How to Fight Local Balkanization of Labor and Employment Standards

Date: July 31, 2015

Throughout the country, we are seeing a troubling trend. Where state lawmakers are unwilling to raise minimum wage or impose mandatory paid sick leave requirements on employers, activists in more liberal enclaves are pushing dominant cities to impose heightened burdens on employers. Even in states where legislators have recently enacted minimum wage hikes—for example, in California—aggressive political leaders are pushing more drastic hikes in major cities. Seattle and Los Angeles stand out as outlandish examples, each raising minimum wage to an absurd $15.00 per hour.

But again, this move toward balkanization isn’t just about minimum wage hikes. We’re seeing “ban the box proposals” in many cities, just as we’re seeing paid sick leave proposals. Pennsylvania has become a hot spot recently—with Philadelphia enacting mandatory paid sick leave requirements and Pittsburgh poised to vote on a similar proposal.

Yet, as those issues play out on the local level, state legislators in Harrisburg, Pennsylvania have been moving on a bill that would preempt local municipalities from imposing special regulatory burdens on small business—the idea being that labor and employment standards should be uniform throughout the state. And we’ve seen similar actions in other states. Recently, the Michigan Legislature enacted a statute that codified a rule under the Michigan Constitution—which has long held that local municipalities lack the power to regulate labor and employment standards because those are more properly viewed as issues of statewide concern.

As NFIB Small Business Legal Center argued in a filing before the Michigan Supreme Court earlier this year, that limitation on local authorities is an important aspect of Michigan’s “home rule doctrine,” under which the Michigan Constitution vests only limited powers to local officials. Indeed, if dominant cities like Lansing and Detroit raise minimum wage, there are unintended consequences for the rest of the state. For one, the balkanization of wage and hour law within the state complicates things for employers operating across multiple cities—especially if you are an employer with a mobile workforce. Employers are forced to either deal with the complications of paying employee’s various wages for time spent in different cities, or to simply pay employees a uniform rate that complies with the most stringent local requirements. The result is that dominant cities can effectively set the going rate for employment in different industries within the larger region, which clearly implicates concerns in neighboring communities and for the state more generally.

Indeed, it’s not just the City of Lansing’s concern if a company decides to relocate to Kalamazoo, or across the border to Indiana or Ohio. And that sort of economic dislocation is a predictable consequence of regulatory balkanization. As such, one must reject the myopic notion that locally enacted employment standards are of only “local concern” because inevitably it affects families and businesses in bedroom communities.

More broadly, localized labor and employment standards affect the general regulatory environment within the state, which is unquestionably a matter of statewide concern. Regardless of where you live, or operate your businesses, you have an interest in promoting a friendly business climate within your state. To be sure, a friendly business climate attracts greater investment in the state—which ultimately translates into greater economic flourishing, and—yes—higher tax revenues and more jobs. Alternatively, balkanized regulatory standards discourage investment in the state, and affirmatively encourage businesses to consider moving operations.

Further, when local communities impose heightened requirements on employers, there are other impacts of statewide concern. Not surprisingly, studies show that unemployment rates rise as the mandatory wage floor increases (i.e. the total amount of money that employers are required to pay for each employee in order to comply with all pertinent regulations). Here again, the impacts are felt locally, but also on the state level. Indeed, an increased unemployment rate will only add strain on social welfare programs administered by state agencies.

All of this goes to say that there are compelling reasons for concluding that local government should be restricted from raising minimum wage, or from imposing mandatory paid sick leave requirements, or any other regulatory standard above what is required at the state or federal level. But it’s always a question of state law, as to whether a local enactment is—or is not—permissible. As in Michigan, there may be state constitutional problems with local enactments. Or the State Legislature might simply enact law to preempt local legislation—just as Congress might enact law to preempt state laws that might interfere with federal economic policies.

For now, we will continue to monitor developments in Pennsylvania and elsewhere throughout the country as these issues play out on the political front. But, we will also continue exploring state constitutional doctrines, with an eye to push back against further balkanization where possible.  

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