The History of Labor Laws

The term paper addressed four fundamental questions relating to labor laws, stakeholder capitalism, and marketing and financial function. Comprehensive discussions concerning each of the topics were presented in the following sections.

Question One: “Expound on why labor laws exist and provide three (3) examples within an organization of how labor laws are used.“

Abstract

The factors that led to the emergence of modern labor laws were reviewed, and the relevance of the regulations was based on three cases in which labor laws were employed to safeguard the interests of the employees, and suppress corporate sabotage and employee segregation. The literature survey affirmed that in principle, the modern labor laws were aimed at safeguarding the interests of the employees. Nonetheless, in practice, such acts had advanced inequality at the workplace because they provided companies with better flexibility in addressing labor-related disputes. In brief, modern laws could not enhance workplace equity because they were skewed in favor of those in authority.

Keywords: Labor laws, history, employment, employee privileges

Introduction

A review of the historical context was necessary to appreciate the function of modern laws. Historical accounts indicate that current labor laws had their origin in 1845 when female employees in the US formed a union to advocate for the betterment of their working conditions, in what was referred as the labor reform association (AFL-CIO, 2018). At the time, the employees were required to work for at least 12 hours each day. In the following years, European countries were faced with similar challenges owing to the adoption of the master-slave model in businesses during the early phases of the industrial revolution.

Literature Review

The emergence of the unions was necessitated by the fact that employers enjoyed state protection. Therefore, it was only through pluralism and industrial unionization that ordinary employees would safeguard their workplace entitlements (Hogler, 2013). In an attempt to suppress the growing threats posed by such unions, employers initiated collective bargaining policies among other strategies in place today. However, the limitations of the early labor laws necessitated the adoption of the current regulations given that the former was skewed in favor of the employer. For instance, employers in the 19th century used laws to dispossess employees, enhance managerial prerogative and stabilize the supply of labor. Democratization, decolonization of former colonies and establishment of ILO culminated in the development of modern, equitable laws (Deakin, Lele, & Siems, 2007). Nonetheless, the legal traditions that were entrenched in the respective colonies remained intact (Porta, Lopez-de-Silanes, & Shleifer, 2008). For example, laws that governed the US were developed for two levels of the society namely the free and the enslaved. A majority of the states in the US practiced the common law traditions that were premised on constitutional and statutory laws, customs and other sources (Baker & McKenzie, 2011). In addition to the laws highlighted above, corporations were also required to adhere to municipal and state-level laws.

Based on the historical accounts, it was deduced that current labor rules had been established to enhance equity in the workplace. However, equality mediated by law – either at the workplace or in other socioeconomic contexts was an elusive concept given that modern labor laws still served those in power. In specific, Hogler (2013) noted that current employment regulations were fundamentally indeterminate because they reflected the aspiration of those with status, power and wealth. Regardless of the attempts made to enhance equity at the workplace, it was evident that the current law regimes provided the employers with higher leverage; despite the fact that labor laws were enforced to ensure that the employee’s rights were safeguarded. For example, Bernhardt, Milkman, & Theodore (2009) reported that employers in New York, Chicago, and Illinois had disregarded the labor laws. The violation of the labor laws ranged from the non-adherence to the minimum wages to lack of employee protection. Given that no action was taken against such employers, the adoption of modern laws raised fundamental questions concerning the relevance of the legal system to industry.

In the 21st century corporate sector, modern labor laws have been employed for different purposes depending on the factors that contributed to the enactment of the respective statutes. The current labor laws in the US include the Immigration and Nationality Act, Fair Labor Standards Act, OHS Act, Employment Discrimination, and Federal Employee Compensation Act (Department of Labor, 2018). In particular, the OHS Act was established to ensure that manufacturers maintained safety standards in production facilities or other workplace settings with a high risk for injury. The government enforced the legal provisions through impromptu inspections and certification processes (Hogler, 2013).

Alternatively, the labor laws were established to stimulate innovation in the workplace. The hypothesis was based on empirical observations made by Acharya, Baghai, & Subramanian (2013) who reported that the intelligent application of the strict labor laws could stimulate innovation among employees based on the ex-post effect and ex-ante

incentive of such laws on the employment system. For instance, regulations that made it difficult for the employees to terminate their employment contracts could enhance employee retention and reduce staff turnover, and by extension the expenses incurred in training new staff. The observations were validated based on a review of patent filings at the US patent office (Markovich, 2012). Corporations with stringent labor laws and tenure system such as in academia reported high levels of innovation based on higher patent fillings compared to other companies that did not provide the employment guarantees. Therefore, based on the case review it was evident that labor laws could be employed as a catalyst to spur innovation.

