receive new government contracts.”122 There are good reasons, therefore, to go further than the new executive order and bar violators from federal contracts, as amendments to the defense and transportation appropriations bills in the House of Representatives required last year.

9. Tackling Misclassification, Wage Theft, and Prevailing Wages, and Supporting Enforcement of Labor Standards

A variety of other policies can also support wage growth. Employers deem too many of their workers independent contractors when they are

118. Fact Sheet: Fair Pay and Safe Workplaces Executive Order,WHITE HOUSE (July 31, 2014), available at https://www.whitehouse.gov/the-press-office/2014/07/31/fact-sheet-fair-pay-and-safe- workplaces-executive-order. 119. Id. 120. Id. 121. Year of Action: A Final Progress Report on the Obama Administration’s Actions to Help Create Opportunity for All Americans,WHITE HOUSE (Dec. 19, 2014), available at https://www.whitehouse.gov/sites/default/files/docs/yoadec2014.pdf. 122. Fact Sheet: Fair Pay and Safe Workplaces Executive Order, supra note 118. 64 Stetson Law Review [Vol. 45 really employees. This is called “misclassification,” though Secretary of Labor Thomas E. Perez rightly labels it fraud.123 The consequences of misclassification include less revenue collected by state and federal governments, as well as the lack of important protections for workers in the unemployment insurance and workers’ compensation systems.124 Misclassification is particularly severe in construction.125 Rampant misclassification also undercuts the ability of employers who follow the law to win bid contracts, thereby lowering the wages of workers in their firms.126 Misclassification is perhaps best seen as part of the larger phenomenon of “wage theft,” where workers are not paid for the work they have done or are cheated out of overtime pay.127 It is estimated that workers are cheated out of as much as $50 billion each year in wages to which they were entitled.128 Efforts to increase and improve labor standards enforcement, end misclassification (the Department of Labor has a multi-state initiative on this), and protect and strengthen prevailing wage laws can reduce “wage theft” and support wage growth.129

F. Policies That Will Not Facilitate Broad-Based Wage Growth

Unfortunately, many of the economic policies currently under discussion will do nothing to spur widespread wage growth—and may even exacerbate wage stagnation.

1. Tax Cuts: Individual or Corporate

The failure of wages to grow cannot be cured through tax cuts. While claims are sometimes made that tax cuts propel long-run job gains and economic growth, tax cuts are not effective tools to promote

123. Thomas E. Perez, Remarks By U.S. Secretary of Labor Thomas E. Perez, U.S. DEP’T OF LABOR (Jan. 7, 2015), http://www.dol.gov/_sec/media/speeches/20150107_Perez.htm. 124. Françoise Carré, (In)Dependent Contractor Misclassification,ECON.POL’Y INST. 1–2 (June 8, 2015), available at http://www.epi.org/files/pdf/87595.pdf; Fact Sheet 2014: The Misclassification of Employees as Independent Contractors,DEPT. FOR PROF’L EMPLS. AFL-CIO 1, 5–6 (Oct. 2014), http://dpeaflcio.org/programs-publications/issue-fact-sheets/misclassification-of-employees-as- independent-contractors/. 125. Id. at 4. 126. Id. at 5. 127. Brady Meixell & Ross Eisenbrey, An Epidemic of Wage Theft Is Costing Workers Hundreds of Millions of Dollars a Year,ECON.POL’Y INST. 1 (Sept. 11, 2014), available at http://s3.epi.org.files/ 2014/wage-theft.pdf. 128. Id. 129. Bivens et al., supra note 1, at 64. 2015] How To Raise Wages 65 growth.130 Even if tax cuts did create growth, it is clear that growth by itself will not lift a typical worker’s wages. After all, since 1973, productivity and GDP grew plenty while the wages of the vast majority of workers grew little.131 That is, tax cuts are a tried and failed policy that do not change the dynamics of the labor market so that workers will gain from productivity. Corporate tax reform, as discussed above, holds little promise of promoting economic growth, let alone generating wage growth.132 One should be mindful that while workers’ pay has been stagnant, corporate profits are reaching the highest levels in over eighty- five years.133 In short, there is no basis for believing that expanded corporate profitability will necessarily benefit the typical worker. Personal income tax cuts are sometimes advocated as a way to provide some cash to ease the financial struggles of families.134 This is understandable, as such policies seem readily doable to congressional policymakers.135 The problem is that wage stagnation is an ongoing challenge, and one-time tax cuts are, at best, a short-term Band-Aid. Moreover, tax cuts erode revenues needed for education, national defense, law enforcement, health research, and other unmet needs.136

2. Austerity

The deficit reduction that began in 2011 torpedoed the recovery and is responsible for much of the enduring slack in the labor market.137 Measuring from the previous business cycle peak—so fully accounting for the Recovery Act138 and the following ad hoc stimulus measures— overall government spending today remains 10% below what it would

130. Id. at 52 (citing Thomas Piketty, Emmanuel Saez & Stefanie Statcheva, Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities, 6 AM.ECON. J.: ECON.POL’Y 230, 251 (2014)) (describing tax cuts for the top 1% as “statistically significant in slowing income growth for the bottom [ninety-nine] percent”). 131. Id. at 6, 33. 132. Id. at 52. 133. Floyd Norris, Corporate Profits Grow and Wages Slide, N.Y. TIMES (Apr. 4, 2014), http://www.nytimes.com/2014/04/05/business/economy/corporate-profits-grow-ever-larger-as- slice-of-economy-as-wages-slide.html?_r=0. 134. The Middle-Class Tax Cuts’ Impact on Consumer Spending & Retailers, supra note 47, at 3–4. 135. See generally id. (discussing the Obama administration tax cuts). 136. See generally Lawrence Mishel, Even Better Than a Tax Cut, N.Y. TIMES, (Feb. 23, 2015), http://www.nytimes.com/2015/02/23/opinion/even-better-than-a-tax-cut.html?_r=1 (discussing the negative, long-term consequences tax cuts will have on the economy). 137. See Josh Bivens, Recovery Is Nowhere near Accomplished, and the Fed Shouldn’t Tighten Policy Until It Is,ECON.POL’Y INST. (Dec. 11, 2014, 1:02 PM ET), available at http://www.epi.org/blog/ recovery-is-nowhere-near-accomplished-and-the-fed-shouldnt-tighten-policy-until-it-is/ (noting how the Budget Control Act of 2011 has slowed growth). 138. Disaster Recovery Act of 2011, S.1630, 112th Cong. (2011). 66 Stetson Law Review [Vol. 45 have been had it followed its trajectory over the 2001 business cycle.139 This is about $500 billion, enough to cost the economy more than five million jobs.140

3. Increasing College or Community College Completion

Facilitating more people attending and completing higher levels of education or other types of training (e.g., apprenticeships) is good policy. It can help fuel economic growth in the future, and it can expand access to better jobs for low- and middle-income children who would not otherwise have those opportunities.141 That is, improving education quality and attainment is critically important to promoting upward mobility, assuring today’s children have the opportunity to rise farther up the income ladder than have their parents.142 The issue is not whether completing more education is “worth it” for certain individuals, but whether rapidly increasing the share of workers with greater education is an important tool to generate broad-based wage growth. But advancing education completion is not an effective overall policy to generate higher wages. Some who attain higher credentials will earn more;143 however, recall that the wages of college graduates have been stagnant for over ten years.144 Further, the wages (and benefits) accepted by recent college graduates have been lower than those accepted by graduates in earlier years.145 Presume these trends persist for the next ten years. It follows that increasing college completion to any great degree will mean that the wages of more college graduates will be falling, especially among men and newer graduates. This will lead to less inequality, but it is not a generalized recipe for wage growth. There is no reason to believe that everyone who completes a college degree will obtain a job that requires such an education.146 If not, college graduates will increasingly be used in jobs that those with less education now perform.

139. Bivens, supra note 137. 140. Id. 141. See Bivens et al., supra note 1, at 60 (stating that “those who obtain more education and skills will do relatively better than those who do not” (emphasis in the original)). 142. See id. (noting that “more and better education [for] working-class and disadvantaged students is essential for increasing upward social mobility”). 143. Id. 144. See id. at 61 (examining the decline in salary of four-year college graduates in the past decade). 145. See id. at 60–61 (noting the drop in wage performance over the past decade for recent college graduates). 146. See Abel et al., supra note 69, at 3 (discussing the increasing number of recent college graduates taking jobs in retail, coffee shops, and restaurants, among others). 2015] How To Raise Wages 67

The same analysis is true for community college completion. Providing access will help many attain the opportunities for jobs previously unavailable to low- and moderate-income students, facilitating intergenerational mobility. According to an EPI analysis of Current Population Survey Outgoing Rotation Group data, community college graduates now earn 7.5% less than they did in 2004 and earn wages comparable to the wages earned by this group in 1992, the earliest year for which we have data.147 The share of the workforce with community college degrees has expanded from 7.3% in 1992 to 10.8% in 2014, so the economy has absorbed substantially more of them.148 At the same time, the fact that the wages of community college graduates relative to high school graduates (i.e., the wage premium) has fallen, and that the wage levels of community college graduates have fallen, indicates that there is not a swelling unmet need for such graduates.149 This is an avenue to help some workers, but not a generalized approach to raising wages. What is needed are policies that lift wages of high school graduates, community college graduates, and college graduates—not simply a policy that changes the amount of workers in each category.

4. Deregulation

There is no solid basis for believing that deregulation will lead to greater productivity growth or to wage growth. According to the Office of Management and Budget, the estimated annual benefits of major federal regulations exceeded their cost by at least $160 billion and as much as $779 billion during the decade from 2003 to 2013.150 The economy and the American people are better off because of the federal government’s regulatory efforts.

5. Policies to Promote Long-Term Growth

Policies that can substantially help reduce unemployment in the next two years are welcomed and can serve to raise wage growth. Policies aimed at raising longer-term GDP growth prospects may be beneficial,

147. See MISHEL ET AL., supra note 97, at app. B (discussing the wage data analysis used to get these figures from an unpublished Current Population Survey). 148. Id. 149. Abel et al., supra note 69, at 3. 150. Office of Mgmt. & Budget, 113th Cong., 2014 Draft Report to Congress on the Benefits and Costs of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities (2014), available at http://www.whitehouse.gov/sites/default/files/omb/ingoreg/2014_cb/draft_2014_cost_ benefit_report-updated.pdf. 68 Stetson Law Review [Vol. 45 but will not help wages soon or necessarily lead to wage growth in future years. This is evidenced in the decoupling of wage growth from productivity over the last forty years.151 Simply increasing investments and productivity will not necessarily improve the wages of a typical worker. What is missing are mechanisms that relink productivity and wage growth. Without such policies, an agenda of “growth” is playing “pretend” when it comes to wages.

III. CONCLUSION

There has been a broad-based wage stagnation for the last dozen years that has hampered income growth for the majority of families, including those at the bottom. There is an emerging debate across both major parties about how to address wage stagnation. Some policies that will be offered will be fruitful, while others will not be productive in generating better wage performance. Hopefully our analysis provides information to identify what approaches are most appropriate.

151. Bivens et al., supra note 1, at 5–6. INCOME INEQUALITY AND CORPORATE STRUCTURE

Matthew T. Bodie*

Efforts to address income inequality, such as welfare programs or progressive taxation, are often labeled as wealth redistribution.1 The original distribution of wealth is viewed as a morally justifiable phenomenon that is dictated by the efficient workings of a massive variety of labor and capital markets.2 Opponents of wealth redistribution argue that such reallocation improperly infringes upon economic liberty and saps the strength of the “invisible hand” of economic incentives.3

* © 2015, Matthew T. Bodie. All rights reserved. Callis Family Professor, Saint Louis University School of Law. Thanks to Jase Carter for earlier research support on this topic. Special thanks to Jason R. Bent, Dean Christopher Pietruszkiewicz, and the editors of the Stetson Law Review for the opportunity to participate in this symposium on income inequality. 1. See Christine Jolls, Behavioral Economics Analysis of Redistributive Legal Rules, 51 VAND. L. REV. 1653, 1654 (1998) (“Redistributive legal rules are rules chosen for their effects in shifting wealth from high-income to low-income individuals (progressive redistribution).”); Anthony T. Kronman, Contract Law and Distributive Justice, 89 YALE L.J. 472, 472 (1980) (describing wealth redistribution as legal efforts to shape transactions “with an eye to their distributional effects in a self-conscious effort to achieve a fair division of wealth among the members of society” (footnote omitted)). Kronman describes two methods of redistributing wealth: through taxation and through regulating permissible contract terms. Id. at 498–99. 2. Economists and law and economics scholars focus on maximizing efficiency as the critical decision principle in choosing one set of rules over another. Ideally, a choice is Pareto-superior— namely, at least one party is better off and no parties are worse off. RICHARD A. POSNER,ECONOMIC ANALYSIS OF LAW 12 (7th ed. 2007). However, Kaldor-Hicks efficiency—when the overall sum of efficiency between participants is greater than any alternative rule or outcome, even if some are worse off—has been considered by economists to be “efficient” and thereby sufficient to justify a legal rule. See Jolls, supra note 1, at 1654 (noting that “[m]any law and economics scholars have urged that legal rules be chosen solely with an eye towards Kaldor-Hicks efficiency”). Louis Kaplow and Steven Shavell have famously argued that any income redistribution should be pursued solely through a tax- and-transfer system. Louis Kaplow & Steven Shavell, Why the Legal System Is Less Efficient Than the Income Tax in Redistributing Income, 23 J. LEGAL STUD. 667, 677 (1994) (“[I]t is appropriate for economic analysis of legal rules to focus on efficiency and to ignore the distribution of income . . . .”). But see Chris William Sanchirico, Deconstructing the New Efficiency Rationale, 86 CORNELL L. REV. 1003, 1068–69 (2001) (arguing that Kaplow and Shavell improperly assume a baseline of efficiency prior to tax redistribution). 3. 2 ADAM SMITH,AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF NATIONS, Book IV, at 242 (J. Maynard ed., London 1811) (1776) (“[B]y directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”). See, e.g.,FRIEDRICH HAYEK,THE CONSTITUTION OF LIBERTY 93–102, 133–61 (1961) (arguing that wealth redistribution improperly restricts economic liberty); ROBERT NOZICK, ANARCHY,STATE AND UTOPIA 167–78 (1974) (requiring that property rights should not be overcome by subsequent efforts to reallocate); LUIGI ZINGALES,ACAPITALISM FOR THE PEOPLE: 70 Stetson Law Review [Vol. 45

Many proponents of redistribution, on the other hand, accept the putative efficiency of the original distribution, but argue that income distribution objectives should be met through a tax-and-transfer system.4 This Article contends that to a significant extent, the problem of income inequality is not due to our failure to redistribute, but is rather due to our original scheme of income distribution. Specifically, the role of the corporation in wealth distribution is an underappreciated yet significant factor in our increasingly tilted economic picture. The corporation is designed to provide all of the power over the economic firm, and all of the rights to its residual profits, to a set of capital investors. Shareholders control the firm through their right to elect the board of directors,5 and courts use the “shareholder primacy norm” to judge whether the board has failed in its duty to maximize shareholder wealth.6 Employees who work at the firm have no employment-related rights to participation or profit.7 As a result, I argue income has been redirected away from workers and towards capital and those professions that service capital. Workplace law endeavors to address the consequences of this separation of employment from ownership. Employment laws are generally efforts to set minimum terms and fair-treatment standards on employers in order to protect the employees within. However, efforts to protect workers through labor and employment laws are insufficient to address the underlying power imbalances within the corporate structure.

RECAPTURING THE LOST GENIUS OF AMERICAN PROSPERITY 216–17 (2012) (“Redistribution reduces incentives to work, to invest, to excel.”). 4. See, e.g., Kaplow & Shavell, supra note 2, at 669 (describing the benefits of addressing income distribution through the income tax system). Opponents of law and economics similarly argue that redistribution is justifiable on equitable grounds, but their acceptance of the underlying efficiency argument is often implicit or begrudging. See, e.g., Guido Calabresi, The Pointlessness of Pareto: Carrying Coase Further, 100 YALE L.J. 1211, 1224 n.36 (1991) (arguing that limiting redistribution to a tax-and-transfer system may also not be efficient as well as not being equitable or just). 5. Julian Velasco, The Fundamental Rights of the Shareholder, 40 U.C. DAVIS L. REV. 407, 416– 17 (2006). See, e.g.,DEL.CODE ANN. tit. 8, § 212(a) (2015) (prescribing a one-share, one-vote system). 6. The standard source of the shareholder primacy norm in caselaw is Dodge v. Ford Motor Co., 170 N.W. 668 (Mich. 1919), in which the court stated: “A business corporation is organized and carried on primarily for the profit of the stockholders.” Id. at 684. For a recent confirmation of this doctrine, see eBay Domestic Holdings v. Newmark, 16 A.3d 1 (Del. Ch. 2010). In eBay, the Delaware Chancery Court stated forthrightly: “Having chosen a for-profit corporate form, the craigslist directors are bound by the fiduciary duties and standards that accompany that form. Those standards include acting to promote the value of the corporation for the benefit of its stockholders.” Id. at 34. 7. See Robert Anderson IV, Employee Incentives and the Federal Securities Law, 57 U. MIAMI L. REV. 1195, 1202 (2003) (describing various forms of employee incentives). Employees may receive compensation in the form of stock, restricted stock, stock option, or participation in an employee stock ownership plan (ESOP). Id. However, there is no right to receive these ownership instruments. Id. at 1240 (“[E]mployees normally have no rights in the stock options apart from the employment relationship . . . .”). 2015] Income Inequality and Corporate Structure 71

The National Labor Relations Act (NLRA)8 is the one workplace statutory regime that endeavors to address the power imbalance within the firm directly. But this effort to develop workplace democracy has stalled, for a variety of reasons, and in some ways was doomed from the start. In order to solve the problems to which labor and employment laws are generally addressed, particularly income inequality, we need to address the structure of the “employer” itself. Workers need more power within the corporation to distribute the wealth generated by the corporation in a more equitable fashion. This Article will begin by addressing the structure of business enterprises, particularly the corporation, and explain the separation of employment from ownership. It will then provide an overview of how labor and employment law has attempted to address this separation (and its consequences, including income inequality). Finally, it will argue that we need to rethink firm structure and governance if we truly want to address the root causes of income inequality.

I. CORPORATIONS, EMPLOYEES, AND THE DISTRIBUTION OF INCOME

In the United States, we conduct our joint economic enterprises, particularly large-scale ones, through corporations. Although a variety of different business organizational forms exist, such as the partnership, the limited liability company (LLC), and the sole proprietorship, the corporation clearly dominates the economic landscape.9 The corporation (or company) has been described as “[t]he most important organization in the world . . . : the basis of the prosperity of the West and the best hope for the future of the rest of the world.”10 As Larry Ribstein described it, “The corporation undeniably has driven business growth in the United States since the Industrial Revolution.”11 To a large extent, the United States’ approach now represents the global approach.12

8. 29 U.S.C. §§ 151–169 (2012). 9. Andrew Lundeen & Kyle Pomerleau, Corporations Make up 5 Percent of Businesses but Earn 62 Percent of Revenues,TAX FOUND. (Nov. 25, 2014), http://taxfoundation.org/blog/corporations- make-5-percent-businesses-earn-62-percent-revenues (noting that only five percent of the organizational entities in the United States are corporations, but sixty-two percent of organizational tax revenues come from corporations). 10. JOHN MICKLETHWAIT &ADRIAN WOOLDRIDGE,THE COMPANY:ASHORT HISTORY OF A REVOLUTIONARY IDEA xv (2005). 11. LARRY E. RIBSTEIN,THE RISE OF THE UNCORPORATION 4 (2010). 12. See Henry Hansmann & Reinier Kraakman, The End of History for Corporate Law, 89 GEO. L.J. 439, 439 (2001). Hansmann and Kraakman stated, 72 Stetson Law Review [Vol. 45

In the United States, corporations are legal entities that are created through state corporate law.13 The process of forming a corporation is relatively straightforward. Generally, the incorporating individuals must file a corporate charter, also known as the articles or certificate of incorporation.14 The articles of incorporation provide the firm’s basic structure, including the corporation’s name, the incorporators, the corporation’s business, and the total number of shares the corporation may issue.15 Other governance structure provisions are not necessary to the formation of the corporation, but are allowed.16 Once the corporation is established, control shifts from the entity’s incorporators to its board of directors.17 The board manages the firm and has the ability to bind the corporation through contracts and transfers of property.18 Shareholders typically select the directors at the annual shareholders meeting.19 Directors must act in the firm’s interests through certain fiduciary duties, such as good faith and loyalty.20 However, they delegate the actual job of running the business to the officers, primarily through a hierarchy headed by the chief executive officer (CEO).21 This structure—shareholders select the directors, who in turn select the officers to run the corporation—represents the foundation of corporate law. Employees find themselves outside of this structure, without any formal legal role in the governance of the corporation.22 Employees are hired by the corporation itself through officers or other corporate

We must begin with the recognition that the law of business corporations had already achieved a remarkable degree of worldwide convergence at the end of the nineteenth century. By that time, large-scale business enterprise in every major commercial jurisdiction had come to be organized in the corporate form, and the core functional features of that form were essentially identical across these jurisdictions.

Id. 13. Choose Your Business Structure, U.S. SMALL BUS.ADMIN., https://www.sba.gov/ content/corporation (last visited Dec. 14, 2015) (“A corporation is formed under the laws of the state in which it is registered.”). 14. See, e.g.,DEL.CODE ANN. tit. 8, § 101(a) (2015) (providing the required content for a certificate of incorporation). 15. Id. § 102. 16. E.g., id. § 102(b)(7) (limiting the liability of directors for breaches of a fiduciary duty); id. § 141(d) (staggering the board of directors). 17. Matthew T. Bodie, Employees and the Boundaries of the Corporation, in RESEARCH HANDBOOK ON THE ECONOMICS OF CORPORATE LAW 86 (Claire Hill & Brett McDonnell eds., 2012). 18. DEL.CODE ANN. tit. 8, § 141(c)(1)–(2). 19. Id. § 211(b). 20. Bodie, supra note 17, at 86. 21. See, e.g.,DEL.CODE ANN. tit. 8, § 142(a) (“Every corporation organized under this chapter shall have such officers with such titles and duties as shall be stated in the bylaws or in a resolution of the board of directors which is not inconsistent with the bylaws . . . .”). 22. Bodie, supra note 17, at 87. 2015] Income Inequality and Corporate Structure 73 representatives through a contract.23 This contract is most commonly terminable at-will.24 Employees themselves are agents of the corporation, and the corporation is legally responsible for the torts they commit within the scope of employment.25 The company is also legally responsible to its employees through a myriad of labor and employment laws.26 However, employees have no direct input into the control of the corporation, nor do they have any claim to its profits.27 If we think of the corporation as the legal process through which we engage in joint economic production, those who control the corporation will control the process. The economic distribution of the responsibilities for production, as well as the distribution of the fruits of production, will ultimately rest in the hands of those with organizational power. Much of the debate in corporate law over the last forty years—perhaps even the last century—has concerned the distribution of corporate power between the board, the officers, and the shareholders.28 Shareholder advocates have pushed for corporate law reforms that provide more direct power to stockholders.29 On the other side, management and stakeholder advocates have argued that boards need more insulation from shareholders and more unreviewable discretion, even if their ultimate aim remains shareholder wealth maximization.30 In this second group, there is a subset of advocates who argue that stakeholders such as employees, creditors, consumers, and communities deserve some

23. Id. 24. RESTATEMENT OF EMP’T LAW § 2.01 (2015). 25. RESTATEMENT (THIRD) OF AGENCY § 2.04 (2005). 26. See infra Part II. 27. See Brett H. McDonnell, Strategies for an Employee Role in Corporate Governance, 46 WAKE FOREST L. REV. 429, 429 (2011) (“[C]orporate law does nothing to encourage any role for employees in corporate governance.” (footnote omitted)). 28. For the beginnings of the debate over the separation of ownership and control, see ADOLF A. BERLE &GARDINER C. MEANS,THE MODERN CORPORATION AND PRIVATE PROPERTY 5–6 (10th ed. 2009). See also Michael C. Jensen & William H. Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, 3 J. FIN.ECON. 305 (1976) (discussing the problem of agency costs in light of the separation of ownership and control). 29. See, e.g., Lucian Arye Bebchuk, The Case for Increasing Shareholder Power, 118 HARV. L. REV. 833, 865–69 (2005) (advocating for a system that would allow shareholders to alter a company’s charter or state of incorporation). 30. See, e.g., Stephen M. Bainbridge, Director Primacy: The Means and Ends of Corporate Governance, 97 NW. U. L. REV. 547, 550 (2003) (“[D]irector accountability for maximizing shareholder wealth remains an important component of director primacy.”); Martin Lipton & William Savitt, The Many Myths of Lucian Bebchuk, 93 VA. L. REV. 733, 754 (2007) (rebutting the premise that shareholders own corporations); Lynn A. Stout, The Mythical Benefits of Shareholder Control, 93 VA. L. REV. 789, 804–09 (2007) (arguing against “the myth that greater shareholder control in public firms benefits shareholders”). 74 Stetson Law Review [Vol. 45 protection within the process.31 However, even within this group, there has been little to no call for changing the corporate electorate; at best, directors are to be given more freedom to consider all stakeholder interests, even though they remain accountable to shareholders.32 The allocation of power to shareholders and their representatives has had predictable results. Employees must bargain for purely contractual protections, as opposed to having a say in how the corporation manages its affairs. Directors and officers make the decisions about corporate strategy, dividend policies, stock buybacks, investment in research and development, overall compensation policies—in other words, all the decisions that together create the ongoing business.33 Employees are costs—they are commodities to be purchased.34 It is thus not surprising to see the corporate power structure driving the growing inequality in the distribution of income. Corporations have not only driven down average labor incomes (in real terms); they have also accelerated the rise of the top of the spectrum. As to average incomes, the pressure to maximize shareholder wealth has led to efforts to drive down all firm costs, including (and perhaps especially) wages.35 The norms of the internal labor market, with its implied lifetime employment contract, disappeared and were replaced with downsizing, layoffs, and outsourcing.36 These trends accelerated as the market for corporate control took off.37 As shareholders had new opportunities to sell their stock at higher prices to buyout firms or corporate competitors, companies were pressured to increase dividends by cutting other costs,

31. See, e.g., Margaret M. Blair & Lynn A. Stout, A Team Production Theory of Corporate Law, 85 VA. L. REV. 247, 313 (1999) (stating that shareholders are granted limited voting rights because it benefits the interests of the firm’s stakeholders). 32. See Grant Hayden & Matthew T. Bodie, Shareholder Democracy and the Curious Turn Toward Board Primacy, 51 WM.&MARY L. REV. 2071, 2113 (2010) (discussing the “strange turn” against stakeholder board representation). 33. See PRINCIPLES OF CORP.GOVERNANCE § 3.01 cmt. c (1994) (explaining that senior executives have a management role within the corporation). 34. I say this not to make a “commodification of labor” argument, but instead to describe the legal reality: employees are corporate outsiders. For a discussion of market commodification, see Margaret Jane Radin, Market-Inalienability, 100 HARV. L. REV. 1849, 1855–58 (1987). 35. See, e.g.,ALLAN A. KENNEDY,THE END OF SHAREHOLDER VALUE:CORPORATIONS AT THE CROSSROADS 91–92 (2000) (explaining how corporations increased their stock values by any means necessary and the resulting impacts on employees). 36. Id.; see also KATHERINE V. W. STONE,FROM WIDGETS TO DIGITS:EMPLOYMENT REGULATION FOR THE CHANGING WORKPLACE 85–86 (2004) (discussing the implied contract exception to the at-will doctrine and employers’ shift away from long-term employment obligations). 37. See Steven M. Davidoff, Takeover Theory and the Law & Economics Movement, in RESEARCH HANDBOOK ON THE ECONOMICS OF CORPORATE LAW 219 (Claire A. Hill & Brett H. McDonnell eds., 2012) (“The 1980s takeover wave transformed the capital markets and was marked by a surge in hostile and unsolicited takeover offers.”). 2015] Income Inequality and Corporate Structure 75 especially labor costs.38 This pressure continues to this day, with companies continuing to seek less expensive ways of meeting their labor needs.39 As to the other end of the spectrum, corporations have enabled executives to elevate their compensation to greater and greater heights.40 Economists have discovered that the great income divergence is driven not only by a stagnating middle and bottom of the wage spectrum, but also by a huge spike at the top of the spectrum.41 Although the top ten percent of wage earners have seen their share of national income rise from 34% to 48%, the gains of the mega-rich are much greater.42 The top one percent of wage earners more than doubled their share of national income (from 10% to 21%), the top 0.1% tripled their share (from 3% to 10%), and the top 0.01% quadrupled their share (from 1.4% to 5%).43 And who were the folks receiving this larger largesse? According to one study, 42.5% of the top 0.1% were executives, managers, and supervisors at nonfinancial firms.44 Those who controlled corporations made up almost half of the top 0.1%45—the group that saw its share of national income triple.46

