While there are many legal factors to consider as XYZ Construction (XYZ) transforms from a private to a publicly owned company and expands operations globally, this paper will focus on the employment and labor laws, along with legal considerations that influence company operations. It is important to keep in mind that XYZ uses a mix of manning methodologies throughout the company; a full time staff as the core of the company, while maximizing the use of contracted labor in the execution of projects.
Employment law is a broad category of law that encompasses all areas regarding employee/employer relationships except for the negotiation process and collective bargaining, which is covered by the narrower focused category of labor law. Employment laws consist of thousands of federal and state statutes, regulations, and judicial decisions that are designed to govern the rights and duties of employers and workers. The US Department of Labor (USDOL) reports that there are 180 federal laws alone managed by 28 different agencies within the department. (United States Department of Labor [USDOL], 2014)
Employment laws are focused on providing a safe and fair work place for employees and employers, alike, and have their origins in the constitution. They were founded based on public outcry against oppressive practices during the industrial revolution. The first laws founded in the 1920s were focused on fair wages, compensation for injuries, a standard work week, and on eliminating child labor. In the 1960s and 70s, statutes focused on anti-discrimination and unsafe work environments. Current issues involve employee health care, equal pay for men and women and the current debate on raising the federal minimum wage.
There were also several issues addressed by the US Supreme Court of great importance to employment law including workplace discrimination and retaliation (Brill et al, 2013). The predominance of employment law disputes fall into two categories: wage and hour violations and discrimination in the workplace. Federal law provides for baseline rules regarding wage and hour standards, to include a minimum wage of $7.25 per hour and 40 hours as the standard work week. Many states have passed laws that establish a higher minimum wage, which is within their constitutional right. In these situations, XYZ is compelled to pay the higher minimum wage of that state.
There is an emerging effort across the United States to raise the federal minimum wage to $9.50 per hour. In some cases, this will place the federal wage higher than some states, meaning XYZ would have to pay the federal wage as it would trump the state legislation. It is prudent for XYZ to negotiate appropriate compensation on multiyear contracts as this new legislation works through the process. The standard work week, on the other hand, is prevalent across the United States and any worker that exceeds this threshold is entitled to overtime pay compensation.
These rules exist to control the work environment for employees and mandates that time and a half be paid on every hour exceeding 40 within a given work week. The law also stipulates that XYZ will maintain basic payroll records and post notices to the workers regarding changes in the work environment. As XYZ experiences delays within projects, the pressure to push the work crews to make up these delays grows. While working overtime to meet customer requirements and project timelines are acceptable, supervisors must ensure adherence to the various employment laws; not doing so could lead to unfair labor practice disputes and costly legal battles (Brill et al, 2013).
Another area that is a basis of employment law disputes is discrimination in the workplace. Prohibiting discrimination based on ethnicity, religious beliefs, gender, age, or disability was established with the Civil Rights Act of 1964 and refined with subsequent legislation throughout the years. The Supreme Court handed down two significant decisions in 2013 that clarify evidentiary standards for discrimination claims, both are viewed as beneficial to the employer.
First, the courts ruled that retaliation with discrimination as a motivating factor was not sufficient. The plaintiff must prove that discrimination was the basis for the retaliation, making the burden of proof much greater (Brill et al, 2013). Second, the courts clarified the definition of a supervisor under Title VII of the Civil Rights Act. They ruled that the title of “supervisor” is limited to those who have authority to take a tangible employment action, meaning “a significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits.”
(Brill et al, 2013, p.4). Having the authority to direct daily work was not sufficient to link the supervisor to the company in regard to damages or actions tied to a law suit or dispute. However, the company is still liable for discriminatory actions of non-supervisory employees, especially if it was notified and failed to take action to stop the behavior. This is significant considering that the majority of XYZ’s work force is contracted labor. As such it is imperative that XYZ maintain viable and proactive policies focused on preventing workplace discrimination and include a review of these policies prior to initiating any employment agreement.
Conducting business in a union environment provides for another layer of complexity to company operations. XYZ’s leadership must be aware of and understand the basics of labor law and the collective agreements negotiated with the unions representing the workforce. Failure to operate within the parameters of the agreement will result in an unfair labor practice dispute, which affects the profit margins of the shareholders. Labor law, also governed by federal law, state law and judicial decisions, provides statutes that mediate the relationship between workers, employers, unions, and the government with the goal of equalizing the bargaining power between employers and employee (Legal Information Institute [LII], 2014).
Collective labor laws focus on the rights of employees to unionize, collectively bargain, arbitrate, and strike, while individual labor law focuses on employment contracts between employers and employees (Caraway, 2009). Collective bargaining consists of negotiations between an employer and a group of employees, typically represented by a union, to determine the conditions of employment and results in a collective agreement. The main body of law governing collective bargaining is the National Labor Relations Act (NLRA), which was passed in 1935 (“Executive Concepts”, 2011).
It explicitly grants employees the right to collectively bargain and join trade unions. The National Labor Relations Board (NLRB) is the entity that hears disputes between employers and employees that falls under the purview of the NLRA. The General Council, established by the NLRA, independently investigates and prosecutes cases against violators of the act before the NLRB (LII, 2014).
Another aspect of labor law is the act of arbitration, a method of dispute resolution, which is commonly used as an alternative to litigation. A third party arbiter is designated and has binding decision authority for the dispute. While the Federal Arbitration Act (FAA) is not applicable to employment contracts, the Uniform Arbitration Act of 1956 was adopted by 49 states making arbitration enforceable under state and federal law (LII, 2014).