The laws that safeguarded the welfare of modern employees included the workplace anti-discrimination law which made it a crime for employers to discriminate based on demographical considerations. Besides, the OHS Act and the Compensation Act were implemented to address the employee welfare concerns. However, one of the barriers to the enforcement of the laws included the fact that the rules were only binding to large or medium-sized companies with at least 15 to 20 employees. Therefore, companies with fewer employees were at liberty to disregard the regulations (US.gov, 2018).

Application of Employment Laws

As briefly noted in the previous subsections, the labor laws were multipurpose; they could be applied to diverse settings depending on the business requirements. Therefore, corporations had to take into consideration the labor laws when negotiating employment contracts with the employees given that the employment contracts featured the minimum wage, employment hours, OHS, maternity privileges (Department of Labor, 2012).

The modern laws were integral in determining the suitability of immigrants in the employment sector. According to the guidelines provided by ILO, employers were obliged to enforce regulations to ensure that victims of human trafficking, undocumented immigrants did not illegally enter the labor market. Failure to enforce immigration checks would encourage unfair immigration practices (Andrees, Nasri, & Swiniarski, 2015).

Apart from regulating the flow of immigrants, it was postulated that such laws had also contributed to the protection of the entitlements of foreign workers who had a legitimate claim to employment (Chien, 2010). Nonetheless, depending on the application of the laws, it was postulated that in some of the cases, the laws had encouraged segregation at the workplace based on the immigration status of the individual. For instance, a review of Boeing’s website indicated that a majority of the jobs openings were limited to US residents. Therefore, residents and immigrants could not secure the jobs because they were non-citizens (Boeing, 2018). Furthermore, Chien (2010) noted that the labor laws enforced in the US were detrimental to a majority of the Mexican immigrants who did not have a legal immigration status in the country. In most instances, it was reported that such immigrants were deported or denied access into the formal employment sector.

Dealkin (2009) claimed that the limitations of the modern labor system could be attributed to the fact that a majority of the laws were founded on political considerations. Besides, they serviced individual goals, some of which were not congruent with the realities in the labor sector. In particular, the researcher observed that specific labor laws were motivated by rent-seeking or the need to comply with the aspirations of the special interest groups such as the labor unions (Dealkin, 2009). Such an approach had an adverse impact on the economy because it discouraged higher productivity at the workplace while buttressing inefficiencies and laxity because individual employees were guaranteed of job security based on their citizenship. The labor laws had also adversely impacted the operations of large companies because they could not lay off their staff without approval from the government. Nonetheless, such rules applied to companies with at least 100 employees (Ahsan & Pagés, 2007). Therefore, on such occasions, the employers had to maintain a large workforce despite the fact that it did not enhance the productivity (Ahsan & Pagés, 2007). Besides, given the additional rights provided to employees, the retrenchment of redundant employees could trigger court cases – a process that would increase the company’s expenses in employment-related dispute resolution.

A particular example was the case between Vanderbilt University and a group of former employees at the institution (US Courts, 2015). The plaintiff complained to court after the employer terminated the employment contracts prematurely without a compelling reason – an act that had been previously replicated at the institution. In particular, the employees were given a 60-day notice. In the interim period, the university continued to provide them with their basic salaries. However, after the two months transition period, the institution ceased to offer employment benefits. In this case, the university had employed the employment-at-will provision in the labor laws to terminate the contracts – a process that was anchored in the US labor laws (WARN Act) (US Courts, 2015). However, the plaintiff claimed that the dismissal did not adhere to the labor laws concerning contractual obligations and statutory mandates (Jabinsky, 2012). In brief, the court did not find any wrongdoing on the part of Vanderbilt University which had acted within the provisions of the law. 

The Vanderbilt case highlighted the intricacies that defined modern labor relations and the role of labor laws in dispute resolution (ILO, 2018). For instance, the labor law stated that the termination of the employment contract should not be motivated by ulterior motives such as discrimination or retaliation against the employee or other reasons that were not valid from a legal perspective. A comparative analysis of the US and French laws indicated that the former provided the employers with more latitude concerning the management of human resources. On the contrary, it was reported that in France, employment contracts could only be terminated “based on serious and verifiable causes” (Jabinsky, 2012).