38. See KENNEDY, supra note 35, at 94–102 (describing employers’ push to rewrite employment rules and the response of employees). 39. For a thorough and insightful discussion of workplace “fissuring,” whereby workers are shed from their parent companies in order to reduce wages and employment responsibilities, see DAVID WEIL,THE FISSURED WORKPLACE:WHY WORK BECAME SO BAD FOR SO MANY AND WHAT CAN BE DONE TO IMPROVE IT (2014). 40. See LUCIAN A. BEBCHUK &JESSE M. FRIED,PAY WITHOUT PERFORMANCE:THE UNFULFILLED PROMISE OF EXECUTIVE COMPENSATION 72–75 (2004) (discussing large increases in managers’ compensation). 41. Thomas Piketty & Emmanuel Saez, Income Inequality in the United States, 1913–1998, 118 Q.J. ECON. 1, 35–37 (2003). 42. TIMOTHY NOAH,THE GREAT DIVERGENCE:AMERICA’S GROWING INEQUALITY CRISIS AND WHAT WE CAN DO ABOUT IT 147 (2012). 43. Id. 44. Jon Bakija, Adam Cole & Bradley T. Heim, Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data (Williams College Economics Department, Working Paper No. 2010-24, 2010) (manuscript at 49–51, tbls. 1–3), available at https://web.williams.edu/Economics/wp/BakijaColeHeimJobsIncomeGrowthTopEarners.pdf, cited in NOAH, supra note 42, at 151 & 247 n.12. See also Lawrence Mishel & Natalie Sabadish, CEO Pay and the Top 1%: How Executive Compensation and Financial–Sector Pay Have Fueled Income Inequality, ECON.POL’Y INST. (May 2, 2012), available at http://s4.epi.org/files/2012/ib331-ceo-pay-top-1- percent.pdf (“Just as wage inequality is a key driver of income inequality, a key driver of wage inequality is the growth of chief executive officer earnings and compensation and the expansion of and high compensation in the financial sector.”). But see Steven N. Kaplan & Joshua Rauh, Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?, 23 REV.FIN.STUD. 1004, 1045–46 (2010) (finding that CEOs and top executives of nonfinancial companies comprise a smaller percentage of the top income brackets than generally assumed). 45. See Bakija et al., supra note 44, at tbl. 3 (listing executives, managers, and supervisors as 42.5% of primary taxpayers in the top 0.1%). 46. James Surowiecki, Soak the Very, Very Rich,NEW YORKER (Aug. 16, 2010), http://www.newyorker.com/magazine/2010/08/16/soak-the-very-very-rich. 76 Stetson Law Review [Vol. 45

In the wake of the late 1990s stock boom and the ensuing cavalcade of fraudulent corporate misdeeds in the early 2000s, economics and law professors developed a rich literature on executive compensation. The researchers can be roughly divided into two camps. On one side were those academics that saw the jump in executive compensation as a problem with its roots in a flawed corporate structure.47 Prominent among this research was the “managerial power” hypothesis, which theorized that high-level executives were not bargaining with the corporation at arms’ length, but were rather using their power within the corporation to get excess economic rents.48 Others have argued that myths about the importance of performance pay for executives, together with the idea that the board’s chosen CEO cannot merely be average, resulted in spiraling levels of higher pay.49 On the other side, adherents to the status quo argued that executive compensation was not really a problem50 or that efforts to reform the system had exacerbated—and would continue to exacerbate—the disparity.51 Even if one is an advocate of shareholder power, the rise in executive compensation is a troubling development, as it represents a likely instantiation of the traditional agency-costs concerns raised by Berle and Means.52 In this respect, the interests of shareholders and the great mass of employees are aligned against opportunism by that small subset of employees that run the company. However, if higher executive pay truly did lead to higher shareholder remuneration, the costs might be worth it to shareholders.53

47. See, e.g.,BEBCHUK &FRIED, supra note 40, at ix (listing defective governance structure as a reason for flawed compensation);MICHAEL B. DORFF,INDISPENSABLE AND OTHER MYTHS:WHY THE CEO PAY EXPERIMENT FAILED AND HOW TO FIX IT 4–5 (2014) (explaining that the common understanding of CEO pay is flawed and that there is little empirical support as to the efficacy of the traditional CEO pay system); Brett H. McDonnell, Two Goals for Executive Compensation Reform, 52 N.Y.L. SCH. L. REV. 585, 586 (2008) (citing concerns that excessive executive compensation “both reflects and exacerbates poor corporate governance” and acts “as a source of increasing economic, political, and social inequality”). 48. BEBCHUK &FRIED, supra note 40, at 61 (introducing the managerial power perspective). 49. DORFF, supra note 47, at 265. 50. STEPHEN M. BAINBRIDGE,CORPORATE GOVERNANCE AFTER THE FINANCIAL CRISIS 112 (2012) (arguing that “regulating executive compensation is an inapt and unfair approach” to the broader problem of wealth and income inequality). 51. Kevin J. Murphy, The Politics of Pay: A Legislative History of Executive Compensation, in RESEARCH HANDBOOK ON EXECUTIVE PAY 11, 37–38 (Randall S. Thomas & Jennifer G. Hill eds., 2012) (arguing that efforts to regulate executive pay have been fruitless or counterproductive). See BAINBRIDGE, supra note 50, at 122–37 (examining the failures of Dodd-Frank and Sarbanes-Oxley to correct executive compensation). 52. BERLE &MEANS, supra note 28, at 124 (discussing how the corporation’s “controlling group is in a position to serve its own interests”). 53. Bebchuk and Fried fall into this camp. BEBCHUK &FRIED, supra note 40, at 8 (“We would accept compensation at current or even higher levels as long as such compensation, through its incentive effects, actually serves shareholders.”). 2015] Income Inequality and Corporate Structure 77

But such a result could be disastrous to employees, particularly if executives improved share performance by cutting labor costs. Rising share prices, executive incomes, and income inequality have all contributed to what some are calling the “New Gilded Age.”54 An income phenomenon has become a cultural phenomenon, with an elite group of corporate leaders, investment bankers, and hedge fund managers pulling away from the rest of society into a mega-wealthy bubble.55 This bubble depends on control of the corporation to fuel its inflation. Much of the income divergence can be laid at the feet of the financial interests within the economy.56 These interests service management and shareholders—in other words, those who currently control the business and finances of the corporation. The mix of financial professionals and corporate leaders—often listed under the moniker of “Wall Street”—has a wide range of overlapping economic, business, and personal interests and experiences.57 These cultural connections exacerbate the power dynamics and compensation norms that result in diverging incomes. It becomes a back-scratching culture. In just one example of the interrelations between these groups, Goldman Sachs rewarded eBay executives for funneling their initial public offering (IPO) business to the firm by giving those executives thousands of shares in other lucrative IPOs that were also handled by Goldman Sachs.58 Further, eBay CEO Meg Whitman also happened to be on the Goldman

54. Paul Krugman, Why We’re in a New Gilded Age, N.Y. REV.BOOKS (May 8, 2014), http://www.nybooks.com/articles/archives/2014/may/08/thomas-piketty-new-gilded-age/ (explaining that an incredible surge in the “one percent’s” share of national income has marked the second Gilded Age). 55. Chrystia Freeland, The Rise of the New Global Elite,ATLANTIC (Jan.–Feb. 2011), http://www.theatlantic.com/magazine/archive/2011/01/the-rise-of-the-new-global-elite/ 308343/ (finding that the super-rich are “becoming a transglobal community of peers who have more in common with one another than with their countrymen back home”). 56. See, e.g.,LAWRENCE E. MITCHELL,THE SPECULATION ECONOMY:HOW FINANCE TRIUMPHED OVER INDUSTRY 4–6 (2008) (discussing how finance and the stock markets became the driving forces in the economy); NOAH, supra note 42, at 156 (“In effect, Wall Street ate the economy.”). 57. See In re Oracle Corp. Derivative Litig., 824 A.2d 917, 930–35 (Del. Ch. 2003) (discussing academic, social, and philanthropic connections between the Oracle board’s special litigation committee and the executives charged with insider trading); BEBCHUK &FRIED, supra note 40, at 31–34 (explaining certain psychological and social factors that contribute to directors’ decisions regarding CEO compensation); About,THEY RULE, http://www.theyrule.net/drupal/about (last visited Dec. 14, 2015) (illustrating alleged connections between corporate executives, directors, government, and allowing users to search companies and boards). 58. In re eBay, Inc. S’holders Litig., No. C.A. 19988-NC, 2004 WL 253521, at *1 (Del. Ch. Jan. 23, 2004). eBay CEO Meg Whitman herself received shares in over 100 IPOs. Id. The Delaware Chancery Court noted: “Because the IPO market during this particular period of time was extremely active, prices of initial stock offerings often doubled or tripled in a single day.” Id. 78 Stetson Law Review [Vol. 45

Sachs board of directors—a position she resigned once the scandal broke.59 Something needs to break the cycle. The clear trends over the last two decades (after a brief blip during the financial crisis) are that corporate profits are continuing to diverge from labor income, and that compensation for the top income percentiles are continuing to diverge from the lower percentiles.60 For some, the answer lies in the law of labor and employment regulation.

II. WORKPLACE LAW AND INCOME INEQUALITY

The myriad laws governing the workplace largely endeavor to mitigate the inequalities engendered by the structure of the business corporation. These laws are often seen as regulatory in nature, akin to consumer safety or environmental protection laws,61 or as part of the country’s overall social safety net.62 Although these regimes may have varying degrees of effectiveness regarding various social and economic problems, they are largely ineffective in addressing the income inequality that comes through corporate distribution. A broad swath of workplace protections focus on providing a minimum level of protections or endowments to employees. As to protections, employers are liable for the torts of their employees not only when the victims are third parties, but also when the victims are fellow employees.63 When an employee harms another employee as a result of tortious behavior, the employer is liable if that tort was committed within the scope of employment or if the employer later ratified the conduct.64

59. eBay CEO Quits Goldman Board, CNN MONEY (Dec. 20, 2002, 7:15 AM EST), http://money.cnn.com/2002/12/20/news/whitman/. 60. See Emmanuel Saez & Gabriel Zucman, Wealth Inequality in the United States Since 1913: Evidence from Capitalized Income Tax Data (NBER Working Paper No. 20625, 2014), available at http://gabriel-zucman.eu/files/SaezZucman2014.pdf (discussing diverging income inequality); Floyd Norris, Corporate Profits Grow and Wages Slide, N.Y. TIMES (Apr. 4, 2014), http://www.nytimes.com/2014/04/05/business/economy/corporate-profits-grow-ever-larger-as- slice-of-economy-as-wages-slide.html (discussing the rise in corporate profits and fall of employee compensation). 61. See Cynthia Estlund, Labor Law Reform Again? Reframing Labor Law as a Regulatory Project, 16 N.Y.U. J. LEGIS.&PUB.POL’Y 383, 383 (2013) (reframing labor law as “one field of regulation among others, alongside regulation of the environment, product safety, and financial integrity”). 62. For an argument that common-law nations tend to have stronger shareholder-primacy policies when they have stronger social welfare policies, see CHRISTOPHER M. BRUNER, CORPORATE GOVERNANCE IN THE COMMON-LAW WORLD:THE POLITICAL FOUNDATIONS OF SHAREHOLDER POWER 9 (2013) (“[S]tronger stakeholder protections outside the corporate governance system allow it to focus more exclusively on the shareholders’ interests by blunting political resistance . . . .”). 63. RESTATEMENT OF EMP’T LAW § 4.03 cmt. f (2015). 64. Id. § 4.03(a)–(b) (2015). 2015] Income Inequality and Corporate Structure 79

An employer also faces liability if its supervisor or manager commits a tort outside the scope of employment, unless the employer had taken reasonable care to prevent the conduct and the employee failed to take advantage of this care.65 A similar rule applies to sexual harassment: the employer has responsibility for a hostile work environment when that environment was created by a supervisor or supervisors with authority over the employee.66 The sexual harassment protections are part of a set of federal antidiscrimination statutory schemes that protect employees against adverse employment actions because of race, ethnicity, sex, religion, age, or disability.67 Employers also have a common-law duty to exercise care in selecting, retaining, and supervising their employees,68 and they are liable for harm to employees caused by the breach of this duty.69 Employers also have a common-law duty to provide a reasonably safe workplace for employees and to provide warning of dangerous working conditions.70 The common-law duty has been supplemented by the federal Occupational Safety and Health Administration (OSHA) regime, in which employers similarly have a general duty to provide safe working conditions.71 When workers suffer injuries on the job that require medical treatment and may result in employee disability, state workers’

65. Id. § 4.03(c). 66. See 42 U.S.C. § 2000e-2(a) (2012) (stating that an employer may not classify, limit, or segregate an employee in a way that would deprive that employee of employment opportunities, or otherwise adversely affect the individual’s employment status, on the basis of sex); Burlington Indus., Inc. v. Ellerth, 524 U.S. 742, 765 (1998) (holding that an employer is open to vicarious liability when a supervisor with immediate authority over an employee creates a hostile work environment by making threats based on the employee’s sex). A similar duty has been found in tort. See, e.g., Ford v. Revlon, Inc., 734 P.2d 580, 584–85 (Ariz. 1987) (holding that a company’s failure to investigate a complaint of sexually abusive treatment is independent of the abusive treatment itself and that a company may be liable for failing to stop the abusive treatment regardless of whether the treatment itself rises to the level of an actionable tort). 67. See 29 U.S.C. § 623(a) (2012) (prohibiting discrimination against employees based on age); 42 U.S.C. § 2000e-2 (prohibiting discrimination against employees based on race, sex, ethnicity, or religion); id. § 12112(a) (prohibiting discrimination against employees based on disability). 68. RESTATEMENT OF EMP’T LAW § 4.04. 69. See, e.g., Retherford v. AT & T Commc’ns of Mountain States, Inc., 844 P.2d 949, 973 (Utah 1992) (describing the elements of a claim of negligent employment as “(i) [employer] knew or should have known that its employees posed a foreseeable risk of retaliatory harassment to third parties, including fellow employees; (ii) the employees did indeed inflict such harm; and (iii) the employer’s negligence in hiring, supervising, or retaining the employees proximately caused the injury” (footnote omitted)); Kerans v. Porter Paint Co., 575 N.E.2d 428, 432 (Ohio 1991) (“[B]oth federal and state courts have held that an employer may be liable for failing to take appropriate action where that employer knows or has reason to know that one of its employees poses an unreasonable risk of harm to other employees.”). 70. RESTATEMENT OF EMP’T LAW § 4.05. The duty has been recognized in all United States jurisdictions. Id. rptr. n. cmt. a. 71. See 29 U.S.C. § 654(a)(1) (requiring an employer to “furnish to each of his employees employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees”). 80 Stetson Law Review [Vol. 45 compensation statutes require employers to cover the compensation even if the employer was not at fault.72 Employers are also responsible for providing a minimum level of wealth distribution to employees. The federal minimum wage is a familiar duty placed on employers to provide a certain monetary compensation level.73 The same statute provides that employees must receive at least one-and-a-half times their hourly wages if they work over forty hours per week.74 These federal requirements are supplemented by a plethora of state and local wage requirements, which can go well above the federal minimums.75 As for benefits, employers must provide their employees with up to twelve weeks of unpaid leave per year for family or medical leave and allow the employee to return to an equivalent position.76 Pension plans need not be provided, but if they are, they must comport with extensive federal regulations on their legal and financial structures.77 The Affordable Care Act’s employer mandate now requires employers of a certain size to purchase health insurance for their employees or provide funding for employees to buy their insurance on state exchanges.78 If employers fail to do so, they must pay a tax penalty.79

72. See MARK A. ROTHSTEIN &LANCE LIEBMAN,EMPLOYMENT LAW 757–61 (7th ed. 2011) (“Employers meet their statutory obligation to compensate injured workers through various forms of insurance.”). 73. See 29 U.S.C. § 206 (establishing the minimum wages all employers must pay each employee). 74. Id. § 207. 75. For example, in 2013, voters in SeaTac, Washington, home to the Seattle-Tacoma International Airport, increased the region’s minimum wage to $15. Kirk Johnson, Voters in SeaTac, Wash., Back $15 Minimum Wage, N.Y. TIMES (Nov. 26, 2013), http://www.nytimes.com/ 2013/11/27/us/voters-in-seatac-wash-back-15-minimum-wage.html. See also Dana Milbank, Raising the Minimum Wage Without Raising Havoc,WASH.POST (Sept. 5, 2014), http://www.washingtonpost.com/opinions/dana-milbank-no-calamity-yet-as-seatac-wash-adjusts- to-15-minimum-wage/2014/09/05/d12ba922-3503-11e4-9e92-0899b306bbea_story.html (discussing the wage increase’s effects). 76. 29 U.S.C. §§ 2612, 2614. 77. The Employee Retirement Income Security Act (ERISA) does not require that employers provide pension benefits, but it does set forth mandatory standards for these benefits if provided, particularly in the pension context. See Conkright v. Frommert, 559 U.S. 506, 516 (2010) (“Congress enacted ERISA to ensure that employees would receive the benefits they had earned, but Congress did not require employers to establish benefit plans in the first place.”); DANA SHILLING,THE COMPLETE GUIDE TO HUMAN RESOURCES AND THE LAW 202 (1998) (“ERISA gives employers a choice. There is no requirement that an employer maintain any pension plan at all.”). 78. 26 U.S.C. § 4980H(a), (c)(2)(A). See Suja A. Thomas & Peter Molk, Employer Costs and Conflicts Under the Affordable Care Act, 99 CORNELL L. REV. 56, 58 (2013) (“Employers with fifty or more full-time employees or the equivalent must either offer insurance to full-time employees or pay a fine to the federal government.” (footnote omitted)). 79. See Thomas & Molk, supra note 78, at 58. (“Employers can trigger the fine in two ways. First, employers can refuse to offer any health insurance to employees, in which case the employer must pay $2,000 per full-time employee in excess of thirty employees. Second, employers can offer ‘inadequate’ health insurance (insurance that is either not sufficiently comprehensive or too expensive) to employees. In that case, the employer must pay the lesser of the above fine or $3,000 2015] Income Inequality and Corporate Structure 81

Further, although the “at will” doctrine frames the employment relationship as terminable at any time, with or without cause, employers still owe a duty under the state-provided (but federally subsidized) unemployment insurance system to provide unemployment compensation for their employees.80 These protections and distributions all contribute to creating a “floor” of minimal levels of welfare for employees. Such required thresholds play an important role in establishing a baseline for economic participation that all employees can be expected to enjoy.81 However, the baseline protections do very little to address the income inequality problem. Although the required minimums do provide some degree of adjustment upward to those at the bottom of the income spectrum, particularly if benefits are considered as part of the equation, they are designed to be minimums. As such, they address the growing disparity in incomes only by bumping up the bottom, not by addressing the inherent causes of inequality across the income spectrum. The only workplace statute that could, in theory, more directly address the disparity in income is the NLRA.82 Under the NLRA, employees can select a collective representative to negotiate terms and conditions of employment, and the employer must bargain with this representative in good faith.83 A complex array of subsidiary obligations flow from this central obligation, such as the prohibition against discipline or discharge for an employee’s protected concerted activity.84 Federal labor law forces employers to engage with groups of their employees on wages, hours, benefits, and job responsibilities.85 The employer need not agree to any specific set of terms, but it must bargain in good faith and abide by the complex legal system for managing this bargaining relationship.86 The NLRA enables employees to exercise

per eligible employee who opts for, and receives, individual coverage subsidized by the federal government through a state health insurance exchange.”). 80. See ROTHSTEIN &LIEBMAN, supra note 72, at 1051 (providing an overview of the system). 81. That, of course, assumes enforcement of the minimums. For a discussion of one program designed to create a voluntary self-policing mechanism for the enforcement of employment minimums, see Matthew T. Bodie, The Potential for State Labor Law: The New York Greengrocer Code of Conduct, 21 HOFSTRA LAB.&EMP. L.J. 183, 185–200 (2003). 82. 29 U.S.C. §§ 151–159. 83. Id. § 158(a)(5) (setting forth the duty to bargain); id. § 159 (establishing the process to select the employees’ collective representative). 84. See id. § 158(a)(1), (3) (“It shall be an unfair labor practice for an employer—(1) to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 157 of this title; [or] . . . (3) by discrimination in regard to hire or tenure of employment or any term or condition of employment to encourage or discourage membership in any labor organization . . .”.). 85. Id. § 158(a), (d). 86. Id. § 158(d). 82 Stetson Law Review [Vol. 45 collective power to improve the terms that they secure from the employer, no matter where on the income spectrum they fall.87 Because of the duty to bargain, labor law is really the only tool in the current workplace’s legal toolbox that might plausibly address income inequality. Although the exact economic ramifications are contested, there is a consensus that collective bargaining increases wages amongst employees on an individual firm level.88 On a societal level, relative income equality’s “golden era” in the 1950s is often attributed to the power of unions to demand a greater share of the economic pie.89 However, it is unrealistic to expect unions to put much of a dent in the current and widening income gap. For a variety of contested reasons, the percentage of unionized private-sector employees has been steadily shrinking since its 1950s heyday, from a high of about 35% to the current 6.6%.90 Furthermore, despite the continual hope of unions and their allies, there is not much chance for that trend reversing. The failure of labor-friendly legislation in the first Obama Administration, when Democrats controlled both houses of Congress, indicates the improbability of pro-union statutory change.91 If anything, the current political climate seems more likely to further erode private-sector union

87. For example, professional sports players are unionized and are at the top of the income distribution spectrum. VisualNews, Visualizing the Yearly Salary of Professional Athletes, NBA Players Average $5+ Million a Year,HUFFINGTON POST (Nov. 1, 2013, 11:12 AM EDT), http://www.huffingtonpost.com/visualnewscom/visualizing-the-yearly-sa_b_ 4184716.html. 88. See RICHARD B. FREEMAN &JAMES L. MEDOFF,WHAT DO UNIONS DO? 43–60 (1984) (discussing studies of the union wage effect); David G. Blanchflower & Alex Bryson, What Effect Do Unions Have on Wages Now and Would Freeman and Medoff Be Surprised?, 25 J. LAB.RES. 383, 391 (2004) (finding a 17% private-sector union wage effect and a 14.5% public-sector union wage effect in the late 1990s). 89. See NOAH, supra note 42, at 128 (discussing unions’ role in ameliorating income inequality); Harwell Wells, U.S. Executive Compensation in Historical Perspective, in RESEARCH HANDBOOK ON EXECUTIVE PAY 41, 55 (Randall S. Thomas & Jennifer G. Hill eds., 2012) (“The years during which executive pay was restrained were, after all, also the years during which much of the American political economy operated within an informal concordat between labor unions, big business, and the Federal government, an era in which average workers’ wages rose relatively rapidly, as political and economic institutions (notably unions) encouraged wide distribution of the fruits of economic growth . . . .”). 90. Union Membership (Annual) News Release, U.S. BUREAU LAB.STAT. (Jan. 23, 2015, 10:00 AM), http://www.bls.gov/news.release/union2.htm. See also NOAH, supra note 42, at 128 (discussing the decline in union membership). At their peak in the 1950s, unions are estimated to have represented more than a third of the private and nonagricultural workforce. MICHAEL GOLDFIELD,THE DECLINE OF ORGANIZED LABOR IN THE UNITED STATES 10 tbl.1 (1987); LEO TROY &NEIL SHEFLIN, U.S. UNION SOURCEBOOK:MEMBERSHIP,STRUCTURE,FINANCE, DIRECTORY app. A, A-1 (1985). 91. See Harold Meyerson, Under Obama, Labor Should Have Made More Progress,WASH.POST (Feb. 10, 2010), http://www.washingtonpost.com/wp-dyn/content/article/2010/02/09/ AR2010020902465.html (discussing the failure of the Employee Free Choice Act). 2015] Income Inequality and Corporate Structure 83 membership even more, as states such as Michigan and Wisconsin change to right-to-work regimes.92 Moreover, there is a larger structural problem with labor law when it comes to addressing the corporate power structure that enables income inequality. The federal labor law regime enacted under the NLRA clearly creates zones of power and influence that leave the underlying business organizational structure intact. Employers are only required to bargain on specific topics that could be considered “mandatory” subjects of bargaining.93 The idea behind mandatory subjects is that the employer need only engage with its employees on the terms of the employment contract.94 Bigger issues such as product development, executive compensation, financial structuring, and internal firm governance are not within the ambit of the union’s responsibilities or concerns, and the employer has no duty to discuss such issues.95 The idea that the “core of entrepreneurial control”96 is reserved to the employer itself is central to the federal system of collective bargaining. Employers may be forced to talk with the employees’ representatives about the employees’ bargain with the firm, but employers have no duty to talk about how they run the business.97 Plus, the union may not insist on talking about these issues, either; to do so would be a failure to bargain in good faith.98 Unions were able to change the income-distribution dynamics in the mid-twentieth century by economic force.99 They collectivized employees in entire industries, such as auto-manufacturing, truck driving, and steel

92. Monica Davey, Unions Suffer Latest Defeat in Midwest with Signing of Wisconsin Measure, N.Y. TIMES (Mar. 9, 2015), http://www.nytimes.com/2015/03/10/us/gov-scott-walker-of-wisconsin- signs-right-to-work-bill.html. Right-to-work is just one of the policy changes that are making public- sector union membership more difficult and less desirable. See, e.g., Paul M. Secunda, The Wisconsin Public-Sector Labor Dispute of 2011, 27 A.B.A. J. LAB.&EMP. L. 293, 293–94 (2012) (describing Wisconsin’s “unprecedented attack on public-sector bargaining”). 93. NLRB v. Wooster Div. of Borg-Warner Corp., 356 U.S. 342, 349 (1958) (discussing the mandatory subjects of collective bargaining). 94. Id. 95. See id. (emphasizing a party’s freedom to bargain or not bargain over other subjects). 96. Fibreboard Paper Prods. Corp. v. NLRB, 379 U.S. 203, 223 (1964) (Stewart, J., concurring) (discussing mandatory subjects’ limitations, including how managerial decisions lie outside the scope of mandatory subjects). See also James Gray Pope, Class Conflicts of Law II: Solidarity, Entrepreneurship, and the Deep Agenda of the Obama NLRB, 57 BUFF. L. REV. 653, 658 (2009) (“The doctrine [of entrepreneurial control] provides the focal point for a coherent and positive conception of employer interests that has come to permeate the labor law.” (footnote omitted)). 97. See Fibreboard Paper Prods. Corp., 379 U.S. at 223 (explaining how every decision made that may affect job security does not trigger mandatory bargaining). 98. Local Union 189, Amalgamated Meat Cutters v. Jewel Tea Co., 381 U.S. 676, 689 (1965) (citing Wooster Div. of Borg-Warner Corp., 356 U.S. at 349). 99. See Nicholas Kristof, The Cost of a Decline in Unions, N.Y. TIMES (Feb. 19 2015), http://www.nytimes.com/2015/02/19/opinion/nicholas-kristof-the-cost-of-a-decline-in-unions .html (describing how unions have been integral to maintaining the middle class and suggesting that the decline in unions has led to income inequality). 84 Stetson Law Review [Vol. 45 production, and they used strikes and other forms of economic pressure to push up their wages and benefits.100 The NLRA is based on this notion of economic battle, and in fact the Supreme Court has taken special concern to balance each side’s “weapons” of economic conflict.101 In creating this divided battlefield, however, the NLRA fenced employees and their representatives out of any real participation in the firm’s management. “Management,” which under the NLRA’s statutory scheme includes low-level supervisory employees,102 has control of the firm, and “labor” can only try to pressure management into giving up some of the economic spoils. When a union can achieve something close to monopoly power over the workers in an industry, it can exercise sufficient power to change the income dynamics. But those days seem well behind us. Rather than forcing employees (as “labor”) to engage in a locked, eternal struggle with management to achieve some share of the firm’s resources, the law should reorient corporate law to include employees in the governance of the firm. Rather than having to fight back on the outside, labor should be on the inside, working with the firm’s equity contributors to run the ongoing business. Such an approach would be a dramatic change, not only in our approach to labor and employment law, but also in our approach to corporate law.