There were two key decisions rendered by the Supreme Court that impact labor law, specifically arbitration clauses and class action waivers in contracts (Brill et al, 2013). The Court held that the FAA directive to arbitrate and the arbitration clauses written into employment contracts take precedence over federal requirements to prosecute disputes through the courts. Additionally, this decision strengthens the ability to enforce class waivers written into contracts. While this appears detrimental to employers, the Court balanced this decision with language further defining the rules surrounding class waivers.
The court ruled that a class dispute (one brought by more than one plaintiff) can be settled if the primary plaintiff reaches settlement (Brill et al, 2013). In essence, if an XYZ employee files a dispute that is then applied to a class of employees, but a settlement is reached with the initial plaintiff, then the class action is terminated. Effectively, the Supreme Court ruling strengthens the company’s position in regard to employment contracts and protects the company from overzealous claims. As such, arbitration agreements written into XYZ employment contracts should be carefully worded in order to take full advantage of the Court’s decision.
Laws specific to the construction industry Several Department of Labor agencies administer programs that are specifically related to the construction industry. Specifically, the Occupational Safety and Health Agency (OSHA), the Wage and Hour Division, and the Office of Federal Contract Compliance all have specified areas of emphasis that regulate XYZ’s primary line of business.
OSHA administers all the occupational safety and health standards for the industry. Given the risk to employees across XYZ’s work sites, OSHA regulations are critical to maintain and pose a significant element of cost to the company. While it is prudent to conduct cost-benefit analysis on enacting safety and health policies, sacrificing employee welfare for the bottom line is a dangerous endeavor and can result in unfair labor practices or criminal charges in the extreme.
As XYZ competes and wins government construction contracts, there are several statutes that dictate certain conditions for doing business with the federal government that are administered by the USDOL Wage and Hour Division and the Office of Federal Contract Compliance. The Davis-Bacon Act requires that companies pay the prevailing wages and benefits of the region. Wage rates and other labor standards for employees are set by the McNamara-O-Hara Service Contract Act. The Walsh-Healey Public Contracts Act requires materials and supply contractors to pay minimum wages and meet other labor standards.
Executive Order 11246 requires equal employment opportunity by all construction contractor firms. Lastly, the Copeland Act’s anti-kickback section precludes any persuasion of an employee to sacrifice any part of their required compensation (USDOL, 2014). These dictated standards all affect the cost of projects and, if not accounted for in the bid and estimation process, will detrimentally impact the profit margins of the company as federal construction contracts are executed.
As XYZ begins the global expansion, it is important to realize that US labor laws are not binding in other countries in regard to foreign workers; the host country laws are in play (“Executive Concepts”, 2011, p.938). However, Congress expressly extended three US labor laws to expatriates working abroad for US firms. The Americans with Disabilities Act (ADA), the Age Discrimination in Employment Act (ADEA), and Title VII all extend extraterritorially (Nie, 2012). While XYZ’s staff is well versed in US employment and labor law, foreign labor law is country dependent and it is prudent to conduct targeted research on the specific country’s legal environment considered for expansion.
The International Labor Organization (ILO) has drafted 182 conventions and 190 recommendations in their effort to standardize labor practices globally. Enforcement of these efforts is a country responsibility, and as such, there are still large gaps in adoption and application of the various standards (“Executive Concepts”, 2011). While it is enticing to reduce expenses by sacrificing some of the more costly US labor law practices while abroad, this practice could damage the company’s sterling reputation negatively affecting all future business ventures.
As countries in Asia make the transition to democratic states, the door has been opened for improvements in collective and individual labor law, resulting in the creation of unions and the strengthening of workers’ rights. However, unions in developing counties depend upon government support and, as such, are politically focused keeping the gap between internationally acceptable collective labor practices and reality relatively large (Caraway, 2009). Across Asia, individual labor rights are in a better position.
There is a direct correlation between the wealth of a country and the enforced rights of its workers (Caraway, 2009). The most notable impact of this situation is the prevailing wage in each country and the impact on XYZ’s financial position on projects. Using the field support offices at the forward locations to gather this information is crucial to accurate project estimation and contract bidding.
As the company transitions from privately owned to publicly held, there are considerations to keep in mind. First, corporate governance will adjust to account for a larger base of stockholders. There is risk that the focus of the company will also shift to a more stockholder centric view, discounting the requirements of the stakeholders (the employees) (Ecchia et al, 2012).
This has the potential to lead to the creation of unfair labor practices as priority shifts from maintaining collective agreements to maintaining larger profit margins for the stockholders. Second, shareholders with large equities could pressure the company to offload portions of the workforce or reduce the employee’s benefits in order to improve profitability (Ecchia et al, 2012).
As the union leadership monitors corporate business practices, this could lead to a revolt in the workforce and create an environment ripe for a strike thereby shutting down operations until resolved. Any financial gains made by the reduction would be lost to stagnated operations, and as such should be managed carefully.
Conducting business in the 21st Century is comparable to traversing the proverbial minefield. Legal missteps can cause insurmountable fines and legal fees as a company struggles to maintain good business practices. Understanding employment and labor law is paramount to maintaining a strong and viable company through transformation and expansion that produces profits for its shareholders.
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