The third example concerning the application of labor laws concerns the use of labor laws for corporate sabotage. For instance, Boeing’s assembly of its Dreamliner line of aircraft had been put at risk after NLRA objected its decision to move the production operations to a facility in South Carolina (Getman, 2014). The primary argument advanced by the union was that the migration to the south was motivated by the need to punish employees at its former facility following regular industrial actions. Nonetheless, in reality, the shift was necessitated by economic considerations given that the new facility would provide the necessary capacity to assemble aircraft that were behind schedule – a factor that compromised the reputation of the company.

 A comprehensive investigation of the matter by the US Congress ascertained that the arguments made by NLRA were based on a faulty interpretation of the laws (Wagner Act) concerning labor practices, to further its agenda. If the arguments advanced by NLRA were successful, they would have significantly impacted the company’s ability to deliver aircraft on schedule (Getman, 2014). A review of the factors that informed the case confirmed that specific labor laws could be employed to sabotage corporate entities – a process that would benefit other competitors because the productivity of the affected company would be significantly inhibited.

Despite the fact that the case was ruled in favor of Boeing, it was evident that the current labor laws in the US were inherently limited. The limitation of current labor laws stems from various factors including the absence of moral considerations; the hypothesis was informed by a previous study conducted by Antoine (2012). The researcher noted that the present laws were purely guided by economic factors rather than a union between commercial concerns and moral obligations.

References

Acharya, V. V., Baghai, R. P., & Subramanian, K. V. (2013). Labor Laws and Innovation. The Journal of Law and Economics, 56(4), 997–1037. https://doi.org/10.1086/674106

AFL-CIO. (2018). The Labor Movement and Gender Equality. Retrieved April 17, 2018, from https://aflcio.org/about/history

Ahsan, A., & Pagés, C. (2007). Are All Labor Regulations Equal? Assessing the Effects of Job Security, Labor Dispute and Contract Labor Laws in India. Retrieved from http://siteresources.worldbank.org/SOCIALPROTECTION/Resources/SP-Discussion-papers/Labor-Market-DP/0713.pdf

Andrees, B., Nasri, A., & Swiniarski, P. (2015). Regulating labour recruitment to prevent human trafficking and to foster fair migration: Models, challenges and opportunities. International Labor Organization.

Antoine, T. St. (2012). Moral Dimension of Employment Dispute Resolution. St. John’s Law Review, 86(2/3), 391–412. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=86925888&site=ehost-live

Baker & McKenzie. (2011). U.S. Employment Law for Global Employers.

Bernhardt, A., Milkman, R., & Theodore, N. (2009). Broken Laws, Unprotected Workers: Violations of Employment and Labor Laws in America’s Cities.

Boeing. (2018). Industrial Engineer. Retrieved April 18, 2018, from https://jobs.boeing.com/job/san-antonio/industrial-engineer/185/7746164

Chien, M. (2010). When Two Laws are Better than One: Protecting the Rights of Migrant Workers. Berkeley Journal of International Law, 28(1), 1–49. https://doi.org/10.15779/Z38JT0N

Deakin, S., Lele, P., & Siems, M. (2007). Evolution of Our Labor Laws: Calibrating and Comparing Regulatory Regimes (No. 352).

Dealkin, S. (2009). The evidence-based case for labour regulation. Regulating Decent Work Conference, ILO, Geneva, …, (July), 1–21. Retrieved from https://www.ilo.int/legacy/english/protection/travail/pdf/rdwpaper_pl1a.pdf

Department of Labor. (2012). Labor Standards Information New and Small Businesses, (December).

Department of Labor. (2018). Summary of the Major Laws of the Department of Labor. Retrieved April 17, 2018, from https://www.dol.gov/general/aboutdol/majorlaws

Getman, J. G. (2014). Boeing, the IAM, and the NLRB: Why U.S. Labor Law Is Failing.

Minnesota Law Review (Vol. 98). Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=95938446&lang=pt-br&site=ehost-live

Hogler, R. (2013). The consequences of culture: Legal history, labor law, and the contributions of Christopher Tomlins. Law and Social Inquiry, 38(3), 721–745. https://doi.org/10.1111/lsi.12037

ILO. (2018). Labour dispute prevention and resolution. Retrieved April 18, 2018, from http://www.ilo.org/ifpdial/areas-of-work/labour-dispute/lang--en/index.htm

Jabinsky, C. L. (2012). A Comparative Guide to Terminating the Employment Relationship in the U.S. and France.