III. ADDRESSING INCOME INEQUALITY THROUGH STRUCTURAL CORPORATE LAW CHANGE

In earlier works, I have argued that corporate law has improperly fenced out employees from participation in corporate governance.103 Employees deserve a role in that governance because they participate in the ongoing business of the firm in a manner similar to equity participants. In fact, Ronald Coase based his theory of the firm on the relationship between employers and employees.104 There is thus an

100. See JAKE ROSENFELD,WHAT UNIONS NO LONGER DO 1–2 (2014) (describing how unions were “the core equalizing institution” for income equality (emphasis in original)). 101. NLRB v. Ins. Agents’ Int’l Union, 361 U.S. 477, 489 (1960) (“The presence of economic weapons in reserve, and their actual exercise on occasion by the parties, is part and parcel of the system that the Wagner and Taft-Hartley Acts have recognized.”). 102. 29 U.S.C. § 152(11) (2012) (defining “supervisor”). 103. See Bodie, supra note 17, at 100 (arguing that corporate law “has divorced the employees from the firm”). 104. R. H. Coase, The Nature of the Firm, 4 ECONOMICA 386, 403 (1937) (“We can best approach the question of what constitutes a firm in practice by considering the legal relationship normally called that of ‘master and servant’ or ‘employer and employee.’” (footnote omitted)). For a lengthier discussion on the importance of employment to Coase’s theory of the firm, see Matthew T. Bodie, 2015] Income Inequality and Corporate Structure 85 independent set of economic and structural reasons why employees should have a role in firm governance related to the firm’s structure. This Article, however, focuses on a separate policy justification for employee participation in governance: namely, the role that employee participation would play in making income distributions more equal. By addressing the initial inequality in income distributions, we would not need to rely on secondary efforts to ameliorate the divergence, such as tax transfers. Instead, firms themselves would more equitably allocate the gains from economic production. Employees have traditionally participated in firm governance through collective bargaining or through some form of employee ownership.105 As discussed above,106 unions likely played a significant role in equalizing incomes in the mid-twentieth century, but they are unlikely to repeat that success for a variety of reasons. Employee ownership, on the other hand, directly involves employees in the governance of the firm by placing them in the driver’s seat. The most direct way for employees to participate in governance would be to purchase a controlling percentage of the outstanding stock in the company. For almost all sets of employees, however, this option will be unrealistic: the capital necessary to make the purchase is likely to be well beyond the reach of most employees, barring special restructuring of the firm’s finances or an extremely long time horizon.107 Even if employees could accumulate the capital, it would be extremely risky for them to sink their savings into the same company in which they work.108 This lack of risk diversification would also represent extremely poor financial

Participation as a Theory of Employment, 89 NOTRE DAME L. REV. 661, 695–97 (2013) (discussing certain theoretical aspects of the firm and employees’ role within the firm). 105. See supra Part II. 106. See supra Part II. 107. See LOUIS O. KELSO &MORTIMER J. ADLER,THE CAPITALIST MANIFESTO 188–89 (1958) (explaining how ownership of capital can be interrupted). 108. Brett H. McDonnell, Employee Primacy, or Economics Meets Civic Republicanism at Work, 13 STAN. J.L. BUS.&FIN. 334, 351 (2008) (“If employee primacy is tied to employee share ownership, then employees may wind up putting too many eggs in one basket. If their employer fails, not only do they lose their jobs, but they also lose the value of their shares.”). Susan Stabile has written extensively and persuasively on the financial risks associated with employer securities. See Susan J. Stabile, Enron, Global Crossing, and Beyond: Implications for Workers, 76 ST.JOHN’S L. REV. 815 (2002) [hereinafter Stabile, Enron, Global Crossing, and Beyond] (explaining how workers suffer disproportionately compared to executives when stocks fall); Susan J. Stabile, Another Look at 401(k) Plan Investments in Employer Securities, 35 J. MARSHALL L. REV. 539, 546–47 (2002) (describing the danger of over-investment in employer securities by employee pension plans); Susan J. Stabile, Pension Plan Investments in Employer Securities: More Is Not Always Better, 15 YALE J. ON REG. 61, 64– 65 (1998) (examining major problems posed by excessive retirement plan investments in employer securities). 86 Stetson Law Review [Vol. 45 planning—as many former Enron employees can attest.109 Finally, it makes sense for companies to avail themselves of global capital markets in order to finance at least a portion of their operations. Of course, it will still make sense for some firms, at some moments in time, to be employee-owned; even skeptics of employee ownership agree on that.110 But even traditional methods of employee ownership often fail to give employees significant control. The employee stock ownership plan (ESOP) provides a tax-favored financial vehicle, in which a trust owns the company’s shares on behalf of the employee– shareholders.111 The trust is administered by a trustee who must act in the interests of the beneficiaries.112 This trustee, however, need not consult employees or endeavor to assay their wishes; instead, the trustee is only obligated to pursue what the trustee believes is in the employees’ best financial interests.113 Thus, ESOPs can often shut out rank-and-file employees from actual participation in the firm’s governance. Not surprisingly, ESOPs have a reputation for being a refinancing tool that is responsive to managerial interests, rather than of a process that provides

109. See Stabile, Enron, Global Crossing, and Beyond, supra note 108, at 824–27 (discussing Enron employees’ difficulties in protecting themselves financially). 110. HENRY HANSMANN,THE OWNERSHIP OF ENTERPRISE 91 (1996) (discussing how employee ownership is most likely to be successful when employees have similar status and economic interests). 111. See Jeffrey M. Hirsch, Labor Law Obstacles to the Collective Negotiation and Implementation of Employee Stock Ownership Plans: A Response to Henry Hansmann and Other “Survivalists,” 67 FORDHAM L. REV. 957, 959 (1998) (“Typically, [ESOPs] create a trust for employees that borrows money, then loans the borrowed money to the employer while obtaining stock from the employer as repayment for the loan.”). 112. See JOHN H. LANGBEIN ET AL., PENSION AND EMPLOYEE BENEFIT LAW 53 (4th ed. 2006) (“ESOP assets are held in trust and managed by a trustee, who is usually selected by the employer.”). ESOP trustees have fiduciary duties to the ESOP’s beneficiaries. 29 U.S.C. § 1104(a) (2012) (discussing fiduciary duties under ERISA for pension plans, including ESOPs). But see Meredith L. Gray, Comment, A Presumption Without Prudence: Replacing Moench v. Robertson with a Prudent “When in Doubt, Don’t” Standard for ESOP and 401(k) Company Stock Fund Fiduciaries,WIS. L. REV. 907, 921 (2010) (“Since Congress intended that ESOPs invest primarily in company stock, it also exempted fiduciaries from the duty to diversify ESOP investments and from ERISA’s prudence requirement, but ‘only to the extent that it requires diversification.’” (emphasis in original) (footnote omitted)). 113. See Hirsch, supra note 111, at 960 (“Employee ownership plans typically do not have to ‘pass- through’ voting rights to the employee-owners, and even with pass-through voting, a trustee may vote in place of actual workers.” (footnote omitted)). 2015] Income Inequality and Corporate Structure 87 employees with participation in the firm.114 It is unusual for an ESOP even to place any representatives on the board.115 Moving to a system of complete or majoritarian employee ownership would be moving from one extreme to another: from a system of shareholder primacy to a system of employee primacy. Even putting aside the sheer financial impossibility of transferring all current shares from their current holders to employees (absent a government-imposed system of redistribution),116 shareholders would be vulnerable to employee opportunism if they lacked meaningful participation in firm governance. Such opportunism may, certainly, operate to diminish income inequality by distributing the firm’s resources to employees. But in an era of global capital mobility, companies rife with shareholder exploitation cannot maintain access to equity capital for long. Thus, while employee stock ownership is an important (and perhaps underutilized) piece of the puzzle, it should not be the only mechanism for employee participation.117

114. Sean M. Anderson, Risky Retirement Business: How ESOPs Harm the Workers They Are Supposed to Help, 41 LOY. U. CHI. L.J. 1, 16 (2009) (“Choosing an ESOP, then, reflects either a misunderstanding of the workers’ best interests or a deliberate subordination of those interests to the interests of the company and the insiders.”); Julie Lynn Kaufman, Democratic ESOPs: Can Workers Control Their Future?, 5 LAB.LAW. 825, 825 (1989) (arguing that “the majority of ESOPs are structured to skew stock ownership heavily towards management” and “ESOP trusts thus become a means of perpetuating and entrenching current managerial control”). 115. See Hirsch, supra note 111, at 960 (“[A]n employer can create an ESOP that owns a majority of the company but gives employees virtually no voice in managerial policy-making.”). As one example, during its existence as an ESOP-owned company, Avis did not have any employee representatives on its board. James S. Hirsch, Avis Employees Find Stock Ownership Is Mixed Blessing, ASSOCIATED PRESS (May 2, 1995, 9:19 AM ET), http://www.apnewsarchive.com/1995/Avis- Employees-Find-Stock-Ownership-Is-Mixed-Blessing/id-fc7b2b373d85cd1c193da5078c5ee1dc. In its 1994 restructuring, United Airlines did in fact put employee representatives on the board after an ESOP, which was funded by the airline’s pilots and management employees, purchased fifty-five percent of the company. Jeffrey N. Gordon, Employee Stock Ownership in Economic Transitions: The Case of United Airlines, 10 J. APPLIED CORP.FIN. 39, 52 (1998). However, these representatives made up only one-quarter of the board—far less than a controlling percentage. Id. at 54 (“The board consist[ed] of [twelve] members: five ‘public directors,’ four ‘independent directors,’ two ‘union directors,’ and one ‘salaried and management’ director (the latter three directors known collectively as ‘employee directors’).”). 116. The current ESOP structure is already a system of redistribution, given the tax benefits it provides. See Robert Hockett, What Kinds of Stock Ownership Plans Should There Be? Of ESOPs, Other SOPs, and “Ownership Societies,” 92 CORNELL L. REV. 865, 890 (2007) (“The leveraged ESOP as currently constituted is essentially a public benefit conferred through private channels.”). 117. See id. at 931–33 (discussing a new credit strategy to provide for employee–ownership financing, similar to home mortgages and student loan financing). In the interest of brevity, I am giving short shrift to the many thoughtful treatments of the possibilities for greater employee ownership. See, e.g.,JOSEPH BLASI ET AL., IN THE COMPANY OF OWNERS:THE TRUTH ABOUT STOCK OPTIONS 223 (2003) (arguing that “most corporations in America would enjoy more motivated workers and larger profits if they embraced partnership capitalism centered around employee stock options”). 88 Stetson Law Review [Vol. 45

Another approach is to integrate workers into firm governance in a substantial but not dominating way. If employee representatives were placed onto boards of directors, the boards’ deliberations would change in a meaningful way.118 Rather than acting simply in the interests of shareholders, directors would need to consider the impact on all those who participate in the ongoing business of the firm: equity contributors and labor contributors. The firm would not be governed with a monolithic pursuit of shareholder wealth maximization; instead, the firm would need to account for workers’ interests as well.119 What would employee representation mean for income inequality? Employee representatives would be in a position to demand more for workers. In the heyday of unionization, employee representatives were able to secure significant wage gains through suasion, bargaining, and collective economic power.120 Having actual power within the corporate governance structure would enable those representatives to exercise their rights of governance in support of workers. If shareholder primacy and an energized shareholder electorate have tilted the playing field in equity’s favor over the last four decades, a shared governance regime between workers and equity would balance the division of spoils. Changing the electorate to include a new group would make the decision- making process more favorable to that group. Moreover, employee representatives would also change norms about the acceptability of sky-high compensation for CEOs, high-level executives, and those advisors and professionals who service the corporation’s financial needs. Shareholder advocates and union pension fund representatives have been on the forefront of criticizing excessive executive compensation and have advocated for measures such as say- on-pay referenda.121 It serves both groups’ interests to tamp down on

118. Troy A. Paredes, Too Much Pay, Too Much Deference: Behavioral Corporate Finance, CEOs, and Corporate Governance, 32 FLA.ST. U. L. REV. 673, 757–61 (2005). Paredes has argued for a devil’s advocate or “chief naysayer” on corporate boards to advocate against groupthink and challenge the decision-making processes of boards and CEOs. Id. at 740–41 (“At bottom, considering the opposite results in a more balanced and presumably more accurate assessment of a course of conduct.”). I am making a similar argument as to employee representation on boards: they would ask directors to consider the ramifications of their decisions on workers, which would change the decision-making process. 119. But see HANSMANN, supra note 110, at 89–91 (arguing that employee ownership fails because of the heterogeneity of employee interests). 120. See supra Part II. 121. See Stephen M. Bainbridge, Dodd-Frank: Quack Federal Corporate Governance Round II, 95 MINN. L. REV. 1779, 1808 (2011) (noting that Council of Institutional Investors, the AFL-CIO, and AFSCME all supported the say-on-pay provisions in the Dodd-Frank Act). See also Stewart J. Schwab & Randall S. Thomas, Realigning Corporate Governance: Shareholder Activism by Labor Unions, 96 MICH. L. REV. 1018, 1023 (1998) (claiming that “much union-shareholder activity represents an 2015] Income Inequality and Corporate Structure 89 managerial pay. The managerial power generated in the absence of strong shareholder oversight would be diminished in the presence of directors representing employees who are on the ground and have a greater interest in policing such matters. With employees voting for their own directors, powerful CEOs would have much more difficulty assembling an entire board of sycophants and cronies.122 The culture of compensation would be changed, both at the top and the bottom. In an earlier article, I advocated for a small yet tangible step in the direction of employee empowerment: a nonbinding employee vote on transformative corporate transactions.123 This referendum would be held whenever shareholders had the right to vote to approve a merger, acquisition, or other large-scale corporate combination.124 The company’s employees would have the right to vote prior to the shareholder vote, not to bind the shareholders but rather to inform them.125 The vote would be a signaling device, which could bridge the common interests of shareholders and employees.126 But it would also provide the independent benefit of giving employees a voice—albeit a nonbinding one—in the future of their corporation.127 Workers have been fenced out of meaningful participation in corporate governance. Because of their participation in the ongoing business enterprise, they deserve to play a part in the management of the business. An important byproduct of this participation would be a change in the control over the allocation of compensation. By addressing the distribution of income in the first place, these reforms to the corporate structure would ameliorate the need to redistribute that income through a secondary process.

alignment of shareholder and worker interests that attempts to prod management to increase the overall worth of the firm”). 122. See In re Walt Disney Co. Derivative Litig., 907 A.2d 693, 762–63 (Del. Ch. 2005) (describing former Walt Disney CEO Michael Eisner’s manipulation and control of Walt Disney’s board of directors), aff’d, 906 A.2d 27 (Del. 2006). Eisner was famously described as “having enthroned himself as the omnipotent and infallible monarch of his personal Magic Kingdom.” Id. at 763. 123. Matthew T. Bodie, Workers, Information, and Corporate Combinations: The Case for Nonbinding Employee Referenda in Transformative Transactions, 85 WASH. U. L. REV. 871, 878 (2007). 124. Id. 125. Id. at 878–79. 126. Id. at 898–913 (discussing how the referendum would benefit shareholders and employees). 127. The referendum could be required under state corporate law. See id. at 926 (acknowledging that the referendum is designed to work within the state law system and explaining its advantages). Alternatively, the referendum could be required through a shareholder-proposed bylaw. Matthew T. Bodie, The Case for Employee Referenda on Transformative Transactions As Shareholder Proposals, 87 WASH. U.L. REV. 897, 898 (2010). 90 Stetson Law Review [Vol. 45

IV. CONCLUSION

Proponents of greater income equality must contend with the claim that they are interfering with the natural order of the markets. But the legal structure of the corporation allows high-level executives and shareholders to siphon off the lion’s share of the firm’s economic surplus. If employees had rights to participate in the ongoing governance of the business, they would be empowered to claim a larger share of the enterprise’s gains. This shift in distributional outcomes would go a long way in addressing the growing divergence in economic outcomes across our society. It is one more reason to change the corporate structure to incorporate employee participation in firm governance. THE EMPLOYMENT NON-DISCRIMINATION ACT AFTER HOBBY LOBBY: STRIVING FOR PROGRESS—NOT PERFECTION

Giovanni P. Giarratana

I. INTRODUCTION

Workplace discrimination based on sexual orientation and gender identity is pervasive in our society. In 2008, “the General Social Survey found that of the nationally representative sample of [lesbians and gays], 37 percent had experienced workplace harassment in the last five years, and 12 percent had lost a job because of their sexual orientation.”1 In one of the largest surveys of transgender individuals, “90 percent of respondents . . . reported having experienced harassment or mistreatment at work, or had taken actions to avoid it, and 47 percent reported having been discriminated against in hiring, promotion, or job retention because of their gender identity.”2 Despite the pervasiveness of discrimination based on sexual orientation and gender identity, federal legislation that explicitly prohibits it does not exist. To combat sexual orientation and gender identity discrimination, the Employment Non-Discrimination Act3 (ENDA) has been proposed. ENDA, if enacted, would explicitly prohibit discrimination based on “actual or perceived sexual orientation or gender

 © 2015, Giovanni P. Giarratana. All rights reserved. Managing Editor, Stetson Law Review. J.D. Candidate, Stetson University College of Law, 2016; B.B.A., summa cum laude, Belmont University, 2008. The Author wishes to express his sincere gratitude to Professor Ellen Podgor and Professor Jason R. Bent for their advisement and encouragement during the writing process. The Author would also like to express his gratitude to Darnesha Carter, Nicole Santamaria, and the other members of Stetson Law Review for their dedication to the publication of this Article. 1. Jennifer C. Pizer et al., Evidence of Persistent and Pervasive Workplace Discrimination Against LGBT People: The Need for Federal Legislation Prohibiting Discrimination and Providing for Equal Employment Benefits, 45 LOY. L.A. L. REV. 715, 721 (2012). 2. Id. 3. Employment Non-Discrimination Act of 2013, S. 815, 113th Cong. § 4(a)(1) (2013), available at https://www.govtrack.us/congress/bills/113/s815/text/is [hereinafter ENDA]. 92 Stetson Law Review [Vol. 45 identity.”4 On November 7, 2013, the Senate passed ENDA.5 However, John Boehner, Speaker of the House, stated there was “no way” that ENDA would be voted on in 2014, asserting that it was “unnecessary and would provide the basis for frivolous lawsuits” because there are laws already in place to protect the lesbian, gay, bisexual, and transgender (LGBT) community6 in the workplace.7 As former House Speaker Boehner predicted, the House never voted on ENDA in 2014, and to date, the House has yet to vote on it.8 Unsurprisingly, Boehner was sharply criticized for his statements regarding ENDA.9 He is correct, however, in his assertion that there are protections available for the LGBT community in the workplace. First, some states have already passed laws that explicitly protect the LGBT community from workplace discrimination.10 Second, the LGBT community may find protection via Title VII using gender stereotypes as the basis of the claim.11 Third, the Equal Employment Opportunity Commission (EEOC) has taken a clear stance that discrimination based on gender identity falls under sex discrimination for Title VII claims.12

4. Id. 5. Burgess Everett, Senate Passes Gay Rights Bill in Historic Vote,POLITICO (Nov. 8, 2013, 10:03 AM EST), http://www.politico.com/story/2013/11/enda-vote-senate-99538.html. 6. Daniel Reynolds, John Boehner: “No Way” ENDA Will Pass This Year,ADVOCATE.COM (Jan. 30, 2014 2:32 PM), http://www.advocate.com/politics/politicians/2014/ 01/30/john-boehner-no- way-enda-will-pass-year. 7. Id. Much of society shares in former House Speaker Boehner’s assumption. Jeff Krehely, Polls Show Huge Public Support for Gay and Transgender Workplace Protections,CENTER FOR AM. PROGRESS (June 2, 2011), https://www.americanprogress.org/issues/lgbt/news/2011/06/02/ 9716/polls-show-huge-public-support-for-gay-and-transgender-workplace-protections/. A poll conducted in 2011 by Greenberg Quinlan Rosner Research of likely voters for the 2012 election cycle found that nine out of ten voters believed that federal laws protecting the LGBT community from workplace discrimination already existed. Id. 8. Amanda Terkel, Civil Rights Bill Top Priority for LGBT Voters, According to New Poll, HUFFINGTON POST (Mar. 17, 2015, 7:00 AM EDT), http://www.huffingtonpost.com/ 2015/03/17/ lgbt-discrimination_n_6879230.html. As of March 2015, the House has yet to vote on ENDA. Id. 9. See, e.g., Benjy Sarlin, Boehner’s Anti-Gay Turn Threatens GOP, MSNBC.COM (updated Nov. 6, 2013), http://www.msnbc.com/msnbc/boehner-kills-gay-rights-bill (citing House Republican Charlie Dent’s disapproval of Boehner’s opposition to ENDA). 10. See Nat’l Gay & Lesbian Task Force Found., Reports & Research: Nondiscrimination Laws Map, THETASKFORCE.ORG, http://www.thetaskforce.org/static_ html/downloads/reports/issue_maps/non_discrimination_5_14_color.pdf (last updated May 21, 2014) (showing eighteen states that currently have laws prohibiting workplace discrimination based on sexual orientation and gender identity and three states that currently have laws prohibiting workplace discrimination based on sexual orientation but not gender identity). 11. See Glenn v. Brumby, 663 F.3d 1312, 1320–21 (11th Cir. 2011) (holding that an employee was protected under Title VII from sex-stereotyping discrimination when he was fired while transitioning from male to female); Schwenk v. Hartford, 204 F.3d 1187, 1202–03 (9th Cir. 2000) (stating discrimination based on a person failing to act in accordance with his or her gender is “forbidden under Title VII”). 12. Macy v. Holder, Appeal No. 0120120821, 2012 WL 1435995 (EEOC Apr. 20, 2012). In a landmark decision in 2012, the EEOC concluded that discrimination against transgender individuals 2015] The Employment Non-Discrimination Act After Hobby Lobby 93

Despite these current workplace protections, there is still a large part of the LGBT community that is left in the lurch. Thus, federal legislation, like ENDA, is vital. ENDA, as currently proposed, would provide an explicit federal prohibition of discrimination based on sexual orientation and gender identity.13 In turn, it would promote consistency amongst state laws and future decision-making, and ensure appropriate remedies are afforded to the LGBT community.14 Some legal scholars assert that ENDA, as it is currently written, includes concerning language that may have the effect of decreasing protection rather than increasing it.15 One of the more concerning provisions is the religious exemption section,16 especially in the wake of the Supreme Court’s Hobby Lobby17 decision in June 2014. In Hobby Lobby, the Supreme Court concluded that closely held for-profit organizations were entitled to protections under the Religious Freedom Restoration Act (RFRA).18 Hobby Lobby elicited many questions and concerns regarding its normative implications for the future.19 As a consequence, many major gay activist groups pulled their support for ENDA because of the religious exemption that is included,20 asserting

is discrimination based upon sex under Title VII. Id. The EEOC also found that lesbian, gay, and bisexual individuals alleging sex-stereotyping discrimination can state a Title VII claim under the sex-stereotyping theory. Castello v. Donahoe, Appeal No. 0120111795, 2011 WL 6960810, at *3 (EEOC Dec. 20, 2011); Veretto v. Donahoe, Appeal No. 0120110873, 2011 WL 2663401, at *3 (EEOC July 1, 2011). 13. ENDA, S. 815, 113th Cong. § 2(2) (2013). 14. Pizer et al., supra note 1, at 720 (arguing “the incompleteness, inconsistency, and lack of clarity of the existing legal protections have resulted in a system that is more confusing and less effective than would be possible with an explicit federal statute prohibiting sexual orientation and gender identity discrimination”). 15. See Mary Ann Case, Legal Protections for the “Personal Best” of Each Employee: Title VII’s Prohibition on Sex Discrimination, the Legacy of Price Waterhouse v. Hopkins, and the Prospect of ENDA, 66 STAN. L. REV. 1333, 1374, 1380 (2014) (arguing that ENDA, as written, is too limited and ambiguous and that, if passed, could limit the scope of protection for discrimination based on sexual orientation when compared to current protections provided under Title VII). 16. ENDA, S. 815, 113th Cong. § 6 (2013). 17. Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751 (2014). 18. Id. at 2759. 19. See Wade Goodwyn, Hobby Lobby Ruling May Have Poked a Hole in the ‘Corporate Veil’ (Nat’l Pub. Radio broadcast Aug. 5, 2014, 4:17 PM ET), available at http://www.npr.org/2014/ 08/05/338099703/hobby-lobby-ruling-may-have-poked-a-hole-in-the-corporate-veil [hereinafter All Things Considered] (discussing how the Hobby Lobby decision may affect future bankruptcy cases); Peter Moskowitz, Why Hobby Lobby Could Open a Pandora’s Box of Legal Discrimination, AMERICA.ALJAZEERA.COM (July 3, 2014, 8:30 AM EDT), http://america.aljazeera.com/ articles/2014/7/3/hobby-lobby-future.html (arguing that the decision in Hobby Lobby will adversely affect “women’s rights as well as LGBT rights and the rights of the disabled”); Zoë Schlanger, Hobby Lobby Decision Likely to Open a Legal Floodgate,NEWSWEEK (July 1, 2014, 5:08 PM), http://www.newsweek.com /hobby-lobby-decision-likely-open-legal-floodgate-256990 (predicting that the holding in Hobby Lobby will “set in motion a raft of similar challenges”). 20. Michelle Garcia, ACLU, NCLR, and More Groups Drop Support of ENDA,ADVOCATE.COM (July 9, 2014, 1:47 PM ET), http://www.advocate.com/enda/2014/07/08 94 Stetson Law Review [Vol. 45 that the decision in Hobby Lobby is just “a hop, skip and jump” from allowing employers to discriminate against LGBT individuals because of religious beliefs.21 Representative Barney Frank, however, who has been a major proponent of ENDA, called these arguments “ridiculous” and asserted that the groups who pulled support for ENDA are simply “uncomfortable being in the majority.”22 Although there are competing views about ENDA and whether it should be passed as it is currently written,23 common ground can be found—there is bipartisan support among voters for federal legislation that prohibits discrimination based on sexual orientation and gender identity.24 Thus, legislation will likely be enacted in the near future. But whether ENDA is enacted with the religious exemption section or without it, the burning question still remains—will Hobby Lobby play a role in its enforcement? This Article will attempt to answer that question. In Part II, the Article will discuss the current workplace discrimination protections available to the LGBT community under Title VII and assert that the current protections are inadequate, especially for private-sector employees. Therefore, the Article will argue that federal legislation prohibiting workplace discrimination based on sexual orientation and gender identity is needed. Part III will discuss ENDA, as currently proposed, and its religious exemption. This Part will show that ENDA’s religious exemption is limited to the religious exemptions

/breaking-aclu-nclr-and-more-groups-drop-support-enda; Ed O’Keefe, Gay Rights Groups Withdrawing Support of ENDA After Contraceptive Decision,WASH.POST (July 8, 2014), http://www.washingtonpost.com/politics/gay-rights-groups-withdrawing-support-of-enda-after- contraceptive-decision/2014/07/08/2f32aa5a-06c1-11e4-8a6a-19355c7e870a_story.html; Amanda Terkel, Barney Frank Sharply Criticizes Gay Rights Groups’ Flip on ENDA,HUFFINGTON POST (Aug. 6, 2014, 9:59 AM EDT), http://www.huffingtonpost.com/2014/08/05/barney-frank-enda_n_ 5650751.html. 21. O’Keefe, supra note 20 (quoting Rea Carey, the executive director of the National Gay & Lesbian Task Force). 22. Terkel, supra note 20. Senator Barney Frank also stated, “What they’re saying is, because it does not give perfect protection, let’s not give any added protection at all.” Id. (internal quotation marks omitted). 23. See O’Keefe, supra note 20 (noting that some but not all gay activist groups have withdrawn support for ENDA); Terkel, supra note 20 (discussing Representative Barney Frank’s criticism of gay activist groups who withdrew their support for ENDA). 24. Krehely, supra note 7. Greenberg Quinlan Rosner Research conducted a poll of likely 2012 voters, asking whether voters would support protections for gay and transgender individuals in the workplace. Id. The poll’s results found that “81 percent of Democrats, 74 percent of independents, and 66 percent of Republicans [support] workplace nondiscrimination laws for gay and transgender people.” Id.; see also Office of the Press Sec’y, Fact Sheet: Taking Action to Support LGBT Workplace Equality Is Good for Business,WHITEHOUSE.GOV (July 21, 2014), http://www.whitehouse.gov/the- press-office/2014/07/21/fact-sheet-taking-action-support-lgbt-workplace-equality-good-business-0 (outlining those who support legislation to protect LGBT workers, including various Fortune 500 companies, small businesses, federal contractors, state and local governments, and faith-based communities). 2015] The Employment Non-Discrimination Act After Hobby Lobby 95 provided under Title VII. Part III will also discuss Title VII’s religious exemption and explore how it has been applied to better understand ENDA’s religious exemption, as it is currently proposed. Part IV will examine the genesis of the Religious Freedom Restoration Act and explore its possible future. This Part will discuss the importance of including a religious exemption in ENDA and argue that ENDA’s current religious exemption is more beneficial than harmful. Furthermore, Part IV will discuss the Hobby Lobby decision and argue that it will not affect employment discrimination laws, such as ENDA. Alternatively, it will also argue that, even if ENDA is passed and then found to violate RFRA, ENDA will still bring society one-step closer to workplace equality. In conclusion, Part V will recommend that society reevaluate withdrawing support of ENDA as it is currently proposed and reconsider the additional possible benefits that may be provided under it.

II. CURRENT FEDERAL WORKPLACE DISCRIMINATION PROTECTIONS

Although there is a lack of federal legislation that explicitly prohibits workplace discrimination against LGBT individuals, some workplace discrimination protections are available. On a federal level, these protections are primarily afforded through Title VII.25 This Article will show, however, that Title VII does not provide adequate protections for the LGBT community and will argue why federal legislation, like ENDA, is needed. Title VII does not explicitly protect the LGBT community.26 Title VII states it is unlawful for an employer “to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his [or her] compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin.”27 Although Title VII does not explicitly prohibit discrimination based on sexual orientation and gender identity, the Supreme Court’s decision in Price Waterhouse v. Hopkins28 provided the LGBT community an avenue to allege discrimination under Title VII.

25. 42 U.S.C. § 2000e-2(a)(1) (2012). 26. Id. 27. Id. 28. 490 U.S. 228, 256–58 (1989). 96 Stetson Law Review [Vol. 45

Hopkins involved a heterosexual woman who was denied a promotion at her accounting firm.29 After being denied the promotion, she was advised that, in order to improve her chances of being promoted in the future, she should walk, talk, and dress more femininely.30 She then sued, claiming sex discrimination under Title VII.31 Because her employer considered her nonconformance to sex-stereotypes in the decision of whether to promote her to partner, the Supreme Court held that her employer discriminated against her because of sex, and therefore, she was entitled to relief under Title VII.32 Hopkins opened the gates for the LGBT community to assert sex discrimination claims under Title VII. Like the plaintiff in Hopkins, LGBT workers can assert that their employers discriminated against them because of nonconformance to gender norms. But for the LGBT community, asserting sex discrimination based on nonconformance to gender norms may be limited,33 especially for private-sector employees. The limited application for private-sector employees is discussed further below.

A. Enforcing Title VII: The EEOC’s Role

Title VII claims are investigated and enforced by the EEOC.34 Both federal and private-sector employees can file a complaint with the EEOC.35 But the EEOC’s role in enforcing Title VII is different for federal employees than it is for private-sector employees.36 For federal employees, the EEOC has the authority to investigate the matter, issue a final order, and grant relief.37 In contrast, for private-sector employees,

29. Id. at 233. The case itself does not express that the plaintiff was heterosexual, but see Chai Feldblum, Law, Policies in Practice and Social Norms: Coverage of Transgender Discrimination Under Sex Discrimination Law, 14 J.L. &SOC’Y 1, 13 (2013). 30. Hopkins, 490 U.S. at 235. 31. Id. at 231–32. 32. Id. at 256, 258. 33. See Brian Soucek, Perceived Homosexuals: Looking Gay Enough for Title VII, 63 AM. U. L. REV. 715, 718 (2014) (discussing how courts are more willing to extend Title VII protections to gays and lesbians when their observable behavior does not conform to gender norms and less willing to extend Title VII protections for discrimination based on actual knowledge of an individual’s sexual orientation). 34. 42 U.S.C. § 2000e-5(a)–(b) (2012). 35. Id. 36. U.S. Equal Emp’t Opportunity Comm’n, Filing a Charge of Discrimination, EEOC.GOV, http://www.eeoc.gov/employees/charge.cfm (last visited Sept. 19, 2015). See generally Cody Perkins, Comment, Sex and Sexual Orientation: Title VII After Macy v. Holder, 65 ADMIN. L. REV 427 (2013) (discussing the EEOC’s role in Title VII claims for both federal and private-sector employees). 37. U.S. Equal Emp’t Opportunity Comm’n, Overview of Federal Sector EEO Complaint Process, EEOC.GOV, http://www.eeoc.gov/federal/fled_employees/complaint_ overview.cfm (last visited Dec. 14, 2015). 2015] The Employment Non-Discrimination Act After Hobby Lobby 97 the EEOC only has the authority to investigate the complaint, and if a violation is found, the agency will “attempt to reach a voluntary settlement with the employer.”38 If a settlement is unsuccessful, the EEOC will determine whether to (1) file a lawsuit on the complainant’s behalf or (2) provide the complainant with a Notice of a Right to Sue.39 Thus, for private-sector employees, the EEOC does not issue an order nor can the EEOC grant specific relief to private-sector employees, other than the right to pursue the discrimination claim further in court.40 Understanding this distinction is important because the EEOC’s interpretation of sex-stereotyping under Title VII is much broader than the federal courts’ interpretation, resulting in a disparity of protection for private-sector employees.41 In addition to the EEOC’s more generous application of Title VII, President Barack Obama has issued an executive order explicitly prohibiting workplace discrimination based on sexual orientation and gender identity for federal employees and employees of any individual or entity that has entered into a federal government contract.42 Therefore, protections for federal employees are far more sweeping, while private- sector employees are left much more vulnerable.

B. Federal Caselaw Interpreting Title VII

Courts have been clear that Title VII does not prohibit discrimination based on sexual orientation.43 But, LGBT plaintiffs can bring a Title VII claim under the sex-stereotyping theory. This theory, however, has proven troublesome. The Second Circuit Court of Appeals stated: “When utilized by an avowedly homosexual plaintiff . . . gender stereotyping claims can easily present problems for an adjudicator. This is for the simple reason that ‘[s]tereotypical notions about how men and women should behave will often necessarily blur into ideas about

38. Filing a Charge of Discrimination, supra note 36 (emphasis added). 39. Id. 40. Id. 41. See generally Perkins, supra note 36 (discussing the EEOC’s role in Title VII claims for both federal and private-sector employees). 42. Equal Emp’t Opportunity in the Fed. Gov’t, Exec. Order No. 13,672, 79 Fed. Reg. 42,971, 42,971 (July 23, 2014). 43. Rene v. MGM Grand Hotel, Inc., 305 F.3d 1061, 1063 (9th Cir. 2002) (holding “that an employee’s sexual orientation is irrelevant for purposes of Title VII”); Simonton v. Runyon, 232 F.3d 33, 36 (2d Cir. 2000) (“Because the term ‘sex’ in Title VII refers only to membership in a class delineated by gender, and not to sexual affiliation, Title VII does not proscribe discrimination because of sexual orientation.”). 98 Stetson Law Review [Vol. 45 heterosexuality and homosexuality.’”44 This “blur” disfavors a LGBT plaintiff. While a LGBT plaintiff’s sexual orientation may indeed be nonconforming to certain gender norms, courts have held that this type of discrimination alone is not enough for a Title VII claim because it is discrimination based on sexual orientation, and plaintiffs cannot use the sex-stereotyping theory as a way to “bootstrap protection for sexual orientation into Title VII.”45 LGBT plaintiffs asserting a discrimination claim under the sex- stereotyping theory are therefore presented with a stumbling block. LGBT plaintiffs appear to encounter an extra hurdle that their heterosexual counterparts do not have to jump, as LGBT plaintiffs must first prove that the discrimination was not based on their sexual orientation.46 To overcome this obstacle, “gay plaintiffs bringing claims under Title VII [have been advised to] . . . de-emphasize any connection the discrimination has to homosexuality.”47 While this advice may help some in the LGBT community to successfully assert a Title VII claim, it still leaves others without any protection—those of the LGBT community who, other than their sexual orientation, conform to gender norms, yet have been discriminated against because of sexual orientation. For example, in Simonton v. Runyon,48 the plaintiff, Mr. Simonton, was an openly gay employee.49 His co-workers repeatedly harassed him by using explicit, derogatory statements about his sexual orientation, distributing posters that said he was mentally ill because of his sexual preference, placing notes in the bathroom with his name next to the names of celebrities who died of AIDS, and attaching sexually explicit photos to his work space.50 Despite these repulsive factual allegations, the Second Circuit Court of Appeals affirmed the lower court’s dismissal of Mr. Simonton’s case for failure to state a claim under Title VII’s sex discrimination.51 Addressing Mr. Simonton’s sex-stereotyping theory, the court stated:

44. Dawson v. Bumble & Bumble, 398 F.3d 211, 218 (2d Cir. 2005) (internal citation omitted); see also Prowel v. Wise Bus. Forms, Inc., 579 F.3d 285, 291 (3d Cir. 2009) (stating that “the line between sexual orientation discrimination and discrimination ‘because of sex’ can be difficult to draw”). 45. Dawson, 398 F.3d at 218 (internal citation omitted). 46. See id. at 217 (stating that it is difficult to discern from the plaintiff’s factual allegations whether the plaintiff is asserting that her employer took adverse employment action against her because of “her gender, her appearance, her sexual orientation, or some combination of these”). 47. Kristin M. Bovalino, How the Effeminate Male Can Maximize His Odds of Winning Title VII Litigation, 53 SYRACUSE L. REV. 1117, 1134 (2003). 48. 232 F.3d 33 (2d Cir. 2000). 49. Id. at 35. 50. Id. 51. Id. at 38. 2015] The Employment Non-Discrimination Act After Hobby Lobby 99

We do not have sufficient allegations before us to decide Simonton’s claims based on stereotyping because we have no basis in the record to surmise that Simonton behaved in a stereotypically feminine manner and that the harassment he endured was, in fact, based on his nonconformity with gender norms instead of his sexual orientation.52

The theory can also present problems for those who are discriminated against because of their perceived sexual orientation. Christopher Vickers’s case is a prime example.53 Mr. Vickers worked at a hospital as a private police officer.54 Unlike Mr. Simonton, Mr. Vickers was not openly gay and did not discuss his sexuality at work.55 He alleged that his co-workers began harassing him with vulgar remarks and gestures after he assisted a homosexual doctor in an internal investigation of misconduct at the hospital, and the harassment became worse after returning from a vacation he took with a male friend.56 Mr. Vickers’s complaint was very detailed57 and described instances where his co- workers wrote the word “FAG” on his report forms, handcuffed him and simulated sexual acts on him, and touched him inappropriately while making derogatory statements.58 Mr. Vickers made a complaint to the human resources department, which then triggered an investigation of Mr. Vickers’s conduct and resulted in human resources scheduling a disciplinary meeting with Mr. Vickers, and instructing him not to bring his attorney.59 Thereafter, Mr. Vickers resigned from his position and filed suit against the employer.60 His claim alleged sex discrimination based on the sex-stereotyping theory.61 Mr. Vickers argued that he was discriminated against because his “sexual practices, whether real or perceived, did not conform to the traditionally masculine role.”62 The Sixth Circuit Court of Appeals, however, rejected Mr. Vickers’s sex discrimination argument, finding that the discrimination was based on

52. Id. (emphasis added). 53. Vickers v. Fairfield Med. Ctr., 453 F.3d 757 (6th Cir. 2006) (“The Supreme Court in Price Waterhouse focused principally on characteristics that were readily demonstrable in the workplace, such as the plaintiff’s manner of walking and talking at work, as well as her work attire and her hairstyle.”). 54. Id. at 759. 55. Id. 56. Id. 57. See id. at 759–60 (describing in detail the actions of his coworkers and the actions that the employer took in response to him reporting the misconduct). 58. Id. 59. Id. at 760. 60. Id. at 760–61. 61. Id. at 763. 62. Id. 100 Stetson Law Review [Vol. 45

Mr. Vickers’s perceived homosexuality and therefore was not covered under Title VII.63 Contrast the above two cases with Prowel v. Wise Business Forms, Inc.64 In Prowel, the plaintiff considered himself “effeminate,” had a rainbow sticker on his car, was well-groomed, talked in a high-pitched voice, and dressed neatly.65 While noting that “the line between sexual orientation discrimination and discrimination ‘because of sex’ can be difficult to draw,”66 the court stated that the plaintiff’s “effeminate traits” might have been the reason for the harassment.67 Consequently, the Third Circuit Court of Appeals held that the lower court erred in granting summary judgment, finding that a jury should decide whether the discrimination was based on the plaintiff’s sexual orientation.68 The three cases discussed above demonstrate that plaintiffs who “look or act sufficiently ‘gay’ at work” are more likely to be protected under Title VII via the sex-stereotyping theory,69 and those who do not are unable to establish a viable Title VII claim in federal court.

C. EEOC’s Interpretation of Title VII

If the EEOC decided Simonton and Vickers, the outcomes of these cases would likely have been much different. Compared to federal courts, the EEOC has been more generous in applying the sex-stereotyping theory. For example, in Veretto v. Donahoe,70 the complainant experienced harassment at work after an announcement was published in the local newspaper regarding his engagement to his same-sex partner.71 The complainant filed a discrimination claim under Title VII, arguing that the harassment was motivated by “attitudes about stereotypical gender roles in marriage.”72 The EEOC found that this alone was sufficient to state a sex discrimination claim under Title VII using the sex- stereotyping theory.73 And in Castello v. Donahoe,74 the EEOC found that the

63. Id. at 763, 766. 64. 579 F.3d 285 (3d Cir. 2009). 65. Id. at 287. 66. Id. at 291. 67. Id. at 291–92. 68. Id. at 292. 69. Soucek, supra note 33, at 716. 70. Appeal No. 0120110873, 2011 WL 2663401 (EEOC July 1, 2011). 71. Id. at *1. 72. Id. at *2–3. 73. Id. at *3. 74. Appeal No. 0120111795, 2011 WL 6960810 (EEOC Dec. 20, 2011). 2015] The Employment Non-Discrimination Act After Hobby Lobby 101 complainant filed a viable sex discrimination claim under Title VII when she alleged that she experienced harassment at work because of the “sexual stereotype that having relationships with men is an essential part of being a woman.”75 Finally, in Complainant v. Foxx,76 the EEOC made its stance loud and clear by explicitly stating that “sexual orientation discrimination . . . is sex discrimination” under Title VII.77 These cases are in stark contrast to the federal court cases described earlier.78 Unlike those cases, the EEOC has interpreted the sex- stereotyping theory to encompass discrimination motivated by a person’s nonconformance to stereotypical sexual practices, whereas federal courts require that plaintiffs “look or act sufficiently ‘gay’ at work” to show sex- stereotyping occurred.79 Therefore, protections do exist for public and private-sector employees of the LGBT community. These protections, however, are currently far better for federal employees, and there is still much room for improvement. Federal legislation, like ENDA, is vital to ensure workplace equality.

III. ENDA: A GLIMMER OF EQUALITY

ENDA, as it was proposed and passed by the Senate in 2013, explicitly prohibits workplace discrimination based on “actual or perceived sexual orientation or gender identity”80 for the purpose of “address[ing] the history and persistent, widespread pattern of [this type of] discrimination” and “reinforc[ing] the Nation’s commitment to fairness and equal opportunity in the workplace.”81 The prohibition

75. Id. at *3. 76. Appeal No. 0120133080 (EEOC July 16, 2015), available at http://www.americanbar.org/ content/dam/aba/administrative/sexual_orientation/eeoc-lgbt-title-vii-decision.authcheckdam .pdf. 77. Foxx, at *9, 14. 78. While the EEOC cases were decided after the federal court cases discussed in Part II(A), federal courts have continued to use similar logic that was used in Simonton and Vickers. See Kalich v. AT&T Mobility, LLC, 679 F.3d 464, 471 (6th Cir. 2012) (finding that the plaintiff was not part of a protected class under Title VII because his boss’s name-calling was not due to plaintiff’s gender but rather due to plaintiff’s perceived sexual orientation); McKibben v. Odd Fellows Health, Inc., No. 3:13-CV-1560 JCH, 2014 WL 3701022, at *3–4 (D. Conn. July 25, 2014) (finding that the plaintiff did not sufficiently show that the harassment was due to sex-stereotyping because the record did not reflect any factual allegations that the plaintiff behaved in nonconformity with her gender other than her sexual orientation, and citing to Simonton v. Runyon, 232 F.3d 33, 38 (2d Cir. 2000) in its reasoning). 79. Soucek, supra note 33, at 716; see also supra notes 45–69 and accompanying text (discussing how federal courts have interpreted and applied the sex-stereotyping theory). 80. ENDA, S. 815, 113th Cong. § 4(a)(1) (2013). 81. Id. § 2(1), (4). 102 Stetson Law Review [Vol. 45 applies to federal and private-sector employers;82 therefore, the Act equalizes any disparate treatment that may currently exist between federal and private-sector employees.83 ENDA’s use of the term “gender identity,” however, may have limitations, and it does not necessarily encompass all individuals that are a part of the transgender community.84 For example, some individuals in the transgender community identify under “gender expression.” Gender expression includes individuals whose “characteristics and behaviors, such as appearance, dress and mannerisms . . . are perceived to be either masculine or feminine.”85 Understanding the terminology is important because gender identity does not include individuals identifying under gender expression,86 so certain members of society are not necessarily protected under ENDA. A more inclusive term is transgender.87 While transgender may be a better term to include in ENDA,88 those who are excluded because of the use of the term “gender identity,” such as those identifying under gender expression, can likely find protection under Title VII’s sex-stereotyping theory.89 Within ENDA, Title VII is cross-referenced in the text of the Act multiple times as a way to define the substance and scope of ENDA. For example, regarding the enforcement powers of the Act, the EEOC, the Librarian of Congress, the Attorney General, and courts of the United States will have the same power to enforce ENDA as has been provided and defined in Title VII.90 Title VII is also used as a way to define appropriate procedures and remedies,91 the authority for decision makers

82. Id. § 2(1). 83. In addition to providing more equality in the workplace, the economic benefits that ENDA would provide should also be considered. See generally Brad Sears & Christy Mallory, Economic Motives for Adopting LGBT-Related Workplace Policies,WILLIAMS INST. (Oct. 2011), http://williamsinstitute.law.ucla.edu/wp-content/uploads/Mallory-Sears-Corp-Statements- Oct2011.pdf (discussing the economic benefits to instituting anti-discrimination legislation for the LGBT community); U.S. Congress Joint Econ. Comm. Democratic Staff, The Economic Consequences of Discrimination Based on Sexual Orientation and Gender Identity, U.S. JOINT ECON.COMM. (Nov. 2013), http://www.jec.senate.gov/public/?a=Files.Serve&File_id=82ab1377-99ee-41bc-a99a- fced35ca578c (discussing why legislation like ENDA could benefit the economy). 84. Robyn B. Gigl, Transgender: Understanding Who the “T” in “LGBT” Are and Their Unique Legal Issues, N.J. LAW., June 2013, at 10, 11. 85. Id. at 11. 86. Id. 87. Id. Transgender is a much broader term and “includ[es] transsexuals; cross-dressers; androgynous individuals and individuals who do not want to be defined by any gender, often referred to as genderqueer.” Id. (footnotes omitted). 88. Id. 89. See supra Part II (discussing the current workplace discrimination protections available to the LGBT community under Title VII, and asserting that the current protections are inadequate, especially for private-sector employees). 90. ENDA, S. 815, 113th Cong. § 10(a) (2013). 91. Id. §§ 10(b)(1), 11(d). 2015] The Employment Non-Discrimination Act After Hobby Lobby 103 to award attorneys’ fees,92 and religious organizations that are exempt from the Act.93 The importance of Title VII being cross-referenced in multiple sections of ENDA will be discussed later in this Article. For the purposes of this Part, however, ENDA’s reliance on Title VII’s religious exemption is of utmost importance. ENDA’s religious exemption states: “This Act shall not apply to a corporation, association, educational institution or institution of learning, or society that is exempt from the religious discrimination provisions of title VII of the Civil Rights Act of 1964.”94 Certain groups have expressed concerns that ENDA’s religious exemption is too broad.95 Based on the language of the proposed Act, however, the religious exemption is limited to only those entities that are also exempt under Title VII.96 Accordingly, to provide insight as to how the religious exemption may be applied by ENDA, this Part will look to Title VII’s religious exemption and the caselaw that has interpreted and developed it.

A. Looking to Title VII to Understand the Scope of ENDA’s Religious Exemption

1. Statutory Exemptions

Title VII’s religious exemption allows religious organizations to give employment preferences to members of the same religion when it is a “bona fide occupational qualification reasonably necessary to the normal operation of that particular business or enterprise”;97 it does not,

92. Id. § 12(b). 93. Id. § 6(a). 94. Id. (emphasis added). 95. E.g., The Leadership Conference, ENDA Religious Exemption—Fact Sheet,CIVILRIGHTS.ORG, http://www.civilrights.org/lgbt/enda/religious-exemption.html (last visited Dec. 14, 2015); see also Chris Johnson, Nadler ‘Concerned,’ Wants to Narrow ENDA’s Religious Exemption,WASH.BLADE (July 8, 2014, 4:10 PM EDT), http://www.washingtonblade.com/2014/07/08/rep-nadler-says-enda- religious-exemption-overbroad/ (discussing New York Representative Jerrold Nadler’s concerns that ENDA’s religious exemption is too broad and must be narrowed because of the holding in Hobby Lobby). 96. ENDA, S. 815, 113th Cong. § 6(a). 97. 42 U.S.C. § 2000e-2(e)(1) (2012). In full, the statute states an employer may lawfully discriminate in the hiring and employing of employees on “the basis of [the employee’s] religion, sex, or national origin in those certain instances where religion, sex, or national origin is a bona fide occupational qualification reasonably necessary to the normal operation of that particular business or enterprise.” Id. The exemption also allows education institutions to discriminate in hiring and employing on the basis of the employee’s religion if the institution is:

in whole or in substantial part, owned, supported, controlled, or managed by a particular religion or by a particular religious corporation, association, or society, or if the curriculum of such school, college, university, or other educational institution or institution of learning is directed toward the propagation of a particular religion. 104 Stetson Law Review [Vol. 45 however, allow the organization to otherwise discriminate based on “race, color, national origin, sex, age, or disability.”98 Some of the factors courts consider in determining whether an organization is a “religious organization” are:

if it is organized for a religious purpose, is engaged primarily in carrying out that religious purpose, holds itself out to the public as an entity for carrying out that religious purpose, and does not engage primarily or substantially in the exchange of goods or services for money beyond nominal amounts.99

For example, courts have interpreted religious organizations to “include places of worship, religious educational institutions, and not-for-profit organizations with clear religious affiliations.”100 While this statutory exemption applies whether the activity is religious or nonreligious in nature, the exemption only allows religious organizations to discriminate based on whether the employee shares the religious values of the religious organization.101 On its face, the religious exemption appears limited. However, it has been applied inconsistently among federal circuit courts, as some circuits construe it narrowly,102 and others more broadly.103

Id. § 2000e-2(e)(2). 98. See U.S. Equal Emp’t Opportunity Comm’n, Questions and Answers: Religious Discrimination in the Workplace, EEOC.GOV (last modified Jan. 31, 2011), http://www.eoc.gov/policy/docs/ qanda_religion.html [hereinafter Questions and Answers]. 99. Spencer v. World Vision, Inc., 633 F.3d 723, 724 (9th Cir. 2011). The EEOC lists very similar factors to consider on its website. Questions and Answers, supra note 98. 100. Julie Dabrowski, Note, The Exception That Doesn’t Prove the Rule: Why Congress Should Narrow ENDA’s Religious Exemption to Protect the Rights of LGBT Employees, 63 AM. U. L. REV. 1957, 1964 (2014). 101. Questions and Answers, supra note 98. 102. See EEOC. v. Townley Eng’g & Mfg. Co., 859 F.2d 610, 618 (9th Cir. 1988) (stating that “only those institutions with extremely close ties to organized religions would be covered” by the religious exemption); see also Kate B. Rhodes, Defending ENDA: The Ramifications of Omitting the BFOQ Defense in the Employment Non-Discrimination Act, 19 LAW &SEXUALITY 1, 13 (2010) (discussing the Ninth Circuit’s limited interpretation of the Title VII’s religious exemption); id. at 14 (discussing the Third Circuit’s broad interpretation of Title VII’s religious exemption). 103. See, e.g., Little v. Wuerl, 929 F.2d 944, 945 (3d Cir. 1991) (stating that “we interpret the exemption broadly”); see also Steven H. Aden & Stanley W. Carlson-Thies, Catch or Release? The Employment Non-Discrimination Act’s Exemption for Religious Organizations, 11 ENGAGE: J. FEDERALIST SOC’Y PRAC.GROUPS, Sept. 2010, at 4, 5 (stating that Title VII’s religious exemption has been “broadly construed”). 2015] The Employment Non-Discrimination Act After Hobby Lobby 105

2. Constitutional Exemptions

In addition to the statutory exemptions explicitly articulated in Title VII, courts have also interpreted a ministerial exception based on First Amendment protections.104 If a court finds that the ministerial exception applies, a Title VII claim, or a similar employment discrimination claim, cannot be brought against the religious employer.105 As noted by the EEOC on its website, “[t]he exception applies only to employees who perform essentially religious functions, namely those whose primary duties consist of engaging in church governance, supervising a religious order, or conducting religious ritual, worship, or instruction.”106 At first glance, this exception seems limited. However, after the recent ruling of the United States Supreme Court in Hosanna-Tabor Evangelical Lutheran Church & School v. EEOC,107 where the Supreme Court adopted and applied the exception, the exception appears to be broader than first articulated.108 In Hosanna-Tabor, a teacher who worked at a Lutheran school brought a discrimination claim against the school under the American with Disabilities Act.109 There were two different types of teachers employed at the school, “called” teachers and “lay” teachers.110 Other than the differences in the academic credentials needed to be a “called” teacher, the functions of the positions were essentially the same.111 Even though the day-to-day duties of both “called” and “lay” teachers were essentially the same, the Court found that the teacher’s position fell within the ministerial exception, agreeing with the school that the teacher’s position as a “called” teacher was as a minister of the church.112

104. McClure v. Salvation Army, 460 F.2d 553, 560–61 (5th Cir. 1972) (establishing the ministerial exception). Many federal circuit courts soon followed the Fifth Circuit and adopted the ministerial exception. See generally Harvard Law Review Association, Note, The Ministerial Exception to Title VII: The Case for a Deferential Primary Duties Test, 121 HARV. L. REV. 1776, 1777–86 (2008) (discussing the development and purpose of the ministerial exception). 105. McClure, 460 F.2d at 560 (stating “that the application of the provisions of Title VII to the employment relationship existing between . . . a church and its minister would result in an encroachment by the State into an area of religious freedom which it is forbidden to enter by the principles of the free exercise clause of the First Amendment”). 106. Questions and Answers, supra note 98. 107. 132 S. Ct. 694 (2012). 108. Marsha B. Freeman, What’s Religion Got to Do with It? Virtually Nothing: Hosanna-Tabor and the Unbridled Power of the Ministerial Exemption, 16 U. PA. J.L. & SOC.CHANGE 133, 135 (2013). 109. 132 S. Ct. at 700–01. 110. Id. at 699. 111. Id. at 699–700 (the teacher in this case was a “called” teacher, and “called” teachers were required to have religious training). 112. Id. at 700, 708, 709. It should be noted that the Court did not make a determination of whether an employee hired as a “lay” teacher would also fall under the ministerial exception. Id. at 708 (“We express no view on whether someone with [a “called” teacher’s] duties would be covered 106 Stetson Law Review [Vol. 45

Therefore, the Court found that the First Amendment precluded the teacher from pursuing a claim against her employer.113 The Court stated that there is not a “rigid formula” to determine whether the ministerial exception applies.114 In Hosanna-Tabor, the Court considered the following: “the formal title given [by the employer], the substance reflected in that title, [the employee’s] use of that title, and the important religious functions [the employee] performed for the [employer].”115 While the Court stated that an employee’s title alone is not determinative of whether the exception applies, it appears this was one of the main considerations of the Court, as the day-to-day duties of a “called” teacher and a “lay” teacher varied very little.116 The effect of this holding appears to broaden the ministerial exception.117 The exception once functioned as a way to avoid interfering between “the employment relationship existing between . . . a church and its minister,”118 and it now appears to encompass far more employee relationships. While there may be inherent issues with the religious exemptions associated with Title VII, these issues are problematic in employment discrimination claims across the board. A law banning sexual orientation and gender identity discrimination would be subject to the same religious exemption issues that all of the other Title VII discrimination laws currently face. Thus, pulling support for the current ENDA proposal because it includes the Title VII religious exemption is unwarranted. Any supporters of ENDA who have qualms about Title VII religious exemptions can look to the legislature to address these issues broadly, rather than trying to narrow ENDA’s religious exemption. As far as the ministerial exception is concerned, it is based on constitutional grounds; unless the Court abrogates or limits its ruling in Hosanna-Tabor, this exception cannot be undone by the legislature—except in the very unlikely event the legislature amends the United States Constitution.