Markovich, S. J. (2012). U.S. Patents and Innovation. Retrieved April 22, 2018, from https://www.cfr.org/backgrounder/us-patents-and-innovation

Porta, R. La, Lopez-de-Silanes, F., & Shleifer, A. (2008). The Economic Consequences of Legal Origins. Journal of Economic Literature, 46(2), 285–332. https://doi.org/10.1257/jel.46.2.285

US.gov. (2018). Labor Laws and Issues. Retrieved April 17, 2018, from https://www.usa.gov/labor-laws

US Courts. (2015). United States Courts for Appeal. Retrieved April 18, 2018, from http://www.opn.ca6.uscourts.gov/opinions.pdf/16a0002p-06.pdf

Question Two: “What advantages are there to employees as stakeholders in Germany that are not provided to employees in US companies? In the United States, how do employees let the management know their stakeholder concerns?”

Abstract

The core merits of both the shareholder and the stakeholder models were reviewed, with the aim of ascertaining the suitability of either model in current corporate structures. The stakeholder model in Germany had its roots in its socialist past; besides, it was safeguarded by the Codetermination Act of 1976 which officially obliged corporations to have ”worker directors” in their management boards. One of the principal benefits of the system was that it facilitated the representation of employee concerns in the management boards. The stakeholder capitalism strategy also enhanced the diversity of opinion at the board. In contrast, the shareholder model gave precedent to shareholders in the management decision making processes and distribution of profits. However, in such a system the employees were motivated by stock-options and share ownership plans.

Keywords: Stakeholder model, capitalism, shareholder model, benefits, employees

Introduction

The stakeholder capitalism approach advanced in Germany was supported by the legal system that encourages stakeholder engagement in the corporate sector (Allen, Carletti, & Marquez, 2009). In particular, the stakeholder model that led to the development of “worker directors” was implemented in the country through the Codetermination Act of 1976 (Addison & Schnabel, 2009). The Act was enacted to guarantee employee involvement in all operations of the business enterprise. In particular, the legislation advocated for quasi-parity, full parity, and one-third representation in corporate boards (Wagner, 2009). Nonetheless, it was of note that the stakeholder model advanced in Germany was not adopted by other corporations around the world – the phenomena were attributed to the fact that it might not have been compatible with the corporate governance structures adopted in the EU and the US (Addison & Schnabel, 2009). The claim was justified given that Germany had adopted a two-tier corporate governance framework.  Moreover, the German corporate boards were primarily expected to service four functions namely; ratify the appointment of board members, regulate the business activities, corporate planning and review of business performance based on the annual reports (Addison & Schnabel, 2009).

Literature Review

A comparative analysis of the two models was informed by the fact that each approach had its merits and limitations. Nonetheless, based on the recent global trends, it was evident that the shareholder model had contributed to inequalities in wealth distribution because all operations were aimed at maximizing shareholder value without taking into consideration employee welfare (Brandt & Georgiou, 2016). On the contrary, it was noted that the stakeholder/codetermination model adopted in Germany did not influence business performance.

One of the fundamental and unique aspects of the shareholder model was that it enhanced equity among all stakeholders in the system. The model was guided by the fact that employees put in more effort and were highly exposed to risks compared to the employers (Landry, 2009). The effort, in this case, was based on the economic value that the staff offered to the company (Harrison & Wicks, 2013). The theory also considered the stakeholders as customers who had a right to decide if the company was providing them with optimal value and if they could derive additional value elsewhere and whether the value provided by the company was in line with their intrinsic expectations. Therefore, the ability to provide optimal value dictated whether the corporation was able to retain its stakeholders (Harrison & Wicks, 2013).

The applicability of the stakeholder model in the real world was brought into question given that it was not feasible for the management to regard both the employee and the shareholder equally due management hierarchies. For instance, employees were considered to be subordinate to the management while the manager was expected to report to the shareholders. Such structures were developed to sustain the current status quo with regards to power and status in business (Magee & Galinsky, 2008). Similar concerns were raised by Fassin (2008) who observed that corporations were yet to perfect a sustainable stakeholder model. The researcher’s hypothesis was founded on the fact that the model was defined by “ambiguity and vagueness.” Judging from the previous experiences concerning the suitability of the stakeholder model in businesses such as Chrysler in the US (Landry, 2009), it was evident that the application of the model should be customized to suit the unique business environments.

Despite the fact that the shareholder model traditionally guided the US market, leading corporations had recently incorporated policies relating to stakeholder capitalism in the country (Brandt & Georgiou, 2016). Similarly, due to the diversity of the interests in the modern corporate sector in Germany, it was observed that some corporations had adopted a hybrid model that features both shareholder and stakeholder elements.

Benefits of the Stakeholder Model

In spite of the limitations enumerated above, it was evident that the stakeholder model had core merits. The model was also referred as codetermination given that it bound both the management and the employees in decision making. Besides, empirical evidence based on the failures of the current capitalistic policies indicate that it was necessary to modify the capitalist system to ensure that it served all rather than a small group of shareholders who were privileged with the capital resources (Berger & Vaccarino, 2016).