by the ministerial exception in the absence of the other considerations we have discussed. But though relevant, it cannot be dispositive that others not formally recognized as ministers by the church perform the same functions.”). 113. Id. at 708. 114. Id. at 707. 115. Id. at 708. 116. Id. at 700, 708. 117. Freeman, supra note 108, at 135. 118. McClure v. Salvation Army, 460 F.2d 553, 560 (5th Cir. 1972). 2015] The Employment Non-Discrimination Act After Hobby Lobby 107

IV. THE IMPORTANCE OF RELIGIOUS FREEDOMS

A. RFRA’s Genesis & Its Uncertain Future

From the early formation of the United States, ensuring religious freedom has been a priority.119 Accordingly, the First Amendment provides, “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.”120 The Religious Freedom Restoration Act (RFRA) was enacted to expand religious freedoms beyond what is afforded under the First Amendment.121 RFRA was enacted by Congress in direct response to the Supreme Court’s holding in Employment Division, Department of Human Resources of Oregon v. Smith.122 In Smith, two Native Americans who worked for the State of Oregon were fired for ingesting peyote, a hallucinogenic drug, as part of a religious ceremony.123 The Court had to decide whether an Oregon law violated the Free Exercise Clause of the First Amendment by prohibiting the use of peyote and denying government employees unemployment benefits for ingesting peyote.124 The United States Supreme Court held that the State of Oregon did not violate the Free Exercise Clause.125 The Court stated, “The government’s ability to enforce generally applicable prohibitions of socially harmful conduct, like its ability to carry out other aspects of public policy, ‘cannot depend on measuring the effects of a governmental action on a religious objector’s spiritual development.’”126 Thus, laws of general applicability are not subject to invalidation due to the Free Exercise Clause.127

119. See Carolyn A. Deverich, Establishment Clause Jurisprudence and the Free Exercise Dilemma: A Structural Unitary-Accommodationist Argument for the Constitutionality of God in the Public Square, 2006 B.Y.U. L. REV. 211, 211–12 (2006) (accounting the story of the early settlers of the United States who left England in search of religious freedom and noting that, as a result, “America has continued to build in the tradition of religious freedom”). 120. U.S. CONST. amend. I (emphasis added). 121. See 42 U.S.C. § 2000bb(b) (2012) (explaining the purpose behind RFRA is to “guarantee its application in all cases where free exercise of religion is substantially burdened”). 122. 494 U.S. 872 (1990); see 42 U.S.C. § 2000bb(a)(4) (referring directly to the Supreme Court’s holding in Smith). 123. Smith, 494 U.S. at 874. 124. Id. 125. Id. at 890. 126. Id. at 885 (emphasis added) (internal citation omitted). 127. See generally Jacqueline Prats, Article, Religious Victory over the Affordable Care Act? Possible Recourse for the Employee of the Religious Employer, 5 WM.MITCHELL L. RAZA J. 39, 47–55 (2014) (discussing the development of Free Exercise Clause jurisprudence and the emergence of RFRA). 108 Stetson Law Review [Vol. 45

In reaction to the Court’s holding in Smith, Congress enacted RFRA.128 Congress stated in its findings that “laws ‘neutral’ toward religion may burden religious exercise as surely as laws intended to interfere with religious exercise”129 and that the purpose of RFRA is to provide a claim for a person whose “religious exercise is substantially burdened by the government.”130 Accordingly, RFRA provides that the “[g]overnment shall not substantially burden a person’s exercise of religion even if the burden results from a rule of general applicability.”131 RFRA, therefore, broadened religious protections after Smith. It is important, however, to keep in mind that Smith remains the precedent used to determine the protections afforded under the Free Exercise Clause of the First Amendment.132 RFRA, on the other hand, is a statutory scheme that is intended to provide broader religious protections than the constitutional framework.133 While there was nearly unanimous support for RFRA among both the House and the Senate when it first passed,134 support may now be dwindling, especially after the Court’s decision in Hobby Lobby.135 In response to the Court’s holding in Hobby Lobby, Representative Jerry Nadler of New York stated, “The point of [RFRA] was that we wanted the law to be used as a shield to protect people’s religious beliefs, not as a sword to impose somebody’s religious belief on somebody else”;136 and Senator Barbara Boxer of California stated, “[The Supreme Court in Hobby Lobby] turned the Religious Freedom Restoration Act on its head.”137

128. Id. at 52–53. 129. 42 U.S.C. § 2000bb(a)(2) (2012). 130. Id. § 2000bb(b)(2). 131. Id. § 2000bb–1(a) (emphasis added). 132. Prats, supra note 127, at 53. 133. Id. 134. See 139 CONG.REC. H2356, H2363 (daily ed. May 11, 1993) (indicating that no individual votes were taken as “the rules were suspended and the bill was passed”); 139 CONG.REC. S14461, S14470–71 (daily ed. Oct. 27, 1993) (showing that RFRA passed with a favorable 97/3 vote). 135. See Stephanie Condon, Democrats Unveil Bill to Reverse Supreme Court’s Hobby Lobby Ruling, CBS NEWS (July 9, 2014, 1:26 PM), http://www.cbsnews.com/news/ democrats-unveil-bill-to- reverse-supreme-courts-hobby-lobby-ruling/ (stating members of Congress have “charged that the Supreme Court misinterpreted [RFRA]”); see also Lauren Markoe, Should Congress Repeal the Law Behind the Hobby Lobby Case?,WASH.POST (July 3, 2014), http://www.washingtonpost.com/ national/religion/should-congress-repeal-the-law-behind-the-hobby-lobby-case/2014/07/03/ d99431b4-02f0-11e4-866e-94226a02bc8d_story.html (discussing whether RFRA should be repealed or narrowed after the Court’s decision in Hobby Lobby). 136. Condon, supra note 135 (internal quotation marks omitted). 137. Id. (internal quotation marks omitted). 2015] The Employment Non-Discrimination Act After Hobby Lobby 109

Others have expressed concerns as well. While RFRA has been criticized from its genesis,138 after Hobby Lobby, criticisms and concerns are more widespread.139 As one legal scholar asserted, “[t]he tide in favor of RFRA has turned.”140 The future of RFRA, therefore, is not entirely clear: it could remain good law, it could be repealed, or it could be amended in some way to narrow its scope.141 Whatever RFRA’s future might be, it remains good law today and must be considered. So the question remains: Does RFRA affect the enforcement of employment discrimination laws, such as ENDA, after Hobby Lobby?

B. The Importance of ENDA’s Religious Exemption

ENDA needs a religious exemption. First, it is needed for bipartisan support.142 Second, if a religious exemption is not explicitly articulated in the statute, the courts that interpret it will likely create one because there is a long history in United States jurisprudence of protecting religious freedoms.143

138. See, e.g., Marci A. Hamilton, Power, the Establishment Clause, and Vouchers, 31 CONN. L. REV. 807, 815 (1999) (arguing that expanding religious rights through RFRA will have “untoward effects on many elements of society”). 139. Michael C. Dorf, a Professor of Law at Cornell University Law School, in reaction to Hobby Lobby, voiced his concerns about the Court’s holding and suggested repealing RFRA. Michael C. Dorf, How to Fix the Religious Freedom Restoration Act,VERDICT (July 16, 2014), http://verdict.justia.com/2014/07/16/fix-religious-freedom-restoration-act. Marci A. Hamilton, a Professor of Law at Benjamin N. Cardozo School of Law, who has been a critic of RFRA from its enactment, noted that she was pleased that groups who once supported RFRA are now taking a stance against it. Marci A. Hamilton, What’s Really Wrong with the Decisions in Burwell v. Hobby Lobby and Conestoga Wood v. Burwell?,VERDICT (June 30, 2014), http://verdict.justia.com/ 2014/06/30/whats-really-wrong-decisions-burwell-v-hobby-lobby-conestoga-wood-v-burwell [hereinafter Hamilton, What’s Really Wrong]; see also Marci A. Hamilton, The Religious Freedom Restoration Act Is Unconstitutional, Period, 1 U. PA. J. CONST. L. 1, 1–2 (1998) (arguing that RFRA was unconstitutional from its enactment). 140. Hamilton, What’s Really Wrong, supra note 139. 141. While some have called upon Congress to repeal RFRA, no bill has been proposed to do so. However, there was a bill proposed after Hobby Lobby to limit RFRA’s application, which would have required employers to provide contraceptives under the Affordable Care Act (ACA) despite any religious objections the employer may have to the mandate; in other words, the proposed bill was intended to nullify the Court’s holding in Hobby Lobby. Protect Women’s Health from Corporate Interference Act of 2014, S. 2578, 113th Cong. § 3(15)–(19) (2014). This bill was only introduced and was never considered for a vote. See Protect Women’s Health from Interference Act, 160 CONG.REC. S4535 (daily ed. July 16, 2014) (showing that a cloture on the motion to proceed was not invoked, and the bill was not considered for a vote). 142. See Dabrowski, supra note 100, at 1970 (stating that ENDA’s religious exemption is “politically necessary”); see also Terkel, supra note 20 (Senator Barney Frank stated that “[t]he religious exemption we had was the least we could put in there to pass the bill”) (internal quotation marks omitted). 143. See supra note 119 and accompanying text (noting the importance of religious freedom to our founding fathers). The ministerial exception is a prime example of how our legal system strives to protect religious freedoms under the First Amendment. See supra Part III(A)(2) (discussing the development of the ministerial exception). Title VII set out statutory religious exemptions for the 110 Stetson Law Review [Vol. 45

ENDA, as proposed, includes a religious exemption, and the exemption’s scope is defined by Title VII.144 While there may be inherent issues associated with Title VII’s religious exemption, any issues apply to all employment discrimination claims and are not unique to ENDA specifically. Narrowing the scope of ENDA’s religious exemption through an alternative proposal of the Act could pose problems in garnering support for it.145 Additionally, because ENDA’s current religious exemption is defined by Title VII, there is predictability in how the exemption will be applied. In contrast, if Congress passes ENDA without a religious exemption, or an amended one, Congress leaves the statute more vulnerable to interpretation, which could have unwanted effects, such as a broader religious exemption than what is currently articulated in the proposed statute. Also, as discussed below, ENDA’s religious exemption being defined by Title VII also helps to ensure that the Court’s decision in Hobby Lobby will not affect ENDA’s enforcement.

C. Hobby Lobby’s Effect on Employment Discrimination Laws

In Hobby Lobby,146 the Supreme Court asked two pivotal questions: (1) whether “person,” as referred to in RFRA,147 includes for-profit corporations, entitling for-profit corporations to religious protections under RFRA; and (2) whether the Affordable Care Act’s contraceptive mandate violated RFRA for closely held corporations that have religious objections to the mandate.148 The Court answered both questions in the affirmative.149

Act, but the Supreme Court of the United States also found a ministerial exception applied under the First Amendment. Id. 144. See supra Part III (noting that Title VII defines the substance and scope of ENDA in much of the Act). 145. See Dabrowski, supra note 100, at 1969–70 (discussing the development of ENDA’s religious exemption and stating that the current language of the exemption was in response to concerns regarding other proposed religious exemptions). 146. It should be noted that the purpose of this Article is not to argue whether the Court’s decision in Hobby Lobby was correct or incorrect. Rather, this Article will look to the Court’s opinion and reasoning to discuss the possible implications its holding might have for employment discrimination legislation, specifically ENDA. 147. 42 U.S.C. § 2000bb–1 (2012). RFRA provides that the “[g]overnment shall not substantially burden a person’s exercise of religion even if the burden results from a rule of general applicability.” Id. (emphasis added). However, there is an exception. “Government may substantially burden a person’s exercise of religion only if it . . . (1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest.” Id. 148. Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751, 2767 (2014). 149. Id. at 2775. 2015] The Employment Non-Discrimination Act After Hobby Lobby 111

Hobby Lobby’s decision does not mean that every for-profit corporation is entitled to religious accommodations—not for now anyway. The Court’s opinion limited its holding to closely held for-profit corporations.150 While the Court did not hold that RFRA provided protections to publicly traded corporations, it left the opportunity for that issue to be addressed at a later date.151 The principal dissent voiced concerns that the Court’s logic would extend RFRA protections in the future, stating that

[t]he Court’s determination that RFRA extends to for-profit corporations is bound to have untoward effects. Although the Court attempts to cabin its language to closely held corporations, its logic extends to corporations of any size, public or private. Little doubt that RFRA claims will proliferate, for the Court’s expansive notion of corporate personhood—combined with its other errors in construing RFRA—invites for-profit entities to seek religion-based exemptions from regulations they deem offensive to their faith.152

In response to these concerns, the Court’s opinion reasoned that a RFRA claim by a publicly traded company would be “unlikely” because “the idea that unrelated shareholders—including institutional investors with their own set of stakeholders—would agree to run a corporation under the same religious beliefs seems improbable” due to “numerous practical restraints.”153

150. Id. 151. Id. at 2774. 152. Id. at 2797 (Ginsburg, J., with Sotomayor, J., dissenting and with Breyer and Kagan, JJ., joining in part) (footnote omitted). 153. Id. at 2774 (majority opinion). Shareholders of a publicly traded corporation could decide, as a strategic decision, to run the corporation under certain religious beliefs if the result of such religious beliefs meant fewer costs (not providing contraceptives = less insurance costs), which in turn means better profit margins. But “a corporation’s pretextual assertion of a religious belief in order to obtain an exemption for financial reasons would fail.” Id. at 2774 n.28. The corporation would also have to show that its religious beliefs were sincere, which requires having an “honest conviction.” Id. at 2779 (quoting Thomas v. Review Bd. of Ind. Emp’t Sec. Div., 450 U.S. 707, 716 (1981)). As the Court properly noted, a corporation, as a fiction, cannot hold religious beliefs. Id. at 2768. Rather, it is the people behind the corporation that hold the religious beliefs, and the purpose of the corporation as a fiction is “to provide protection for human beings.” Id.

A corporation is simply a form of organization used by human beings to achieve desired ends. An established body of law specifies the rights and obligations of the people (including shareholders, officers, and employees) who are associated with a corporation in one way or another. When rights, whether constitutional or statutory, are extended to corporations, the purpose is to protect the rights of these people.

Id. (emphasis in the original). For a publicly traded corporation, the “human beings” are its shareholders. When numerous shareholders are involved and those shareholders can change on a 112 Stetson Law Review [Vol. 45

Whether the Court’s opinion is correct is debatable. For example, in Citizens United v. Federal Election Commission,154 the Supreme Court held that corporations are entitled to political speech protections under the First Amendment.155 When addressed with concerns of protecting the interests of shareholders who object to the corporation’s political speech, the Court stated these objections could be handled “through the procedures of corporate democracy.”156 Similarly, a court could find shareholders’ religious objections could be handled through the corporation’s democratic procedures. But for now, it appears that RFRA’s protections are limited to closely held for-profit corporations.157 The Supreme Court, however, did not explicitly specify what constitutes a closely held corporation. In Hobby Lobby, there were three corporations involved.158 Each corporation was owned and operated by a single family.159 This might mean that, for the purposes of RFRA, a closely held corporation is one that is solely owned by a single family. But the Court never explicitly defined it this way, and other definitions of what constitutes a closely held corporation exist, creating some ambiguity.160 Because of this uncertainty, there is still some fear that, even if ENDA is passed, some corporations will still be allowed to discriminate against the LGBT community. But as will be argued below, Hobby Lobby does not provide corporations this latitude. After determining whether RFRA protections should be afforded to closely held for-profit corporations, the Court asked whether the contraceptive mandate of the ACA violated RFRA.161 Again, the Court

daily basis, it becomes difficult to prove the “honest conviction” of a publicly traded corporation. See id. at 2774 (stating it is improbable that a set of shareholders “would agree to run a corporation under the same religious beliefs”). 154. 558 U.S. 310 (2010). 155. Id. at 365. 156. Id. at 362 (quoting First Nat’l Bank of Bos. v. Bellotti, 435 U.S. 765, 794 (1978)) (internal quotation marks omitted). 157. Hobby Lobby, 134 S. Ct. at 2775. 158. Id. at 2759. 159. Id. at 2764–66. The Hahn family owned and operated the first corporation. Id. at 2764. The Green family (husband, wife, and three children) owned and operated the other two corporations. Id. at 2765. 160. See Drew Desilver, What Is a ‘Closely Held Corporation,’ Anyway, and How Many Are There?, PEW RES.CENTER (July 7, 2014), http://www.pewresearch.org/fact-tank/2014/ 07/07/what-is-a- closely-held-corporation-anyway-and-how-many-are-there/ (providing several different definitions for “closely-held” corporations, including the IRS’s definition, which is much broader than the definition implicated in Hobby Lobby); see also Hobby Lobby Ruling Raises a Question: How to Define ‘Closely Held’? (Nat’l Pub. Radio broadcast July 1, 2014), available at http://www.npr.org/ 2014/07/01/327369386/hobby-lobby-ruling-raises-a-question-how-to-define-closely-held (discussing the absence of a “specific definition” for closely held corporations). 161. Hobby Lobby, 134 S. Ct. at 2775, 2779. 2015] The Employment Non-Discrimination Act After Hobby Lobby 113 answered in the affirmative.162 This part of the holding should come as little surprise because RFRA imposes a very stringent burden on the government. RFRA provides that the government cannot impose a substantial burden on religion unless the government can show that it has a compelling interest and there is no other less restrictive means available to accomplish that compelling interest.163 In Hobby Lobby, the Court’s decision hinged upon the availability of less restrictive means.164 Before Hobby Lobby was decided, a framework was established to accommodate nonprofit religious organizations that objected to the contraceptive mandate.165 This framework imposed the costs of contraceptives to insurance providers.166 In providing contraceptive coverage, insurance providers are eligible to be “reimbursed through an adjustment to the Federally-facilitated Exchange user fee” for participating in the Federal Exchanges.167 Thus, the framework shifted the burden of providing contraceptive services from the objecting non-profit to the insurance providers and the government. The availability of this framework was an important aspect in the Court’s decision. The Court reasoned that a less restrictive alternative was already available and that there was no reason that the alternative could not also be applied to for-profit corporations with the same religious objections.168 The Court noted that there would be no additional costs for insurance providers, as it had been previously determined that the costs of providing contraceptive services were equal to or lesser than the costs associated with not providing the services.169 This framework allowed the government to pursue its compelling interest (making contraceptives available to women) while also respecting the religious beliefs of the objecting corporations. Had this framework not been in place, it is likely that the Court would have decided Hobby Lobby differently. In Justice Kennedy’s concurring opinion, he articulated:

162. Id. at 2785. 163. 42 U.S.C. § 2000bb–1 (2012). 164. Hobby Lobby, 134 S. Ct. at 2780. 165. 78 Fed. Reg. 39,892, 39,892–93 (July 2, 2013). 166. Id. at 39,892–93. 167. Id. at 39,893. 168. Hobby Lobby, 134 S. Ct. at 2759. 169. Id. at 2763; see 78 Fed. Reg. 39,870, 39,877 (stating that “issuers would find that providing contraceptive coverage is at least cost neutral because they would be insuring the same set of individuals under both the group health insurance policies and the separate individual contraceptive coverage policies and, as a result, would experience lower costs from improvements in women’s health, healthier timing and spacing of pregnancies, and fewer unplanned pregnancies”). 114 Stetson Law Review [Vol. 45

As the Court’s opinion explains, the record in these cases shows that there is an existing, recognized, workable, and already-implemented framework to provide coverage.

...

[T]he Court does not address whether the proper response to a legitimate claim for freedom in the health care arena is for the Government to create an additional program. The Court properly does not resolve whether one freedom should be protected by creating incentives for additional government constraints. In [the cases at hand], it is the Court’s understanding that an accommodation may be made to the employers without imposition of a whole new program or burden on the Government.170

Thus, the Court strongly relied on the fact that a framework was already in place, and if one did not exist, it would have been improper for the Court to determine “whether one freedom should be protected by creating incentives for additional government constraints.”171 There are many questions regarding the Court’s decision in Hobby Lobby and its implications for the future.172 Among other concerns, the principal dissent voiced apprehensions regarding Hobby Lobby’s implications for future decision-making in employment discrimination.173 The Court, however, addressed these concerns quite explicitly. In response to the dissent’s concerns regarding religious accommodations being made for employment discrimination, the majority stated:

The principal dissent raises the possibility that discrimination in hiring, for example on the basis of race, might be cloaked as religious practice to escape legal sanction. Our decision today provides no such shield. The Government has a compelling interest in providing an equal opportunity to participate in the workforce without regard to

170. Hobby Lobby, 135 S. Ct. at 2786 (Kennedy, J., concurring) (internal citations omitted). 171. Id. 172. E.g., Donna Barry et al., Infographic: The Ripple Effect of the Hobby Lobby Decision,CENTER AM.PROGRESS (Sept. 9, 2014), https://www.americanprogress.org/issues/religion/news/2014/ 09/09/96460/infographic-the-ripple-effect-of-the-hobby-lobby-decision/ (suggesting that the Hobby Lobby decision may also allow employers to refuse to provide other types of health coverage such as vaccinations, blood transfusions, and certain prescription medications); Moskowitz, supra note 19 (arguing that the decision in Hobby Lobby will adversely affect “women’s rights as well as LGBT rights and the rights of the disabled”); Goodwyn, supra note 19 (discussing how the Hobby Lobby decision may affect future bankruptcy cases); Schlanger, supra note 19 (predicting that the holding in Hobby Lobby will “set in motion a raft of similar challenges”). 173. Hobby Lobby, 134 S. Ct. at 2804 (Ginsburg, J., with Sotomayor, J., dissenting and with Breyer and Kagan, JJ., joining in part). 2015] The Employment Non-Discrimination Act After Hobby Lobby 115

race, and prohibitions on racial discrimination are precisely tailored to achieve that critical goal.174

This statement by the Court has been criticized because it only mentions that the decision will not affect laws that prohibit discrimination “on the basis of race.”175 Taking a closer look, the Court’s opinion addresses employment discrimination laws generally; therefore, rather than being exclusionary, the Court’s opinion arguably is all-inclusive. The Court stated that its decision does not provide a “shield” for “discrimination in hiring, for example on the basis of race.”176 “Race” is mentioned simply as an “example.” By using broad language, the Court arguably included all current employment discrimination laws as well as any that might be enacted in the future, such as ENDA. While these statements by the Court were only dicta, it is a strong indication of its outlook on RFRA’s application in the context of employment discrimination laws. Furthermore, while the Court did not explicitly state that Title VII will be unaffected by its ruling in Hobby Lobby, the Court’s statement that “[t]he Government has a compelling interest in providing an equal opportunity to participate in the workforce without regard to race, and prohibitions on racial discrimination are precisely tailored to achieve that critical goal,”177 strongly implies that the Court was referring to Title VII protections because Title VII is the principal federal statute establishing a prohibition of workplace discrimination based on race. Therefore, Title VII will likely remain unaffected by the Court’s decision in Hobby Lobby, as the Court impliedly noted that Title VII was already narrowly tailored to achieve the government’s compelling interest in ensuring equality in the workplace.178 The Court’s analysis is important because, although ENDA would not be a part of Title VII, ENDA essentially is a derivative or an extension of Title VII. As discussed above, Title VII is used throughout the text of ENDA as a means to define ENDA’s substance and scope.179 Because Title VII, including its religious exemption, defines much of ENDA’s substance and scope, it can be argued that, as a mere derivative of Title VII, ENDA is narrowly tailored to achieve the government’s compelling purpose. In other words, if Title VII is unaffected by Hobby Lobby, ENDA should also be unaffected.

174. Id. at 2783 (majority opinion) (internal citation omitted). 175. Id. 176. Id. (emphasis added). 177. Id. (emphasis added) (internal citation omitted). 178. Id. 179. See supra Part III (discussing ENDA’s substance and scope and its relation to Title VII). 116 Stetson Law Review [Vol. 45

D. Alternative Thoughts: If ENDA Violates RFRA

One should, however, consider the alternative outcome—if courts find that ENDA does violate RFRA. In such a case, for a violation to exist, a court would have to find that the employer has a sincere belief and honest conviction in discriminating against someone of the LGBT community.180 All other employers would still be subject to the statute— bringing the LGBT community one step closer to equality in the workplace. At the very least, ENDA provides an additional hurdle for employers to overcome in a workplace discrimination suit. While this is short of an ideal scenario, ENDA still broadens the protections for the LGBT community compared to what is currently provided. Additionally, RFRA’s future is uncertain.181 While it was originally passed with overwhelming support on both ends of the political spectrum, it has been reexamined because, for some, the statute has created unintended and undesirable consequences.182 There is the possibility that RFRA may be amended.183 Alternatively, in the most extreme scenario, RFRA may get repealed and the ruling in Hobby Lobby would become null and void.184 If repealed, ENDA would be considered a law of general applicability, and as a law of general applicability, it would be subject to the same analysis that was articulated in Smith and less scrutinized on the basis of religious objections.185 Moreover, ENDA does not replace Title VII; rather, it provides an alternative means of requesting relief.186 The only restriction that ENDA provides is that an individual cannot receive relief both under Title VII and ENDA; a remedy is available under one or the other.187 Therefore, if a court finds that an employer does not have to comply with ENDA because of RFRA, the employee can, as an alternative, still request relief under Title VII. Admittedly, this is an imperfect solution, as this Article has discussed the gaps in protection for the LGBT community under Title VII. However, Title VII still provides an avenue to request relief, and while Title VII may not currently provide adequate protections, “[t]here

180. Hobby Lobby, 134 S. Ct. at 2774. 181. See supra Part IV(A) (discussing criticisms of RFRA after the Court’s decision in Hobby Lobby). 182. Id. 183. See supra note 141 (noting a bill that was proposed to nullify the Court’s holding in Hobby Lobby). 184. See id. (noting that while there has been a call to repeal RFRA no legislation has been introduced along those lines). 185. For a discussion regarding Smith, see supra Part IV. 186. ENDA, S. 815, 113th Cong. § 10(d) (2013). 187. Id. 2015] The Employment Non-Discrimination Act After Hobby Lobby 117 is some reason for optimism” that Title VII protections will continue to develop in favor of the LGBT community.188 Therefore, while this Article argued that the enforcement of ENDA would not be affected by the Court’s holding in Hobby Lobby, even if it does, ENDA would still provide much broader and much needed protections for the LGBT community than what is currently afforded.

V. CONCLUSION

Discrimination based on sexual orientation and gender identity is widespread,189 and Title VII does not currently provide adequate protections for the LGBT community. Federal legislation, like ENDA, is vital to ensure workplace equality. While ENDA, as proposed, may not be perfect,190 it passed the Senate191 and now has momentum, getting one step closer to providing much needed protections to the LGBT community. While concerns exist regarding the impact of the Supreme Court’s decision in Hobby Lobby, it will likely have little effect on the enforcement of employment discrimination laws, including ENDA. The Court explicitly stated that its opinion does not shield employers who engage in discriminatory hiring practices by using religion to escape legal sanctions.192 Thus, discrimination laws are narrowly tailored to achieve the government’s compelling interest in providing an equal opportunity in the workplace.193 While the Court did not reference Title VII explicitly, or any other specific employment discrimination law, the broad language used is arguably inclusive of all current and future employment discrimination laws, like ENDA. If a court finds that ENDA violates RFRA, that court could only come to this conclusion if the corporation could show that it had a sincere belief and honest conviction in discriminating against someone of the LGBT community.194 All other employers would still be subject to ENDA, bringing the LGBT community another step closer to equality within the workplace.

188. Case, supra note 15, at 1352. 189. Pizer et al., supra note 1, at 721. 190. See Case, supra note 15, at 1373–74, 1380 (criticizing the language of ENDA). Also, as discussed in Part III, ENDA’s use of gender identity does not include all individuals of the transgender community, and therefore, it may not provide protection to certain individuals, such as those who identify under gender expression. 191. Reynolds, supra note 6. 192. Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751, 2783 (2014). 193. Id. 194. Id. at 2774. 118 Stetson Law Review [Vol. 45

There is more to gain than to lose in passing ENDA. While the current proposal of ENDA may not be perfect, those who may have pulled support for it should reconsider, keeping in mind the old aphorism: progress not perfection. FLORIDA WORKERS’ COMPENSATION ACT: THE UNCONSTITUTIONAL EROSION OF THE QUID PRO QUO

Viktoryia Johnson*

Workers’ compensation as a mechanism for compensating work- related injuries has regulated employee–employer relationships since the dawn of the twentieth century. Like the rapidly industrialized Europe that first bore the idea of workers’ compensation, the United States owed the scheme’s popularity to its trade-off, or quid pro quo, spirit. In exchange for certain medical benefits and protections from the loss of income, workers relinquished their rights to sue employers in tort, while employers paid regular premium payments in lieu of risking devastating effects of tort awards. In 1935, Florida passed workers’ compensation legislation that made the quid pro quo justification its central theme. At first, the scheme worked efficiently and furnished injured workers with the benefits it had been designed to deliver. As time passed, however, the workers’ compensation legislation failed to keep up with legal developments and eventually lost its backbone. This Article is designed to expose deficiencies in the Florida workers’ compensation scheme—as they relate to the Florida Workers’ Compensation Act’s “Exclusiveness of Liability” provision—and propose solutions to address them. Part I of this Article will describe workers’ compensation’s path to recognition in the United States, while Part II will review its adoption in Florida. Part III will overview the 1970 legislative changes that permanently altered the character of the Florida Workers’ Compensation Act (FWCA or the Act) by barring injured workers from recovery in tort and making the Act an exclusive remedy. Part IV will explain how these

* © 2015, Viktoryia Johnson. All rights reserved. Executive Editor, Stetson Law Review. J.D. Candidate, Stetson University College of Law, 2016; B.A., summa cum laude, University of South Florida, 2013; A.A., summa cum laude, St. Petersburg College, 2012. I wish to dedicate this Article to my daughter Veronika who has sacrificed much of our time together in the name of my academic pursuit. I also wish to express my sincere thanks to Professor Jason R. Bent for his support and guidance during the writing process. Finally, I want to thank my Articles & Symposia Editor, Maria Babajanian, and the members of Stetson Law Review for their dedication to the publication of this Article. 120 Stetson Law Review [Vol. 45 legislative amendments fail to support the archaic rationale behind the workers’ compensation scheme in light of the recent Florida tort law developments. Part V will review the constitutionality of the FWCA— with a concentration on the right of court access—under the Kluger paradigm.1 And finally, Part VI of this Article will propose solutions to mend the exposed statutory deficiencies.

I. BACKGROUND

The workers’ compensation system, as the scheme for compensating work-related injuries, is a seed that germinated in the accident-disposed Europe during the Industrial Revolution of the late 1800s.2 The onward- moving technological progress, which both figuratively and literally speaking was costing an arm and a leg, created the urgent need to decrease the rate of commonplace debilitating injuries to factory workers.3 Germany and England were first to respond by pioneering programs that strove to address the alarming industrial accident statistics.4 At minimum, these primeval programs operated to fund medical care of the affected laborers and reimburse them for the loss of income during recovery.5 The United States was slow to sell on the idea of workers’ compensation.6 At the turn of the twentieth century, however, the sentiment toward the statutory scheme shifted. The increased number of serious and fatal occupational accidents,7 rising public awareness of such industrial accidents,8 and employers’ growing liability concerns9

1. Kluger v. White, 281 So. 2d 1, 4 (Fla. 1973); see infra Part V(A) (discussing the Kluger test and its application to the context of workers’ compensation). 2. Timothy A. Watson & Michael J. Valen, A Historic Review of Workers’ Compensation Reform in Florida, 21 FLA.ST. U. L. REV. 501, 502 (1993). 3. Id. 4. Id. The 1884 German workers’ compensation model built injury compensation into a larger benefits package (health insurance, geriatric, and invalidity care), paid for by employers. Id. The less generous 1897 British model limited benefits delivery to cases of employer negligence. Id. Employers were thus insulated from liability arising from accidents caused by fellow employees. Id. 5. Id. 6. Id.; see also Price V. Fishback & Shawn Everett Kantor, The Adoption of Workers’ Compensation in the United States, 1900–1930, 41 J.L. & ECON. 305, 315 (1998) (stating that the American workers’ compensation movement began in 1898 with the rejection of a New York compensation bill, fashioned upon the British model, as “too radical to pass” (internal quotation marks omitted)). 7. Fishback & Kantor, supra note 6, at 315. The accident risk in the industrial sector had risen due to a shift in employment toward more dangerous jobs. Id. at 315 n.24. 8. Id. at 315. State labor departments, which had witnessed an increase in budget allocated to addressing labor issues, revamped their accident reporting methods. Id. at 316, 317 tbl.1. As a result, the reported—hence perceived—level of accident risk increased. Id. at 316. 9. Id. at 315. State employer liability laws limited the number of available defenses for non- railroad accidents (interstate railroad accidents fell under the realm of the Federal Employers’ 2015] The Unconstitutional Erosion of the Quid Pro Quo 121 facilitated the broader acceptance of the notion of workers’ compensation. Soon, the first workmen’s compensation laws, which mostly embraced the British paradigm,10 started to crop up. The State of New York led the way.11 Still, not everyone accepted the statutory scheme with arms wide- open, and constitutional challenges poured in. For instance, in Ives v. South Buffalo Ry. Co.,12 a seminal workers’ compensation case, the issue before the court was whether Article 14-a of the Labor Law,13 which dealt with workers’ compensation in certain dangerous employments, constituted an unconstitutional taking of property.14 In its opinion, New York’s highest court contrasted the “plainly revolutionary”15 statute with the common-law expectation that “the employer [was] liable for injuries to his [employee] only when the employer [was] guilty of some act . . . of negligence which caused the occurrence out of which the injuries [arose], and then only when the [employee was] shown to be free from any negligence which contribut[ed] to the occurrence.”16 Not surprisingly, the court perceived the novel idea of employer liability regardless of fault— except when employee engaged in egregious and willful misconduct— too radical.17 Consequently, it rejected the law as unconstitutional.18

Liability Act of 1906 and 1908). Id. at 316 & n.27. Further, courts reworked some common law employer defenses, which further diluted certainty in the negligence system. Id. at 316 & n.28. For instance, the adopted “vice-principal exception to the fellow servant rule” exempted supervisory and managerial employees from that category “for purposes of employer liability” and precluded employers from delegating their responsibility to provide a reasonably safe workplace to the injured worker’s fellow employees. Paul Raymond Gurtler, The Workers’ Compensation Principle: A Historical Abstract of the Nature of Workers’ Compensation, 13 WORKERS’COMP. L. REV. 127, 129 (1990) (internal quotation marks omitted). Finally, workplace accident litigation had more than tripled in number from 1900–1911. Fishback & Kantor, supra note 6, at 316–17. 10. Washington and Ohio were the only states that embraced the German model. Watson & Valen, supra note 2, at 502–03. 11. New York was the first state to adopt a workers’ compensation law in 1910. Fishback & Kantor, supra note 6, at 320 tbl.2. California, Illinois, Kansas, Massachusetts, Nevada, New Hampshire, New Jersey, Ohio, Washington, and Wisconsin followed in 1911; Maryland, Michigan, and Rhode Island joined the next year. Id. 12. 94 N.E. 431 (N.Y. 1911). 13. 1910 N.Y. Laws 1945, 1945–51 (ch. 674, art. 14-a). 14. Ives, 94 N.E. at 433 (“The question presented upon this appeal is whether [the statute] is repugnant to any of the provisions of the federal and state Constitutions . . . .”). 15. Id. at 436. 16. Id.; see also Fishback & Kantor, supra note 6, at 308–09 (discussing the legal obligation of accident compensation, grounded in the law of negligence; the burden of proof; and defenses available to the employer). 17. See Ives, 94 N.E. at 436 (contrasting the legislation with the common law rule and finding it too radical). 18. Id. at 441, 448 (“[T]he right given to the [employee] by this statute does not preserve to the employer the due process of law guaranteed by the Constitutions, for it authorizes the taking of the employer’s property without his consent and without his fault. . . . [T]he liability sought to be imposed upon the employers . . . is a taking of property without due process of law, and the statute is therefore void.” (citations and quotation marks omitted)). In an ironic twist of fate, only a day 122 Stetson Law Review [Vol. 45

As the efficacy and need for workers’ compensation laws were growing more obvious, subsequent constitutional challenges became less successful.19 The year 1917 marked a critical point for the no-fault system’s future. On March 6, 1917, the United States Supreme Court decided a trio of workers’ compensation cases, upholding both the voluntary and compulsory types of the compensation scheme.20 These decisions effectively cemented workers’ compensation’s standing as “one of the great success stories in social reform legislation” of the early twentieth century.21 Indeed, the initial zeal of constitutional challenges chilled, while the guarded acceptance of the workers’ compensation idea began to take hold. The system started to gain popularity because it endeavored to reconcile two competing interests—those of employers and employees— and achieve a middle-ground compromise.22 At the heart of workers’ compensation lay the idea of trading off employers’ limited scope of tort liability for a limited quantum of liability under workers’ compensation, and relinquishing employees’ greater chances at tort recovery for an

after the court of appeals’ decision, on March 25, 1911, one of New York’s deadliest fires broke out in the Triangle Shirtwaist Company building, claimed lives of nearly 150 factory workers, and inevitably sparked the national debate on the utility of workers’ compensation laws. See Mary L. D’Agostino, New York State’s 2007 Workers’ Compensation Reform: Success or Failure?, 76 ALB. L. REV. 367, 373–78 (2013) (listing hazardous labor conditions that contributed to the Triangle Shirtwaist disaster: missing fire extinguishers, lack of fire drill training, overcrowding, chained-up egress doors, and piles of flammable scrap fabric). 19. See, e.g., Mackin v. Detroit-Timkin Axle Co., 153 N.W. 49, 53 (Mich. 1915) (“No constitutional provision is pointed out which prohibits the Legislature .. . from adopting a rule of conclusive presumption . . . [that an employee, who has] failed to give notice . . . [of proceeding under common law, is deemed] to have elected his remedy under the Workmen’s Compensation Law.”); Matheson v. Minneapolis St. Ry. Co., 148 N.W. 71, 76 (Minn. 1914) (“A careful examination of the entire [workmen’s compensation] act satisfies us that it contains nothing prohibited by either the state or federal Constitution.”). 20. Mountain Timber Co. v. Wash., 243 U.S. 219, 243, 246 (1917) (“We are clearly of the opinion that a State, in the exercise of its power to pass . . . legislation . . . to promote the health, safety, and general welfare of its people, may regulate the carrying on of industrial occupations that frequently and inevitably produce personal injuries and disability with consequent loss of earning power . . . [or] loss of life . . . , and may require that these human losses shall be charged against the industry. . . . We are unable to find that the [Washington workmen’s compensation] act . . . is in conflict with the Fourteenth Amendment.” (emphasis added) (citations omitted)); Hawkins v. Bleakly, 243 U.S. 210, 219 (1917) (upholding the Iowa Workmen’s Compensation Act against the Fourteenth Amendment challenges); N.Y. Cent. R.R. Co. v. White, 243 U.S. 188, 208 (1917) (“We conclude that the prescribed scheme of compulsory compensation is not repugnant to the provisions of the Fourteenth Amendment.”). 21. Steven M. Ingram, Taking Liberties with Lochner: The Supreme Court, Workmen’s Compensation, and the Struggle to Define Liberty in the Progressive Era, 82 OR. L. REV. 779, 785–86 (2003). 22. See Ellen R. Peirce & Terry Morehead Dworkin, Workers’ Compensation and Occupational Disease: A Return to Original Intent, 67 OR. L. REV. 649, 653 (1988) (“The legal theory most often used to describe the rationale for the workers’ compensation system is the social compromise theory, providing that both employers and employees gained and lost rights when workers’ compensation replaced employers’ tort liability.”). 2015] The Unconstitutional Erosion of the Quid Pro Quo 123 efficient and assured delivery of benefits.23 The trade-off idea appealed to employees of the early twentieth century because the tort system was at the time notoriously “inhospitable to the claims of injured, destitute workers.”24 The reason for inhospitality lay with a damning “unholy trinity” of defenses available to the employer to defend in a suit against the injured worker.25 The first “unholy” defense—contributory negligence— precluded recovery if the worker was partly negligent in any degree, regardless of the employer’s negligence.26 The second defense— assumption of risk—presumed that if a worker could avoid a hazardous work area, regardless of whether he knew of or foresaw the hazard, he had no standing to sue in the case injury occurred.27 Finally, the fellow servant rule insulated an employer from liability to an injured employee if negligence of a fellow employee caused the physical harm.28 The employee’s sole cause of action hinged on the employer’s negligence.29 Not surprisingly, the employee, who carried the burden of proof,30 rarely came out a winner.31 To make things worse, the employee had to cover out-of-pocket, sizeable attorneys’ fees and legal costs, and endured court delays.32 In the face of such adversity, the chances of the employee’s recovery stretched thin;33 in fact, the odds of a successful outcome for the

23. Theodore F. Haas, On Reintegrating Workers’ Compensation and Employers’ Liability, 21 GA. L. REV. 843, 857–58 (1987). 24. Id. at 858–59. 25. Id. at 859. Legal commentators coined the term “unholy trinity” to refer to the three common law defenses—contributory negligence, assumption of risk, and the fellow servant rule— cumulatively. E.g., W. PAGE KEETON,PROSSER &KEETON ON TORTS § 80, 569 (5th ed. 1984) (“The possibility of the injured worker’s recovery . . . was restricted . . . by the ‘unholy trinity’ of common law defenses—contributory negligence, assumption of risk, and the fellow servant rule.”). 26. Gurtler, supra note 9, at 128. 27. Id. at 128–29. 28. Id. at 128. 29. Id. 30. The finding of negligence could be sustained only if the employer failed “to provide reasonably safe machines, equipment, or appliances in the workplace.” Id. 31. Haas, supra note 23, at 859. Studies by state employer liability commissions uncovered that a great number of injured workers never received compensation under the scheme in existence before workers’ compensation laws. Ann Clayton, Workers’ Compensation: A Background for Social Security Professionals, U.S. SOC.SEC.ADMIN., OFF.POL’Y (2004), http://ssa.gov/policy/docs/ssb/ v65n4/v65n4p7.html. “In samples of fatal accidents, about half the families of victims of fatal accidents received some payments . . . [which averaged] about [one] year’s income.” Id. In a handful of cases, injured workers or their families received large compensation sums; yet, in far more cases, no moneys were paid at all. Id. 32. William Kenneth C. Dippel & Robert L. Green, The Interaction of Workers’ Compensation and Comparative Negligence—Conflicts, Alternatives, and Compromise, 9 WORKMEN’S COMP. L. REV. 676, 682 (1986). 33. C. ARTHUR WILLIAMS,JR.&PETER S. BARTH,COMPENDIUM ON WORKMEN’S COMPENSATION 11 (Marcus Rosenblum ed., 1973). The employee was absolutely remediless in eighty-three percent of all cases. Arthur Larson, The Nature and Origins of Workmen’s Compensation, 37 124 Stetson Law Review [Vol. 45 worker were “virtually insurmountable.”34 As a result, economic considerations often drove the injured employees to settle for considerably less than the actual value of the sustained damages.35 With such an imbalanced distribution of rights in the backdrop, the workers’ compensation system seemed like a good fit. By 1948, all forty- eight states and the territories of Alaska and Hawaii had adopted workers’ compensation laws.36

II. FLORIDA WORKERS’ COMPENSATION ACT: THE BEGINNING

Florida passed its first workers’ compensation legislation, titled “Florida Workmen’s Compensation Act,” on May 25, 1935.37 The Act became effective on July 1, 1935.38 The Florida Legislature did not incorporate the “legislative intent” language into the workers’ compensation statute,39 but it envisioned that “every employer and every employee, unless otherwise specifically provided, . . . be presumed to have accepted the . . . Act, respectively to pay and accept compensation for injury or death, arising out of and in the course of employment, and . . . be bound thereby, unless [prior notice to the contrary is given].”40 Although the Legislature intended to streamline most work-related

CORNELL L.Q. 206, 225 (1952). This number was based on 1907 German figures that featured the most relevant breakdown by “fault” causes of accidents. Id. at 224 n.41. 34. Gurtler, supra note 9, at 128. 35. Dippel & Green, supra note 32, at 682. 36. Gordon v. Burgess Const. Co., 425 P.2d 602, 603 (Alaska 1967) (stating that the Alaska Territorial Legislature enacted Alaska’s first workers’ compensation law in 1915); Fishback & Kantor, supra note 6, at 320 tbl.2 (listing the years in which all states, except Alaska and Hawaii, first adopted workers’ compensation laws); Amanda M. Jones, Note, Hawai’i’s Workers’ Compensation Scheme: An Employer’s License to Kill?, 29 U. HAW. L. REV. 211, 216 (2006) (stating that the Territory of Hawaii adopted the first workers’ compensation law in 1915) (citing Workmen’s Compensation Act, No. 221, § 1 (1915) (reprinted in 1915 Haw. Sess. Laws 323)). 37. 1935 Fla. Laws 1456, 1456, 1494. The Legislature would eventually re-designate the Chapter to read “Workers’ Compensation Law” in place of “Workmen’s Compensation Law.” FLA.STAT. § 440.01 (1979) (“This Chapter may be cited as the Workers’ Compensation Law.” (internal quotation marks omitted)). 38. 1935 Fla. Laws at 1494. 39. The statement of intent was incorporated into the statute at a later time. See, e.g.,FLA.STAT. § 440.015 (2014) (“It is the intent of the Legislature that the Workers’ Compensation Law be interpreted so as to assure the quick and efficient delivery of disability and medical benefits to an injured worker and to facilitate the worker’s return to gainful reemployment at a reasonable cost to the employer. . . . The workers’ compensation system in Florida is based on a mutual renunciation of common-law rights and defenses by employers and employees alike.”); see also De Ayala v. Fla. Farm Bureau Cas. Ins. Co., 543 So. 2d 204, 206 (Fla. 1989) (“Florida’s worker’s compensation program was established for a twofold reason: (1) to see that workers in fact were rewarded for their industry by not being deprived of reasonably adequate and certain payment for workplace accidents; and (2) to replace an unwieldy tort system that made it virtually impossible for businesses to predict or insure for the cost of industrial accidents.”). 40. 1935 Fla. Laws at 1460. 2015] The Unconstitutional Erosion of the Quid Pro Quo 125 injuries down the workers’ compensation pipeline, an employee could opt out by giving notice prior to the injury in accordance with the procedures specified in the pertinent Section of the 1935 Act.41 In other words, the scheme was elective in nature.42 Conversely, if the non- acceptance notice was not furnished, the Act intended to operate— through the “Exclusiveness of Liability” provision43—as the sole remaining remedy. Although the Legislature provided a backdoor escape from the voluntary workers’ compensation coverage, the Act included deterrents from opting out. While an employer was free to exempt his business endeavor from the Act, if sued for damages over a work-related injury or death, he was barred from invoking the common law defenses of assumption of risk, contributory negligence, and the fellow servant rule.44 Likewise, while an employee was free to reject the Act, if suing a covered employer in an action for damages that resulted from a work-related injury or death, an employee ran the risk of facing the “unholy trinity.”45 Similarly, when both an employer and an employee elected to exempt themselves from the Act’s coverage, the Act deprived the employer of the three defenses.46 Further, every employer who opted out of the Act was liable for the payment to his employees of the compensation determined due under Sections 13 (“Medical Service and Supplies”), 15 (“Compensation for Disability”), and 16 (“Compensation for Death”) of the Act.47 In most cases, such compensation was due irrespective of fault as to the cause of injury.48 Evidently, the Legislature played its cards right

41. To properly furnish a notice of non-acceptance, the 1935 Act required an employee to deliver, or send by mail, to the employer a notice to such effect in a form prescribed by the Commission, and file a duplicate of the notice with the Commission. Id. Such notice had to be given thirty days prior to any injury, provided that, if the injury occurred within the thirty days after the commencement of employment, a notice given at the time of the hire would suffice. Id. at 1461. 42. LEO M. ALPERT,FLORIDA WORKMEN’S COMPENSATION LAW § 2:2 (1966). 43. According to the “Exclusiveness of Liability” provision:

The liability of an employer . . . shall be exclusive and in place of all other liability of such employer to the employee . . . [or] anyone [else] otherwise entitled to recover damages from such employer at law or in admiralty on account of such injury or death, except that if an employer fails to secure payment of compensation[,] . . . an injured employee, or his legal representative, ... may elect . . . to maintain an action at law or in admiralty for damages on account of such injury or death.

1935 Fla. Laws at 1462–63. 44. Id. at 1461. 45. Id. 46. Id. 47. Id. at 1462. 48. Id. Section 10(b) exempted the employer from the no-fault compensation if the injury to the employee resulted from his own intoxication, from his willful intention to injure or kill himself or another, or from his refusal to use prescribed safety appliances or perform statutory duties. Id. 126 Stetson Law Review [Vol. 45 by conditioning the employer’s and employee’s choice to waive workers’ compensation on the unavailability—or availability, respectively—of the common law defense trifecta. En masse, the Act’s statutory provisions operated as intended, and the incentives to forego workers’ compensation remained few. In over three-quarters of a century in the Florida no-fault system’s history,49 many constitutional challenges to the Act have arisen. The three main arguments have invariably implicated the rights to equal protection,50 due process,51 and “[a]ccess to courts.”52 Almost just as invariably, they have failed.53 The statute, at least in part, owes its longevity to the well-accepted quid pro quo justification.54 Just as importantly, rational basis review, the lowest level of scrutiny that the judiciary may apply and one used in workers’ compensation cases,55 continues to ensure that the governmental rationale passes constitutional tests. But even when viewed through the least scrutinizing prism of judicial review, at some point in time, the quid pro quo justification may be thrown out of balance.

49. Currently, Chapter 440 of the Florida Statutes contains the Florida workers’ compensation laws. FLA.STAT. §§ 440.01–440.60 (2014). 50. FLA.CONST. art. I, § 2 (“All natural persons, female and male alike, are equal before the law . . . .”). 51. Id. art. I, § 9 (“No person shall be deprived of . . . property without due process of law . . . .”). 52. Id. art. I, § 21 (“The courts shall be open to every person for redress of any injury . . . .”). 53. See, e.g., Mahoney v. Sears, Roebuck & Co., 440 So. 2d 1285, 1286 (Fla. 1983) (holding the statute constitutional under the access to the courts challenge even though the $1,200 payment for a partial eyesight loss might have appeared “inadequate and unfair”); Carter v. Sims Crane Serv., Inc., 198 So. 2d 25, 28 (Fla. 1967) (finding that the Act did not violate the subcontractor’s due process rights when it deprived him of the common law remedy against another subcontractor under the same general contract); Berman v. Dillard’s, 91 So. 3d 875, 876–78 (Fla. 1st Dist. Ct. App. 2012) (concluding that the Act’s provision requiring that permanent total disability benefits not exceed five years if the compensable injury occurred after the employee reached seventy years of age did not violate the claimant’s right to court access), reh’g denied (July 18, 2012), review denied, 108 So. 3d 654 (Fla. 2012) (table); Rucker v. City of Ocala, 684 So. 2d 836, 840–43 (Fla. 1st Dist. Ct. App. 1996) (holding that the Act, in preventing the claimant from introducing independent medical testimony by a chiropractor who was not an “authorized treating provider,” did not violate claimant’s due process rights); Brownell v. Hillsborough Cnty., 617 So. 2d 803, 805 (Fla. 1st Dist. Ct. App. 1993) (finding no equal protection violation under the FWCA that entitled a claimant who had sustained an amputation of one leg to a special impairment benefit, unrelated to his actual loss of wage-earning capacity, yet deprived a claimant who had suffered a loss of both legs of such impairment benefit); Radney v. Edwards, 424 So. 2d 956, 957 (Fla. 1st Dist. Ct. App. 1983) (excluding small private employers from the mandatory Act’s provisions did not constitute “constitutionally infirm” discriminatory treatment); Noel v. M. Ecker & Co., 422 So. 2d 1062, 1063 (Fla. 1st Dist. Ct. App. 1982) (concluding that a denial of benefits to the claimant for a partial hearing loss under the 1979 amendments to the Act did not violate equal protection on the ground that it would have been compensable under the 1977 version of the Act). 54. See supra notes 23–35 and accompanying text (describing the quid pro quo justification underlying the workers’ compensation scheme). 55. See, e.g., Bradley v. Hurricane Rest. & Associated Indus. of Fla. Prop. & Cas. Trust, 670 So. 2d 162, 165 (Fla. 1st Dist. Ct. App. 1996) (“The rational basis test is the proper standard by which to review the claimant’s equal protection and due process challenges.”). 2015] The Unconstitutional Erosion of the Quid Pro Quo 127

III. OPTING OUT IS NOT AN OPTION

The scales of justice first started to tip toward unconstitutionality in 1970 when the Florida Legislature amended the Workers’ Compensation Act56 by adopting eleven amendments and repealing three subsections.57 The cumulative effect of these changes was to prevent employees and employers covered by the Act from opting out of its provisions.58 A comparison between the 1969 and 1970 statutes illustrates this point. Before the 1970 amendments, Section 440.03, which mirrored the statutory language as originally in effect, provided:

Every employer and every employee, unless otherwise specifically provided, shall be presumed to have accepted the provisions of this chapter, respectively to pay and accept compensation for injury or death, arising out of and in the course of employment, and shall be bound thereby, unless he shall have given prior to the injury, notice to the contrary as provided in [Section] 440.05.59

On the other hand, after the 1970 legislative amendments, Section 440.03 succinctly read: “Every employer and employee . . . shall be bound by the provisions of this chapter.”60 The Legislature thus dropped the option of waiving coverage under the Act through the notice provision. Next, before 1970, both the employer and employee could exempt themselves from operation under the comprehensive statutory scheme by following the enumerated procedures.61 After the amendment, Section

56. See infra notes 59–69 and accompanying text (outlining the 1970 legislative amendments to the workers’ compensation law). 57. Edward Schroll, Workmen’s Compensation, 26 U. MIAMI L. REV. 387, 387 (1972). 58. Id. The compulsory coverage took effect on September 1, 1970. Id. 59. FLA.STAT. § 440.03 (1969) (emphasis added). 60. FLA.STAT. § 440.03 (Supp. 1970). 61. The procedures to follow were as follows:

(1) Every employer who elects not to accept the provisions of this chapter . . . , shall post and keep posted in a conspicuous place or places in and about his place or places of business typewritten or printed notices to such effect in accordance with a form to be prescribed by the division. He shall file a duplicate of such notice with the division. (2) Every employee who elects not to accept the provisions of this chapter . .., shall deliver to the employer or shall send to him by mail addressed to him at his office, notice to such effect in accordance with a form to be prescribed by the division. He shall file a duplicate of such notice with the division. (3) Such notice shall be given thirty days prior to any injury, provided, however, that if the injury occurs less than thirty days after the date of employment, such notice given at the time of employment shall be sufficient notice.

FLA.STAT. § 440.05 (1969). 128 Stetson Law Review [Vol. 45

440.05 omitted the instructions on appropriate procedures to formally opt out of the workers’ compensation scheme.62 Further, before 1970, Section 440.06 provided that an employer who opted out of the coverage by following Section 440.05’s procedures, waived the defenses of fellow servant rule, assumption of risk, and contributory negligence in an action brought by an employee to recover damages resulting from injury or death.63 Similarly, an employee, not covered by Chapter 440, who brought an action to recover damages that accumulated from a work-related injury or death against his Chapter 440- covered employer, ran the risk of facing the “unholy trinity” of defenses.64 In case neither elected to operate under the Workers’ Compensation Act, the employer could not avail itself of the “unholy” trio of the common law defenses.65 Despite the 1970 amendments, the language of Section 440.06 remained the same. However, in comparison with the 1969 statutes, the effect of unavailability to the employer of the fellow servant, assumption of risk, and contributory negligence defenses was generated by the employer’s failure to secure compensation—not by the rejection of the coverage.66 To illustrate, the Section title, as contained in the 1969 statutes, read: “When employer rejects chapter; effect.”67 By contrast, the 1970 Section title, which read “Failure to secure compensation,”68 represented that rejecting the Chapter was no longer a viable option. Further, because employers and employees could no longer decline the mandatory coverage, Sections 440.07 and 440.08 were repealed.69 After the 1970 amendments, the only route to seek compensation for work-related physical, mental, and financial injuries was through Chapter 440’s “Exclusiveness of liability” provision.70 This time around, Section 440.11, which read that “[t]he liability of an employer . . . shall be exclusive and in place of all other liability of such employer to the employee,”71 really meant what it preached. The 1971 Legislature further reinforced the message by denouncing any agreements by the employee

62. FLA.STAT. § 440.05 (Supp. 1970). 63. FLA.STAT. § 440.06 (1969). 64. Id. § 440.07. 65. Id. § 440.08. 66. FLA.STAT. § 440.06 (Supp. 1970). 67. FLA.STAT. § 440.06 (1969). 68. FLA.STAT. § 440.06 (Supp. 1970). 69. Id. §§ 440.07–440.08 (explaining that the Sections were repealed by Chapter 70-148, Section 4 of the 1970 Laws (1970 Fla. Laws 499, 500)). 70. Id. § 440.11. 71. Id. 2015] The Unconstitutional Erosion of the Quid Pro Quo 129 to waive his rights under the FWCA as invalid.72 En masse, the cumulative effect of these legislative changes was to provide that employees and employers covered by the Act could no longer opt out of its provisions. As such, the Act steadily began on its path to unconstitutionality.

IV. THE “UNHOLY TRINITY’S” TRIPLE DEFEAT

For nearly eighty years, the Florida Legislature and courts have dangled the “unholy trinity” of defenses before the worker’s eyes as justification for workers’ compensation laws.73 Little by little, however, the original sting from contributory negligence, assumption of risk, and the fellow servant defenses has worn off as Florida tort law has evolved. In light of certain judicial and legislative choices, the scales of justice have further tipped out of balance and gravitated toward unconstitutionality.

A. Hoffman v. Jones and the Birth of Comparative Negligence

Hoffman v. Jones74 is a critical Florida Supreme Court decision that changed the face of Florida tort law. In Hoffman II, the highest court dealt with the “question of great public interest,” certified by the District Court of Appeal for the Fourth District, of “[w]hether or not the Court should replace the contributory negligence rule with the principles of comparative negligence.”75 The case dealt with a car–truck collision that caused the death of William H. Jones, Jr.76 The trial court consolidated two separate wrongful death suits: one was brought by Mr. Jones’s widow in her individual capacity, and the other one in her capacity as the administratrix of her deceased husband’s estate.77 Mrs. Jones asserted negligence by alleging that defendant Hoffman had carelessly operated a truck owned by co-defendant Pav-A-Way Corporation and caused the

72. FLA.STAT. § 440.21(2) (1971) (“No agreement by an employee to waive his right to compensation under this chapter shall be valid.”); Schroll, supra note 57, at 387–88. 73. See, e.g., Grice v. Suwannee Lumber Mfg. Co., 113 So. 2d 742, 746 (Fla. 1st Dist. Ct. App. 1959) (“[A]n employee is privileged to reject the Act in the manner provided therein. By so doing, he is left free to pursue his common law remedies and recover every element of damage suffered by him from an injury arising out of and in the course of his employment. In such a suit, however, he . . . must . . . be prepared to meet and overcome the common law defenses of contributory negligence, assumption of risk[,] and the fellow servant rule.” (footnote omitted)); see also supra notes 23–35 and 43–46 and accompanying text (describing the quid pro quo justification to the workers’ compensation scheme and its effect on employees’ and employers’ decision to opt out of the scheme). 74. 280 So. 2d 431 (Fla. 1973) (Hoffman II). 75. Id. at 433 (internal quotation marks omitted). 76. Jones v. Hoffman, 272 So. 2d 529, 529 (Fla. 4th Dist. Ct. App. 1973) (Hoffman I). The party names were reversed on appeal. 77. Id. at 529–30. 130 Stetson Law Review [Vol. 45 deadly accident.78 The defendants denied the allegations and mounted the affirmative defense of contributory negligence.79 In contrast, Mrs. Jones pleaded with the trial court to allow a jury instruction grounded in the concept of comparative negligence of the parties.80 The court rejected Mrs. Jones’s request, and the jury found for the defendants.81 On appeal, the Fourth District reversed the lower court’s holding,82 finding that it was based on the vintage precedent of Louisville & Nashville R.R. Co. v. Yniestra.83 The Florida Supreme Court, having first pondered its authority to reverse the time-honored common law precedent,84 ultimately adopted the principle of comparative negligence.85 The court commented:

The rule of contributory negligence as a complete bar to recovery was imported into the law by judges. Whatever may have been the historical justification for it, today it is almost universally regarded as unjust and inequitable to vest an entire accidental loss on one of the parties whose negligent conduct combined with the negligence of the other party to produce the loss. If fault is to remain the test of liability, then the doctrine of comparative negligence which involves apportionment of the loss among those whose fault contributed to the occurrence is more consistent with liability based on a fault premise.

.. .

In the field of tort law, the most equitable result that can ever be reached by a court is the equation of liability with fault. Comparative negligence does this more completely than contributory negligence, and we would be shirking our duty if we did not adopt the better doctrine.86

78. Id. at 530. 79. Id. 80. Id. 81. Id. 82. Id. at 533. 83. 21 Fla. 700, 701 (1886) (“[A] person may be guilty of a negligent act from which injury results to another, yet if the person injured . . . by his own act . . . contributed to said injury, he cannot recover damages resulting therefrom.” (emphasis added)). 84. Hoffman II, 280 So. 2d 431, 434 (Fla. 1973). The court evidently became satisfied that reversing common law is not solely in the province of the Legislature. Id. The Hoffman II court further noted, “Even if it be said that the present bar of contributory negligence is a part of our common law by virtue of prior judicial decision, it is also true . . . that this Court may change the rule where great social upheaval dictates.” Id. at 435. 85. Id. at 438 (“[W]e now hold that a plaintiff in an action based on negligence will no longer be denied any recovery because of his contributory negligence.”). 86. Id. at 436, 438 (citations and quotation marks omitted). 2015] The Unconstitutional Erosion of the Quid Pro Quo 131

Of course, Hoffman II was a wrongful death case. Yet, its implications were far-reaching for the workplace context. To understand the decision’s effect, one needs to: (1) reflect on Florida’s injured worker’s chances at recovery during the pre-workers’ compensation era; (2) examine the workers’ compensation scheme’s role in mitigating the harshness of the ante-1935 contributory negligence doctrine; and (3) evaluate the utility of the FWCA exclusive remedy in the post-Hoffman II era. During the pre-workers’ compensation era, an employee was unlikely to prevail in a tort action if he or she was not perfectly fault-free. Fitzsimmons v. A.J. Cesery & Co.,87 for instance, illustrates the operation of contributory negligence. In Fitzsimmons, the plaintiff was directed to work on a scaffold, from which he fell to the ground and received injuries to his shoulder.88 The plaintiff brought action against his employer alleging that it “carelessly and negligently failed to provide a safe place for plaintiff to stand while performing . . . work.”89 In its defense, the employer pled, inter alia, contributory negligence.90 The Florida Supreme Court articulated the definition of the doctrine as follows:

If an [employee] negligently fails to exercise ordinary care for his safety, he cannot in general recover damages for an injury caused by his negligence. Under the common law, a plaintiff cannot recover damages for injury to himself caused by the negligence of another if he has in any appreciable way contributed to the proximate cause of the injury. The rule has not been changed in this state in this class of cases.91

In interpretation of Section 3150 of the General Statutes of 1906, as it applied to railroad workers, Florida’s highest court, in Florida E. Coast Ry. Co. v. Lassiter,92 recited the doctrine in an analogous fashion:

[U]nder our statute, authorizing recovery by an [employee] of a railroad company of damages for injury received by the running of its

87. 55 So. 465 (Fla. 1911). 88. Id. at 466. 89. Id. (internal quotation marks omitted). 90. Id. 91. Id. at 467 (emphasis added) (citing German-Am. Lumber Co. v. Hannah, 53 So. 516, 517 (Fla. 1910)). 92. 50 So. 428 (Fla. 1909). The pertinent provision read:

“If any person [who is an employee of a railroad company] is injured by [the] railroad company by the running of . . . machinery of such company, . . . and the damage was caused by negligence of another employee, and without fault or negligence on the part of the person injured, his employment by the company shall be no bar to a recovery.”

Id. at 428–29 (quoting Section 3150 of the 1906 Florida laws (1906 Fla. Laws 1197, 1199)). 132 Stetson Law Review [Vol. 45

locomotives, cars, or other machinery through the negligence of a [co- employee] . . . , the injured [employee], in order to recover, must himself be entirely free from fault or negligence. He must do nothing to contribute to his injury. . . . Any negligence of the plaintiff in such a case, however slight, that contributes in an appreciable degree to the cause of the injury, defeats a recovery.93

These two cases plainly demonstrate that the absolute defense of contributory negligence barred any recovery if the plaintiff contributed to his plight. Not surprisingly, plaintiffs welcomed a workers’ compensation system that offered a much greater certainty of a favorable outcome. Arguably, this favorable sentiment toward workers’ compensation lasted in Florida from 1935, when the Act was first adopted, until the 1973 Hoffman II decision. The no-fault mechanism symbolized a transition from meager chances of recovery to growing amounts of compensation. Before the Act was enacted, Florida, following the nation’s trends, offered little relief in tort.94 In comparison, the enactment of the Act mitigated the harshness of the ante-1935 contributory negligence effects. With the statutory scheme in place, recovery became nearly certain, regardless of whether an employee contributed to his injury. In 1940, workers’ compensation payments in Florida amounted to $1,880,000;95 by 1955, the payments had multiplied to $18,011,000;96 and by 1962, the number had risen to $39,058,000.97 Further, the Act provided the employee with many benefits in addition to compensation for lost wages, which enhanced the post-injury subsistence. Such benefits included medical benefits; hospital benefits; nursing benefits; prosthetic and other appliance benefits; and in the case of death, death benefits.98 So in a sense, the Act did operate as a much-wished-for alternative to contributory negligence and its harsher treatment of workers.

93. Id. at 431 (emphasis added). 94. See, e.g., Goethe-Howell Lumber Co. v. Stokes, 127 So. 862, 862 (Fla. 1930) (“The common- law doctrine of contributory negligence .. . is in force in this state, and where an employee is guilty of negligence which contributes proximately to his injury[,] he cannot hold the master liable for such injury . . . .”); Carter v. J. Ray Arnold Lumber Co., 91 So. 893, 895 (Fla. 1922) (“At common law, contributory negligence bars a recovery of damages for a negligent injury . . . .”); Coronet Phosphate Co. v. Jackson, 61 So. 318, 319 (Fla. 1913) (“[W]e do not think that the plaintiff can in law hold the defendant company liable for his injuries . . . [b]ecause of his own contributory negligence in wantonly picking up a live wire without first ascertaining whether or not it was charged with electric current . . . .”); see also supra notes 87–93 and accompanying text (providing examples of how contributory negligence barred plaintiffs’ recovery in tort). 95. ALPERT, supra note 42, at § 1:3 tbl.411. From this data, however, it is impossible to ascertain how much compensation was attributable to the plaintiffs who would have otherwise been barred from recovery if the contributory negligence defense was available. 96. Id. 97. Id. 98. See generally id. §§ 13.1–14.9 (reviewing the enumerated benefits). 2015] The Unconstitutional Erosion of the Quid Pro Quo 133

The Hoffman II court’s adoption of the comparative negligence doctrine, however, paled the Act’s colors. Since 1973, the quid pro quo justification has no longer borne the same powerful implications for the injured worker. In Cortes v. Velda Farms,99 Honorable Judge Jorge E. Cueto of the Eleventh Judicial Circuit Court for Miami-Dade County recently explained:

When the Supreme Court of Florida rendered its opinion on July 10, 1973 in Hoffman v. Jones . . . changing Florida from a contributory negligence state to a comparative negligence state, the 1973 [L]egislature failed to increase workers’ compensation benefits concurrently to account for the fact that employees who previous to 1970 had the right to sue their employers now had a much greater chance of a recovery under the comparative negligence standard as compared to the poor chances of recovery formerly available in tort before Hoffman. . ..

.. .

By the time Hoffman[] was decided[,] the “[quid pro quo]” had already been destroyed. The 1973 Legislature made no changes to the Act to account for the change in the value of the [“trade”:] workers’ compensation exclusively in exchange for the value of the lost tort remedy.100

Although Judge Cueto’s conclusions bore no precedential value, his reasoning highlighted two important points about the post-Hoffman II Act’s indefensibility. First, in light of the previously repealed “opt out” provisions, the Act does not offer benefits to injured workers that would adequately compensate them for the lost opportunity to proceed through the tort system.101 Second, the transition to comparative negligence

99. Cortes v. Velda Farms, No. 11-13661 CA 25, 2014 WL 6685226 (Fla. 11th Cir. Ct. Aug. 13, 2014), rev’d sub nom. State v. Fla. Workers’ Advocates, 167 So. 3d 500 (Fla. 3d Dist. Ct. App. 2015). Cortes created quite a commotion among all entities that constituted moving parts of the Florida workers’ compensation machine by pronouncing the FWCA, in its present form, facially unconstitutional. 2014 WL 6685226, at *10. Although issued by the lowest tier of the state’s court hierarchy, the ruling undertook to overturn the comprehensive statutory scheme that had withstood constitutional challenges since the dawn of the twentieth century. 100. Cortes, 2014 WL 6685226, at *2, 4 (citations and quotation marks omitted). 101. Compare, e.g.,FLA.STAT. § 440.15(1) (1971), with FLA.STAT. § 440.15(1) (1973) (retaining, unchanged, the provision that “[i]n case of total disability adjudged to be permanent, sixty per cent of the average weekly wages shall be paid to the employee during the continuance of such total disability” (emphasis added)); FLA.STAT. § 440.15(2) (1971), with FLA.STAT. § 440.15(2) (1973) (retaining, unchanged, the provision that “[i]n case of disability total in character but temporary in quality, sixty per cent of the average weekly wages shall be paid to the employee during the continuance thereof, not to exceed three hundred and fifty weeks” (emphasis added)); FLA.STAT. § 440.15(3) (1971), with FLA. STAT. § 440.15(3) (1973) (retaining, unchanged, the provision that “[i]n case of disability partial in 134 Stetson Law Review [Vol. 45 considerably weakens the quid pro quo justification of workers’ compensation. If protection from the “unholy trinity” of defenses, of which contributory negligence comprised a critical component, was the key rationale for workers’ compensation, Hoffman II effectively destroyed that rationale by disposing of the doctrine all together.102 In summary, a comparison of employees’ chances of recovery before the enactment of the FWCA, after its enactment and before the Florida Supreme Court’s Hoffman II decision, and after Hoffman II, shows that the Act’s constitutionality has greatly eroded since its inception.

B. Assumption of Risk Merges with Contributory Negligence and as Such, Becomes Subsumed by Hoffman II

The scales of justice further tipped out of balance and gravitated toward unconstitutionality when the assumption of risk constituent of the notorious “unholy trinity” essentially ceased to exist as an independent defense in negligence cases by merging with contributory negligence.103 Florida Rules of Civil Procedure, Rule 1.110(d), General Rules of Pleading: Affirmative Defenses, still states: “In pleading to a preceding

character but permanent in quality the compensation shall, in addition to that provided by subsection (2) . . . , be sixty per cent of the average weekly wages” and providing examples of unmodified compensation rates: “Arm lost, two hundred weeks’ compensation”; “[l]eg lost, two hundred weeks’ compensation”; “[l]oss of hearing: compensation for loss of hearing of one ear, forty weeks [and] of both ears, one hundred and fifty weeks” (emphasis added)); FLA.STAT. § 440.15(4) (1971), with FLA. STAT. § 440.15(4) (1973) (retaining, unchanged, the provision that “[i]n case of temporary partial disability resulting in decrease of earning capacity the compensation shall be sixty per cent of the difference between the injured employee’s average weekly wages before the injury and his wage- earning capacity after the injury in the same or other employment, to be paid during the continuance of such disability, but shall not be paid for a period exceeding five years” (emphasis added)); FLA. STAT. § 440.15(6) (1971), with FLA.STAT. § 440.15(6) (1973) (retaining, unchanged, the provision that “[i]n all claims for compensation for hernia resulting from injury by an accident arising out of and in the course of . . . employment[,] . . . [c]ompensation shall be paid for a period of six weeks from the date of the [surgical treatment at the expense of the employer]” (emphasis added)). But compare, e.g.,FLA.STAT. § 440.16 (1971), with FLA.STAT. § 440.16 (1973) (raising compensation benefits in the event of the employee’s death). 102. As expected, Cortes swiftly embarked on a journey to the Florida Third District Court of Appeal. Alas, the Third District did not entertain the question of the workers’ compensation law’s constitutionality. Fla. Workers’ Advocates, 167 So. 3d at 504. Rather, the court disposed of the case on the issues of mootness and lack of standing. Id. The court reasoned that the three intervenors—Elsa Padgett, an individual workers’ compensation claimant in an unrelated matter; Florida Workers’ Advocates and the Workers’ Injury Law and Advocacy Group, two attorney-comprised organizations dedicated to protection of Floridians’ rights—could not pursue the constitutional claims or obtain the relief granted in Cortes. Id. at 504–05. Consequently, the Third District reversed and remanded, commenting: “[W]e conclude that the trial court lacked a justiciable case or controversy within which to determine, and the intervenor/appellees lacked standing to assert, that the challenged provisions of the Florida Workers’ Compensation Law are unconstitutional.” Id. at 506. 103. See infra notes 105–12 and accompanying text (explaining how the defense of assumption of risk merged with contributory negligence and became subsumed by Hoffman II). 2015] The Unconstitutional Erosion of the Quid Pro Quo 135 pleading a party shall set forth affirmatively . . . [, inter alia,] assumption of risk.”104 In reality, however, Florida law reserves the assumption of risk defense to the context of express contracts only. In Blackburn v. Dorta,105 the Florida Supreme Court explained: “Included within the definition of express assumption of risk are express contracts not to sue for injury or loss which may thereafter be occasioned by the covenantee’s negligence as well as situations in which actual consent exists such as where one voluntarily participates in a contact sport.”106 Outside express contractual agreements, assumption of risk merged with contributory negligence.107 After a split in the courts below, the Supreme Court of Florida in Blackburn considered the viability of the assumption of risk defense “as an absolute bar to recovery subsequent to [the court’s] adoption of the rule of comparative negligence in Hoffman v. Jones.”108 The court reasoned that “[i]f assumption of risk [was] equivalent to contributory negligence, then Hoffman mandate[d] that it [could] no longer operate as a complete bar to recovery”; on the other hand, “if it [had] a distinct purpose apart from contributory negligence, its continued existence remain[ed] unaffected by Hoffman.”109 Having noted “a puissant drift toward abrogating the defense,” the court examined the argument that assumption of risk served no independent purpose, which was not already subsumed by the doctrine of contributory negligence, and found that the former term was used nearly interchangeably with the latter.110 In arriving at that decision, the court discussed the background of the defense:

The concept of primary assumption of risk is the basis for the historical doctrine which arose in the master[–]servant relationship during the late nineteenth century. The master was held not to be negligent if he provided a reasonably safe place to work; the servant was said to have assumed the inherent risks that remained. In this context assumption of risk was not an affirmative defense at all. . .. As is often the case in the common law, however, the doctrine mutated into an affirmative defense, with the burden of pleading and proof upon the master. Consequently, even if the servant could show that the master owed and had breached a duty to provide a reasonably

104. FLA. R. CIV. P. 1.100(d). 105. 348 So. 2d 287 (Fla. 1977). 106. Id. at 290 (emphasis added). 107. Id. at 292–93. 108. Id. at 288. 109. Id. at 289. 110. Id. 136 Stetson Law Review [Vol. 45

safe place to work, the master could escape liability if he could establish that the servant had voluntarily exposed himself to a risk negligently created by the master. Thus, two distinct concepts came to bear the same label with inevitable confusion which has persisted to the present.111

Having examined the types of the assumption of risk defenses and the eternal confusion plaguing them, the court then concluded:

We find no discernible basis analytically or historically to maintain a distinction between the affirmative defense of contributory negligence and assumption of risk. The latter appears to be a viable, rational doctrine only in the sense described .. . as implied-qualified assumption of risk which connotes unreasonable conduct on the part of the plaintiff.

.. .

Therefore, we hold that the affirmative defense of implied assumption of risk is merged into the defense of contributory negligence and the principles of comparative negligence enunciated in Hoffman v. Jones . . . shall apply in all cases where such defense is asserted.112

Blackburn’s implication for workers’ compensation mirrored those of Hoffman II: if the employer could no longer assert assumption of risk as an independent defense in court, the protection that the workers’ compensation system had purported to give to the injured worker proved even more meaningless.

C. The Fellow Servant Rule Serves Little Purpose

Finally, the fellow servant rule, the last ingredient of the “unholy” trio, also has limited application in contemporary cases. At common law, the fellow servant rule was grounded in public policy. As one Florida court explained, the doctrine “rest[ed] upon the theory that servants engaged in a common or general employment should be watchful of each other to the end that carefulness in the performance of their duties may be promoted. The safety and welfare of the public [was] in a large measure secured by this rule.”113 At the heart of the defense lay the idea that

111. Id. at 290 (internal citation omitted). 112. Id. at 292–93 (internal citations omitted). 113. Gulf, F. & A. Ry. Co. v. King, 74 So. 475, 478 (Fla. 1917) (Ellis, J., dissenting). 2015] The Unconstitutional Erosion of the Quid Pro Quo 137

when an employer ha[d] fully performed his duty to an [employee], the [employee] assume[d] the obvious risks of danger in employment voluntarily engaged in when he [was] capable of understanding and appreciating such risks and dangers, and the employer [was] not liable in damages for injuries to the [employee] caused by the negligence of a fellow servant when the master [did] not by his negligence or other conduct proximately contribute to the injury.114

Chapter 769 of the Florida Statutes restricted the common law fellow servant doctrine.115 Essentially, the Legislature reserved the doctrine to the context of hazardous occupations.116 Section 769.01 narrows the pool of employers to whom the fellow servant rule applies to “persons engaged in the following hazardous occupations in this state; namely, railroading, operating street railways, generating and selling electricity, telegraph and telephone business, express business, blasting and dynamiting, operating automobiles for public use, boating, when boat is propelled by steam, gas or electricity.”117 Such employers face liability for injuries or death from negligence of fellow servants unless they can “make it appear that they, their agents and servants have exercised all ordinary and reasonable care and diligence, the presumption in all cases being against such persons.”118 Today, Florida Rule of Civil Procedure 1.100(d) still reads that “[i]n pleading to a preceding pleading a party shall set forth affirmatively . . . [, inter alia,] injury by fellow servant.”119 Yet, with Chapter 769 in the backdrop, the defense has limited applicability to the modern day tort law.

114. Prairie Pebble Phosphate Co. v. Taylor, 60 So. 114, 114–15 (Fla. 1912). 115. A. Coast Line R.R. Co. v. Shouse, 91 So. 90, 91 (Fla. 1922) (“Chapter 6521, Laws of 1913 . . . narrowed the fellow-servant doctrine, and reduced its scope from the common employment in which the injured employee may be engaged to the act causing the injury.”). 116. See FLA.STAT. §§ 769.01–769.06 (2014) (listing the specific types of hazardous occupations where employers would be affected by the fellow servant rule); see also, e.g., Jones v. Brink, 39 So. 2d 791, 792 (Fla. 1949) (“[B]oth [the servant who was negligent and the servant who was injured] were riding horses owned by the defendants; so they were fellow servants, and under the doctrine adopted in this state, the master would not be responsible for injuries to one resulting from the negligence of the other, inasmuch as the defendants were not engaged in any occupation outlined in Section 769.01, Florida Statutes 1941 . . . .”). 117. FLA.STAT. § 769.01. 118. Id. § 769.02. After the employee demonstrates a negligent injury, the burden shifts to the defendant–employer to show that it has exercised all ordinary and reasonable care and diligence in the premises. Peninsular Tel. Co. v. Dority, 174 So. 446, 448 (Fla. 1937). Conversely, when the covered employer has exercised ordinary and reasonable care and diligence, the burden shifts to the claimant to prove the alleged negligence. See Fla. E. Coast Ry. Co. v. Daughetee, 124 So. 757, 758 (Fla. 1929) (“The plaintiff failed to . . . show any negligence on the part of the railroad company which would make the railroad company liable for the injuries sustained under the provisions of our statutes.”). 119. FLA. R. CIV. P. 1.100(d). 138 Stetson Law Review [Vol. 45

Thus, as Florida law evolved throughout the twentieth century, the “unholy trinity” of the common law defenses available to the employer suffered a triple defeat. In light of the judicial and legislative changes described above, contributory negligence, assumption of risk, and the fellow servant rule can no longer justify the workers’ compensation scheme.

V. “THE COURTS SHALL BE OPEN TO EVERY PERSON” EXCEPT AN INJURED WORKER

Article twenty-one of the Florida Constitution could not use a stronger English modal verb than “shall”120 to pledge availability of court access to every Floridian.121 Alas, the verb’s modality has not quite functioned as a model representation of the constitutional provision’s meaning over the years. Especially in the context of workers’ compensation, the fundamental right of court access122 has been neatly replaced by an administrative process. The administrative practice of handling workers’ claims has successfully persisted throughout the years, guarded by the safety net of Kluger v. White.123

A. The Florida Workers’ Compensation Act Under the Kluger Paradigm

Kluger v. White124 is the Florida Supreme Court case that is widely applied to confront constitutional access-to-courts challenges to the workers’ compensation scheme.125 Kluger was an appeal from an

120. Black’s Law Dictionary defines “shall” as “[h]as a duty to; more broadly, is required to. . . . This is the mandatory sense that drafters typically intend and that courts typically uphold.” BLACK’S LAW DICTIONARY (10th ed. 2014). 121. FLA.CONST. art. I, § 21 (“The courts shall be open to every person for redress of any injury . . . .” (emphasis added)). 122. Psychiatric Assocs. v. Siegel, 610 So. 2d 419, 424 (Fla. 1992) (stating that “[t]he right to go to court to resolve our disputes” is a fundamental right), receded from on other grounds, Agency for Health Care Admin. v. Associated Indus. of Fla., Inc., 678 So. 2d 1239 (Fla. 1996). 123. See infra Part V(A) (discussing the Kluger test and its application to the context of workers’ compensation). 124. 281 So. 2d 1, 4 (Fla. 1973). 125. See, e.g., Eller v. Shova, 630 So. 2d 537, 542–43 (Fla. 1993) (finding that the 1988 amendment to the Act that had raised the degree of negligence necessary to maintain a civil tort action against policymaking employees from gross negligence to culpable negligence passed the Kluger test); Berman v. Dillard’s, 91 So. 3d 875, 878 (Fla. 1st Dist. Ct. App. 2012) (holding that the provision of the Act that authorized termination of the claimant’s permanent total disability benefits passed the Kluger test); Amorin v. Gordon, 996 So. 2d 913, 918 (Fla. 4th Dist. Ct. App. 2008) (finding, under the Kluger framework, the Legislature’s effort to establish horizontal immunity in certain circumstances constitutional). 2015] The Unconstitutional Erosion of the Quid Pro Quo 139 automobile injury case.126 The appellant challenged the constitutionality of Section 627.738 of the Florida Statutes127 that provided that “the traditional right of action in tort for property damage arising from an automobile accident is abolished, and one must look to property damage with one’s own insurer, unless the plaintiff . . . has chosen not to purchase property damage insurance, and . . . has suffered property damage in excess of $550.00.”128 The issue before the court was whether “the constitutional guarantee of a ‘redress of any injury’ . . . [barred] the statutory abolition of an existing remedy without providing an alternative protection to the injured party.”129 The court arrived at the following conclusion:

We hold . . . that where a right of access to the courts for redress for a particular injury has been provided by statutory law predating the adoption of the Declaration of Rights of the Constitution of the State of Florida, or where such right has become a part of the common law of the State pursuant to [Section 2.01 of the Florida Statutes], the Legislature is without power to abolish such a right without providing a reasonable alternative to protect the rights of the people of the State to redress for injuries, unless the Legislature can show an overpowering public necessity for the abolishment of such right, and no alternative method of meeting such public necessity can be shown.130

In effect, the Kluger court developed a test—to be applied in future workers’ compensation challenges—that requires the Florida Legislature, before a tort action can be abolished, to provide a reasonable alternative to protect citizens’ right to court access. The Legislature can nonetheless overcome the burden by showing that: (1) the overpowering public policy exists to abolish such right; and (2) no alternative to the abolishment will properly serve the articulated public policy.131

126. Kluger, 281 So. 2d at 2. 127. FLA.STAT. § 627.738 (1973), repealed by Laws 1976, ch. 76-266, § 13, effective Oct. 1, 1976 (1976 Fla. Laws 716, 726–27). 128. Kluger, 281 So. 2d at 2. 129. Id. at 3 (citation omitted) (quoting FLA.CONST. art. I, § 21). 130. Id. at 4. 131. Further, the Kluger decision has been interpreted to mean that

[t]he Constitution does not require a substitute remedy unless legislative action has abolished or totally eliminated a previously recognized cause of action. As discussed in Kluger and borne out in later decisions, no substitute remedy need be supplied by legislation which reduces but does not destroy a cause of action. 140 Stetson Law Review [Vol. 45

While the FWCA may, at some point, have met the Kluger scrutiny, in light of the elimination of Chapter 440’s “opt-out provision”132 and “unholy trinity’s” de facto eradication,133 this can no longer hold true. As to the threshold issue of whether the Florida Legislature abolished tort action in the employment context, the answer is obvious. The 1935 law made it clear: “From and after the taking effect of this Act, every employer and every employee, unless otherwise specifically provided, shall be presumed to have accepted the provisions of this Act . . . .”134 Hence, since July 1, 1935, the Act, through its exclusivity provision of Section 11, functioned as the sole remedy for the injured worker,135 in lieu of the previously available tort remedies. If the Legislature abolished the tort remedy, Kluger then demands that it provide “a reasonable alternative to protect the rights of the people of the State to redress for injuries.”136 That alternative, as the Kluger court observed, is reasonable, thus satisfying the right-to-redress requirement, if “adequate, sufficient, and even preferable safeguards for an employee who is injured on the job”137 are in place.138 In 1935, an administrative process was called to embody the “reasonable alternative.” To administer the FWCA, the Legislature created the Florida Industrial Commission139—a three-member body designed to serve as an appellate tribunal over workers’ compensation claims.140 The Commission was charged, inter alia, with “hear[ing] and determin[ing] claims for compensation and . . . conduct[ing] such hearings and investigations and . . . mak[ing] such orders, decisions and determinations as may be required . . . in accordance with the provisions of [the] Act.”141 Workers’ compensation claims proceeded before judges of industrial claims, who in 1979 were re-designated into deputy

Amorin v. Gordon, 996 So. 2d 913, 917–18 (Fla. 4th Dist. Ct. App. 2008) (internal quotation marks omitted) (quoting Jetton v. Jacksonville Elec. Auth., 399 So. 2d 396, 398 (Fla. 1st Dist. Ct. App. 1981)). 132. See supra Part III (discussing the 1970 legislative amendments to the Florida Workers’ Compensation Act). 133. See supra Part IV(A)–(C) (explaining a gradual erosion of the “unholy trinity”). 134. 1935 Fla. Laws 1456, 1460. 135. Still, as discussed, the Act—as an oxymoron of sorts—was elective and provided avenues for opting out. See supra notes 41–43 and accompanying text (explaining the elective nature of the Act). 136. Kluger v. White, 281 So. 2d 1, 4 (Fla. 1973). 137. Id. 138. Judith Anne Bass, Article I, Section 21: Access to Courts in Florida, 5 FLA.ST. U. L. REV. 871, 888–89 (1977). 139. 1935 Fla. Laws at 1488–89. 140. Jack A. Weiss, A Primer on Workers’ Compensation Appeals,FLA. B.J., Oct. 2006, at 63, 63. 141. 1935 Fla. Laws at 1490. 2015] The Unconstitutional Erosion of the Quid Pro Quo 141 commissioners,142 and a decade later, into judges of compensation claims (JCC).143 As of 1979, all appeals were heard by the First District Court of Appeal, which had taken place of the Commission.144 But semantics aside, the system remained largely administrative in character.145 Today, the majority of all work-related injuries146 are handled privately, through insurance companies. Only if the insurance provider denies the benefits allegedly due to the injured worker, will the claim proceed to the Office of the Judges of Compensation Claims (OJCC).147 Prior to an adjudicative hearing, a mediation session is scheduled between the disagreeing parties in most cases.148 That means in many cases, the claimant will settle for the compensation that may or may not reflect the true scope of his injury.149 Moreover, mediation is plainly not

142. See FLA.STAT. § 440.44 (1979) (noting that Section 35, Chapter 79-40 “changed the title of judges of industrial claims to ‘deputy commissioners’”). 143. FLA.STAT. § 440.45 (1989). 144. See FLA.STAT. § 440.442 (1979) (noting that Section 1 of Chapter 79-312 “abolished the Industrial Relations Commission, effective October 1, 1979”). 145. See Fla. Dep’t of Fin. Servs., Workers’ Compensation System Guide,MYFLORIDACFO.COM 4– 8, 32–33 (July 2014), available at http://www.myfloridacfo.com/ Division/WC/pdf/WC-System- Guide.pdf [hereinafter System Guide] (providing a flowchart with a succinct explanation of the benefits delivery process). 146. Chapter 440 of the Florida Statutes provides for narrow exceptions where an affected employee may sue in tort. See FLA.STAT. § 440.11(1) (2014) (“The liability of an employer [is exclusive] . . . , except as follows: (a) If an employer fails to secure payment of compensation . . . [or] (b) When an employer commits an intentional tort that causes the injury or death of the employee. . . . [A]n intentional tort . . . [is defined as situations where the] employer deliberately intended to injure the employee; or ... [t]he employer engaged in conduct that the employer knew, based on prior similar accidents or on explicit warnings specifically identifying a known danger, was virtually certain to result in injury or death to the employee, and the employee was not aware of the risk because the danger was not apparent and the employer deliberately concealed or misrepresented the danger so as to prevent the employee from exercising informed judgment about whether to perform the work.”). 147. System Guide, supra note 145, at 32–33. It is critical to note in passing, however, that a JCC, by definition, is not a judicial officer, but rather an employee of a state agency. Cf. Bass, supra note 138, at 889–90 (discussing Scholastic Sys., Inc. v. LeLoup, 307 So. 2d 166 (Fla. 1974) and Justice Richard W. Ervin’s dissenting position that the Industrial Commission—by definition a state agency and not a court—did not afford a claimant an opportunity for an appellate-type review). 148. “Mediation is mandatory in most [cases].” Office of Judges of Comp. Claims, 2013–2014 Settlement Report & Mediation Statistics Report of the Office of the Judges of Compensation Claims 3, FLJCC.ORG (2014), available at http://www.fljcc.org/jcc/files/ reports/2014SR-MSR.pdf [hereinafter Settlement Report]; see also FLA.STAT. § 440.25(1) (“[A]fter a petition for benefits is filed . . . , the [JCC] shall notify the interested parties by order that a mediation conference concerning such petition has been scheduled unless the parties have notified the [JCC] that a private mediation has been held or is scheduled to be held.” (emphasis added)). 149. In fiscal year 2012–2013, 58,041 petitions for benefits were filed; 15,850 mediations by the OJCC held; and 10,303 cases, or sixty-five per cent, resolved with a varied degree of success (of which 4,668—settled, 891—overall “all issues resolved,” 2,228—overall “all resolved except fees,” and 2,516—overall some issues resolved). Settlement Report, supra note 148, at 6, 8. In fiscal year 2013–2014, 59,292 petitions were filed; 16,188 mediations held; and 10,774 cases, or sixty-six and a half per cent, resolved with a varied degree of success (of which 5,180—settled, 921—overall “all issues resolved,” 2,199—overall “all resolved except fees,” and 2,474—overall some issues resolved). Id. FLA.STAT. § 440.20(11) authorizes settlements in workers’ compensation cases. 142 Stetson Law Review [Vol. 45 a creature of the formal judicial process; thus, many procedures, which are standard attributes in a judicial forum, do not apply.150 Before 1979, when appeals from workers’ compensation cases began to travel to the First District Court of Appeal, the administrative process was easier to challenge as containing no direct judicial review. For instance, in Scholastic Systems,151 Florida Supreme Court Justice Ervin pointed out in his dissent:

Administrative or bureaucratic processes affecting the in lieu civil claims of thousands of workmen should not be short circuited by permitting only a limited certiorari review instead of a direct judicial review. A direct judicial review of compensation orders as a matter of right is necessary to safeguard the constitutional rights inherent in remedy cases. . . .

.. .

I do not believe that an administrative review of a judge of industrial claims’ order by the Industrial Relations Commission is the equivalent of an initial judicial review as contemplated by Article I, Section 9 (due process) and 21 (access to the courts) of the State Constitution.

The Florida Industrial Relations Commission is the administrative— not the judicial—reviewer in the statutory echelon of the administrative structure for processing workmen’s compensation claims. It is not a judicial court of review. . . .

.. .

The point I make is that litigants [cannot] constitutionally be deprived of the equivalent of a direct judicial appeal as a matter of right of workmen’s compensation orders of the judges of industrial claims and of the Industrial Relations Commission on any of the bases set forth in the majority opinion.152

Since judicial review became available,153 theoretically, the right of court access at the heart of Florida’s constitutional guarantees was satisfied. Still, the path to the appellate review is a hurdle, indeed. Judicial review

150. See FLA.STAT. § 440.25(3) (“Such mediation conference shall be conducted informally and does not require the use of formal rules of evidence or procedure.”). 151. 307 So. 2d 166. 152. Id. at 173–74 (Ervin, J., dissenting). 153. FLA.STAT. § 440.271. 2015] The Unconstitutional Erosion of the Quid Pro Quo 143 becomes a possibility only after a mediation session, a pre-trial hearing, or a trial hearing before the JCC all fail to resolve the worker’s claim.154 Even if the Act does not, in its present form, constitute a “reasonable alternative” to redress work-related injuries, the statute may survive under the Kluger standard if it can be shown that (1) overpowering public policy exists to abolish the fundamental right of court access, and (2) no alternative to the abolishment will properly serve the articulated public policy.155 When the FWCA was first enacted, public policy might very well have commanded its adoption. The statutory scheme was perceived as a favorable substitute to the tort system’s uncertainty and an overall good fit considering contemporaneous societal and industrial realities. For example, the Florida Supreme Court explained:

Florida’s [workers’] compensation program was established for a twofold reason: (1) to see that workers in fact were rewarded for their industry by not being deprived of reasonably adequate and certain payment for workplace accidents; and (2) to replace an unwieldy tort system that made it virtually impossible for businesses to predict or insure for the cost of industrial accidents.156

The First District Court of Appeal further described the workers’ compensation system’s improvement over the tort system:

Litigation expenses, including those borne by the claimant are reduced by the administrative handling of claims. Litigation delays are also reduced. The cost of inevitable injury is spread throughout the industry. The employee is further benefited by not having any recoverable damages reduced by the proportionate fault of the employee. Certainty and efficiency are given in exchange for potential recovery. This satisfies the requirements of Article I, Section 21, Florida Constitution.157

More recently, the Florida Supreme Court again summarized the Act’s purpose:

The workers’ compensation system seeks to balance competing interests and provide tradeoffs between employees and employers.

154. System Guide, supra note 145, at 32–33. 155. Kluger v. White, 281 So. 2d 1, 4 (Fla. 1973). 156. De Ayala v. Fla. Farm Bureau Cas. Ins. Co., 543 So. 2d 204, 206 (Fla. 1989) (emphasis added) (citing McLean v. Mundy, 81 So. 2d 501, 503 (Fla. 1955)). 157. Acton v. Ft. Lauderdale Hosp., 418 So. 2d 1099, 1101 (Fla. 1st Dist. Ct. App. 1982). 144 Stetson Law Review [Vol. 45

Specifically, the workers’ compensation system provides employees limited medical and wage loss benefits, without regard to fault, for losses resulting from workplace injuries in exchange for the employee relinquishing his or her right to seek certain common law remedies from the employer for those injuries under certain circumstances.158

No doubt, these excerpts are all accurate portrayals of the original quid pro quo nature of the workers’ compensation system. Still, the trade-off rationale does not justify the FWCA in its present state, i.e. so long as it contains Section 440.11’s exclusivity provision. In light of the “unholy trinity’s” de facto eradication159 and the elimination of an “opt-out” provision,160 the quid pro quo can no longer support the Act.161 Moreover, more reasonable alternatives to the FWCA, in its present state,162 are available. First, the Florida Legislature may revise the “Exclusiveness of Liability” provision embodied in Section 440.11,163

158. Jones v. Martin Elecs., Inc., 932 So. 2d 1100, 1104 (Fla. 2006). 159. See supra Part IV(A)–(C) (explaining a gradual erosion of the “unholy trinity”). 160. See supra Part III (discussing the 1970 legislative amendments to the FWCA). 161. The Act is also not a reasonable substitution to tort remedies for other reasons that are outside this Article’s scope. In Cortes v. Velda Farms, Judge Cueto pointed out some of these reasons:

The [Florida Workers’ Compensation] Act became the exclusive remedy in 1970 . . . with no reasonable alternative benefit provided by the [L]egislature for the loss of the right to opt out. Benefits provided by the Act should have increased substantially to account for the change in the value of the trade, i.e.: allegedly fast, sure[,] and adequate payments in exchange for the tort remedy that was cumbersome, slow, costly and under which it had been legally difficult for injured workers to prevail. .. .

Injured workers lost their right to “opt out” without any concomitant benefit to take the place of that right. Injured workers also lost many more rights which were in place in 1968. One of those [rights] . . . is the loss of any remuneration or benefit for partial loss of wage earning capacity, also called permanent partial disability. . . . As of October 1, 2003, the [L]egislature eliminated all compensation for loss of wage earning capacity that is not total in character. The last vestige of compensation for partial loss of wage earning capacity was repealed. . . . Injured workers now receive permanent impairment benefits pursuant to the Florida impairment guidelines and nothing else unless the employee is permanently and totally disabled (PTD). The benefits for PTD end at age [seventy-five] or after [five] years of payments, whichever is greater. PTD was a lifetime benefit in 1968.

No. 11-13661 CA 25, 2014 WL 6685226, at *4–5 (Fla. 11th Cir. Ct. Aug. 13, 2014), rev’d sub nom. State v. Fla. Workers’ Advocates, 167 So. 3d 500 (Fla. 3d Dist. Ct. App. 2015). As seen from the language of the trial court’s opinion, Judge Cueto argued that the Act’s constitutionality had eroded over the years as the benefits provided to injured workers had gradually dwindled away. Cortes, 2014 WL 6685226, at *5. As this Article is largely focused on the policies behind the Act, Judge Cueto’s points, while timely and insightful, are outside its scope. 162. It would be indefensible to advocate for abolishment of the workers’ compensation system as a whole. See Haas, supra note 23, at 855–56 (explaining that elimination of the no-fault system “would be both psychologically unrealistic and inconsistent with the primary accident cost reduction rationale of both workers’ compensation and tort law”). Thus, I argue that Chapter 440 is compromised only so long as it contains the exclusivity of remedy provision of Section 440.11. 163. FLA.STAT. § 440.11 (2014). 2015] The Unconstitutional Erosion of the Quid Pro Quo 145 and accompanying Sections, and adopt an “opt-out” mechanism, similar to the one provided to the workers prior to the 1970 statutory amendments.164 In essence, this idea highlights the notion that parties can establish their rights and obligations through an agreement.165 Second, the Florida Legislature may adopt the so-called “double-protection,” or hybrid, system166 that—in cases of most serious injuries where workers’ compensation substantially undercompensates the victim, and the employer’s negligence has caused the injury—gives access to the tort system.167

B. Solutions

“Evolution does not go backward,”168 but perhaps in the case of Florida’s workers’ compensation, it should. Borrowing legislative wisdom from the past may be a necessary measure to afford an injured worker a meaningful recourse in the court of law as dictated by the Florida Constitution. The Florida Legislature should consider re- introducing the “opt-out” mechanism into Chapter 440 to mirror the exemption procedure that was in effect until 1970. Although a minority view, the Act waiver is not unheard of in the modern day.169 For instance, Arizona workers’ compensation scheme170 authorizes employee waivers

164. See supra notes 40–41 and accompanying text (describing the “opt-out” mechanism in the 1935 Act); see also infra Part V(B) (proposing solutions to repair the FWCA). 165. See generally David N. Mayer, Substantive Due Process Rediscovered: The Rise and Fall of Liberty of Contract, 60 MERCER L. REV. 563, 563–658 (2009) (reviewing the United States Supreme Court’s jurisprudence during the liberty of contract heyday). 166. The “double-protection” mechanism was suggested by Theodore F. Haas in his Article On Reintegrating Workers’ Compensation and Employers’ Liability. Haas, supra note 23, at 844–56. 167. See infra Part V(B) (proposing solutions to repair the FWCA). 168. J. H. RUSH,THE DAWN OF LIFE 35 (1962). 169. See, e.g.,ARIZ.REV.STAT. § 23-906 (2014) (employees may opt out from coverage); OKLA. STAT. tit. 85A, § 202 (2015) (employers may opt out); TEX.LAB.CODE § 406.002 (2015) (employers may opt out); id. § 406.034 (employees may opt out). As this Article is being polished for publication, two more states—Tennessee and South Carolina—are considering similar opt-out legislation. See Stephanie Goldberg, South Carolina Considers Workers Comp Opt-Out System,BUS.INS. (May 20, 2015, 10:04 AM), http://www.businessinsurance.com/article/20150520/ NEWS08/150529987/south- carolina-considers-workers-comp-opt-out-system?tags=|62|92|329| 304 (discussing that South Carolina is the fourth state to weigh opt-out legislation); Amy O’Connor, Tennessee Workers Comp Opt-Out Legislation Revised, Ready for Next Session,INS. J. (May 4, 2015), http://www.insurancejournal.com/magazines/features/2015/05/04/365980.htm (discussing that the proposed opt-out legislation is deferred to the 2016 legislative session). 170. ARIZ.REV.STAT. §§ 23-901–23-910. The statute covers state, county, city, town, municipal corporation, and school district employers, and every employer who regularly employs any workers, generally excluding domestic servants, independent contractors, and casual labor. Id. § 23-902. 146 Stetson Law Review [Vol. 45 of the workers’ compensation scheme.171 The pertinent Section of the Arizona Revised Statutes reads:

B. The employee’s election to reject the provisions of this chapter shall be made by a notice in writing, signed and dated by him and given to his employer, in duplicate in substantially the following form:

To (name of employer):

You are hereby notified that the undersigned elects to reject the terms, conditions and provisions of the law for the payment of compensation, as provided by the compulsory compensation law of the state of Arizona, and acts amendatory thereto.

C. The notice shall be filed with the employer prior to injuries sustained by the employee, and within five days the employer shall file with his insurance carrier the notice so served by the employee. All employees shall be conclusively presumed to have elected to take compensation in accordance with the terms, conditions and provisions of this chapter unless the notice in writing has been served by the employee upon his employer prior to injury.172

Essentially, Section 23-906(B) of the Arizona Statutes mirrors Section 440.05(2) of the 1969 Florida Statutes173 by requiring advance notice from an employee who purports to exempt himself or herself from the operation of the workers’ compensation statute. Further, Section 23- 906(C) of the Arizona Statutes echoes Section 440.05 of the 1969 Florida Statutes174 by stipulating that the notice of non-acceptance of the Act must be furnished before any work-related injury occurs. As in Section 23-906(C) of the Arizona Statutes and Section 440.03 of the 1969 Florida Statutes, an employee is presumed to have accepted the workers’ compensation scheme unless he or she has expressly rejected it.175 The Florida Legislature should endorse a similar opt-out passage, so that the injured worker can properly be rewarded for industry, if he or she is

171. Id. § 23-906. Arizona statutes do not contain a similar opt-out option for employers who employ any employees. See id. §§ 23-901–23-910 (Arizona workers’ compensation statute). 172. Id. § 23-906(B)–(C) (emphasis added). 173. See supra note 61 and accompanying text (setting forth the notice requirement). 174. See supra note 61 and accompanying text (requiring a thirty-day advance notice). 175. ARIZ.REV.STAT. § 23-906(C) (“All employees shall be conclusively presumed to have elected to take compensation in accordance with the terms, conditions and provisions of this chapter unless the notice in writing has been served by the employee upon his employer prior to injury.”); Sneed v. Belt, 635 P.2d 517, 524 (Ariz. Ct. App. 1st Div. 1981) (“Generally the employee is deemed to have ‘exercised’ [the] option in favor of compensation by merely failing to notify in writing prior to injury.”). 2015] The Unconstitutional Erosion of the Quid Pro Quo 147 willing to accept the traditional menaces of the tort system (i.e., expenses, greater uncertainty of outcome, or litigation delays).176 As a flowing consequence, the fear of substantial damages awarded to the plaintiff may incentivize the employer to work more diligently to deter workplace accidents.177 Alternatively, the Florida Legislature should adopt a “double- protection” system, whereby the plaintiff is granted access to the courts when there is a serious injury, workers’ compensation substantially undercompensates the victim, and the employer’s negligence has caused the injury. The hybrid system—a combination of workers’ compensation and tort remedies—is not a novel idea.178 Besides, the FWCA does not intend to make employer liability absolute. The Act already recognizes exceptions that enable an injured employee to proceed in tort: for instance, when an employer intentionally causes an injury or death to the employee; when an employer, under statutorily specified conditions, engages in conduct that is virtually certain to result in injury or death to the employee;179 when corporate officers elect to opt out;180 or when an employer who employs fewer than four employees elects not to proceed under the Act.181 So a further exception that incorporates a mechanism to convert a workers’ compensation claim into a tort claim will not be a complete novelty to the no-fault system. Under the hybrid system, in a case of a serious work-related injury, an employee will first recover benefits due under the workers’ compensation schedules. Any difference between the total benefits paid and the scope of tangible and intangible injuries in monetary terms will constitute the amount of under-compensation.182 That amount, as

176. “All natural persons . . . have inalienable rights, . . . [such as] the right . . . to be rewarded for industry . . . .” FLA.CONST. art. I, § 2. See also De Ayala v. Fla. Farm Bureau Cas. Ins. Co., 543 So. 2d 204, 206 (Fla. 1989) (“Florida’s [workers’] compensation program was established . . . to see that workers in fact were rewarded for their industry . . . .”). 177. Haas, supra note 23, at 849–50. 178. See id. at 844–45 (discussing various commentators’ proposals); cf. Richard A. Epstein, Coordination of Workers’ Compensation Benefits with Tort Damage Awards, 13 F. 464, 464–66 (1978) (discussing the system that allows a third-party defendant–tortfeasor, once the worker has prevailed in court, to place on the employer a lien in the amount of paid-out workers’ compensation benefits). 179. See supra note 146 and accompanying text (providing examples of when the access to tort remedies is available). 180. FLA.STAT. § 440.05(1) (2014) (“Each corporate officer who elects not to accept the provisions of this chapter . . . shall mail to the department in Tallahassee notice to such effect . . . .”). 181. Id. § 440.055. 182. Currently, the FWCA does not provide for the payment of benefits for “mental or nervous injur[ies] due to stress, fright, or excitement only” unless they are accompanied by physical trauma requiring medical treatment. Id. § 440.093(1). Further, the Act does not compensate for a physical injury resulting from mental or nervous injuries that is unaccompanied by physical injury requiring 148 Stetson Law Review [Vol. 45 determined by relevant expert testimony, will then remain recoverable in tort. The touchstone of the proposed mechanism is its focus on improvement of workplace safety. Of course, the idea of incentivizing an employer to reduce lurking occupational hazards is already at the heart of the workers’ compensation system.183 Still, it is unclear whether employers actually embrace it since they can “internalize, regularize, and minimize the costs of workers’ accidents, making worker injury simply a finite cost of doing business.”184 If an employer potentially faces additional damages recoverable through tort action, it will have a more meaningful incentive to improve conditions in the workplace and decrease negligent injuries to employees.185 The leitmotif of workers’ compensation awards versus tort awards has punctured both the discussion about the opt-out provision and the hybrid system alternatives. No doubt, the gap between the awards that the two mechanisms produce is sizeable. The workers’ compensation system generally does not purport to restore the victim to a wholesome condition. Rather, it gives him just enough money to get by on, without becoming a social burden.186 The tort system, on the other hand, medical treatment. Id. The Florida law’s approach to the hard-to-objectivize psychological trauma has historically been guarded. Cf., e.g., Willis v. Gami Golden Glades, LLC, 967 So. 2d 846, 850 (Fla. 2007) (stating that “[i]n Florida, the prerequisites for recovery for negligent infliction of emotional distress differ depending on whether the plaintiff has or has not suffered a physical impact from an external force,” and explaining that “[i]f . . . the plaintiff has not suffered an impact, the complained-of mental distress must be ‘manifested by physical injury’”) (quoting Eagle-Picher Indus. Inc. v. Cox, 481 So. 2d 517, 526 (Fla. 3d Dist. Ct. App. 1985)). I propose that the Florida Legislature revise the statute to expand compensation for psychological trauma, arising out of and in the course of employment, as demonstrated through testimony by a qualified mental health specialist. While compensation for mental–mental claims is an uphill-battle argument, compensable mental trauma resulting in physical injuries is not an avant-garde thought. Compare, e.g., Natalie D. Riley, Mental– Mental Claims—Placing Limitations on Recovery Under Workers’ Compensation for Day-to-Day Frustrations, 65 MO. L. REV. 1023, 1023–45 (2000) (discussing limits to the compensability of mental–mental claims with an emphasis on the Missouri law), with, e.g., Montgomery Cnty. v. Grounds, 862 S.W.2d 35, 42 (Tex. App. 1993) (“The law in Texas is settled that in heart attack cases, compensation benefits are due when a heart attack results from mental or emotional stress traceable to a definite time, place and event.”). This argument, however, is outside the scope of this Article. 183. Kenneth Matheny, Achieving Safer Workplaces by Expanding Employers’ Tort Liability Under Workers’ Compensation Laws, 19 N. KY. L. REV. 457, 473 (1992) (“One of the main purposes of workers’ compensation is to promote workplace safety.”). 184. Id. at 473 (internal quotation marks omitted) (quoting Jamin B. Raskin, Reviving the Democratic Vision of Labor Law, 42 HASTINGS L. J. 1067, 1071 (1991)). 185. The Bureau of Labor Statistics reports that in Florida, in 2008, there were 292,600 total recordable cases of illness and injury across all industries; in 2009—250,300; and in 2010—222,600. U.S. Dep’t of Labor, Bureau of Labor Stats., Databases, Tables & Calculators by Subject: Workplace Injuries, BLS.GOV, http://www.bls.gov/data/#injuries (last visited Dec. 14, 2015). In 2011, Florida witnessed 226 workplace fatalities; in 2012—218; and in 2013—239. Id. (The data provided on the Bureau’s website lacked information on Florida fatalities in 2008–2010 and cases of illness and injury in 2011–2013.) 186. Haas, supra note 23, at 847 n.18. 2015] The Unconstitutional Erosion of the Quid Pro Quo 149 endeavors to make the victim “whole”187 by awarding him with a combination of compensatory,188 pain and suffering,189 or—when circumstances so require—punitive damages.190 Although the workers’ compensation’s quid pro quo spirit has repeatedly been emphasized in the legislative and judicial work product, in truth, the worker has consistently been dealt the short end of the stick. If the “Florida’s [workers’] compensation program was established . . . to see that workers in fact were rewarded for their industry,”191 a possibility to recover tort damages either in lieu of, or in addition to, the workers’ compensation benefits must be meaningful.

VI. CONCLUSION

As demonstrated, the archaic policy reasons behind the Florida workers’ compensation statute cannot any longer support the Act in its present state. With the “unholy trinity” of defenses essentially eliminated, the Act’s failure to pass the Kluger standard, and the availability of reasonable alternatives to the exclusive remedy provision in the backdrop, the statute has become “constitutionally infirm.”192 As long as it contains Section 440.11, which bars recovery in tort, the FWCA

187. Morgan Stanley & Co. Inc. v. Coleman (Parent) Holdings Inc., 955 So. 2d 1124, 1135 (Fla. 4th Dist. Ct. App. 2007) (“In tort actions, the goal is to restore the injured party to the position it would have been in had the wrong not been committed.” (internal quotation marks omitted)) (quoting Nordyne, Inc. v. Fla. Mobile Home Supply, Inc., 625 So. 2d 1283, 1286 (Fla. 1st Dist. Ct. App. 1993)). 188. See generally, e.g., Daniel W. Shuman, The Psychology of Compensation in Tort Law, 43 U. KAN. L. REV. 39, 39–76 (1994) (discussing the role and goals of compensation in tort law). 189. Compare, e.g., Myers v. Rollette, 439 P.2d 497, 502 (Ariz. 1968) (“The workman retains the right . . . to choose whether to sue for damages or to accept the provisions of the Workmen’s Compensation Act. If he does elect to sue, he is not limited to the scheduled amounts or formulas set up in the Compensation Act. He takes his chances on whether he will recover in an action for negligence, or if so, in what amount. . . . It is well established that pain and suffering are proper elements to consider in awarding damages in a negligence action for personal injuries.” (citation omitted)), with, e.g., Port Everglades Terminal Co. v. Canty, 120 So. 2d 596, 601 (Fla. 1960) (“[I]t is the intention of our workmen’s compensation law to compensate an injured workman only for the loss of earning capacity attributable to and resulting from an industrial injury, and not for . . . pain and suffering resulting therefrom.” (first emphasis in original; second emphasis added) (citation omitted)). 190. 17 FLA.JUR. 2D Damages § 140 (“Mere negligence, in the absence of circumstances of malice, wantonness, or other essential aggravating elements, will not justify a recovery of exemplary or punitive damages.” (citation omitted)). 191. De Ayala v. Fla. Farm Bureau Cas. Ins. Co., 543 So. 2d 204, 206 (Fla. 1989) (emphasis added). 192. Cortes v. Velda Farms, No. 11-13661 CA 25, 2014 WL 6685226, at *10 (Fla. 11th Cir. Ct. Aug. 13, 2014), rev’d sub nom. State v. Fla. Workers’ Advocates, 167 So. 3d 500 (Fla. 3d Dist. Ct. App. 2015). 150 Stetson Law Review [Vol. 45 promotes the system that has once again—ironically—become “inhospitable to the claims of injured, destitute workers.”193

193. Haas, supra note 23, at 859.