The benefits of the model included the ability to widen the scope of management objectives beyond the board and to explore other facets that had the potential to contribute to the economic growth of the business. Besides, the stakeholder model was in line with the theories advanced in the Wealth of Nations (Harrison & Wicks, 2013). One of the core merits of the stakeholder model was that it encouraged companies to invest in corporate social responsibility (Bhattacharya, Korschun, & Sen, 2009) and other facets of business operations that had the potential to contribute to the sustainability of the business enterprise in the long term (Fassin, 2008). The view was informed by the proven and tangible benefits attributed to stakeholder cooperation and responsibility (Freeman, Martin, & Parmar, 2007). In such cases, businesses were able to strike a balance between profit-making and social responsibility. Harrison & Wicks (2013) posited that the model contributed to business growth because it exploited the synergistic effect of ethics and strategy in business operations. The benefits of the system had informed its continued use in Germany and other countries.

 In contrast, the shareholder model was on particular occasions defined by unethical behavior due to demand to sustain the shareholder expectations. The recent emission scandal at Volkswagen was as a testament to the limitations of the shareholder model. Comparable conclusions were drawn by Gerard & Bruijl (2017) in a study concerning the boundaries of the shareholder theory at Volkswagen. 

The findings outlined above seem to suggest that the stakeholder model enabled businesses to focus beyond the narrow constructs of self-interest, private property and competition in the industry (Freeman et al., 2007). Harrison & Wicks (2013) noted that a broader focus beyond the full pursuit of profits enabled the stakeholders to create higher value for the company. However, the practicality of the hypothesis was brought into question given that most of the stakeholder interests were incompatible.

Another benefit of the stakeholder model was that it enhanced democracy at the board level; the claim was informed by the fact the employees chose a majority of the representatives. Besides, given that they were part of the company’s workforce they had first experiences of the challenges facing the employees; therefore, such representatives are in a better position to present the collective interest of the employees to the management. Thus, the presence of the employees in the boards is regarded as an indirect form of group representation (Harrison & Wicks 2013). One of the salient benefits of the approach was that it was not necessitated by individual interests.

Employee involvement in the board operations in Germany enabled the managers to address the issues raised by the employees through the collective agreements in place of unilateral management decisions. Employee representation on the company’s boards offered additional benefits that are absent in the worker’s councils (Huse, Nielsen, & Hagen, 2009). Therefore, employees in German corporations enjoyed all the benefits enumerated above. In contrast, employees in the US were dependent on intermediaries to share their grievances with the board.

Previous researchers had also noted that the employees were highly invested in the long-term performance and public reputation of the business enterprise compared to shareholders because they were the first points of contact between the company and other stakeholders outside the company (Huse et al., 2009). Additionally, given that the employees were from diverse backgrounds compared to the management, it was postulated that they had the potential to offer new perspectives and diversity in opinion – an aspect was lacking in the shareholder model (Huse et al., 2009).  Besides, empirical evidence affirms that involving employees in all aspects of board operations was ideal in corporate governance.

Benefits of the Shareholder Model

One of the core merits of the shareholder model was at it facilitated the optimization of the shareholder value in line with the shareholder primacy model (Nguyen, 2014). The optimization of shareholder value was consistently proven to be a critical determinant of the long-term financial performance of any business enterprise. Bottenberg, Tuschke, & Flickinger (2017) claimed that the continued adoption of the stakeholder model in Germany had made German multinationals uncompetitive globally. The robust laws adopted to safeguard the interests of the shareholders provided additional motivation for the investors to commit their resources towards the growth of the enterprise.

The claim was founded on previous research which affirmed that the long-term value of the business was safeguarded under the shareholder model. Considering that the shareholders have made significant investments and were the principal risk bearers in the operations of the company, it was only fair that they should be accorded the first preference in the distribution of profit and power (University of New Mexico, 2013). The benefit in such cases was based on the dividends. Additionally, the adoption of the shareholder model helped to minimize the challenges associated with the stakeholder model where divergent interests among the stakeholders might result in conflict.

In an attempt to minimize the incidence of conflict, organizations under the stakeholder model might be obliged to pursue multiple goals to meet the needs of the different stakeholders (University of New Mexico, 2013). Besides, it would be imprudent to confine organizational objectives to ethical practices especially given the fact that limited companies were “artificial humans” and therefore, they could not be bound by the moral standards that defined human interactions. The above claim was founded on observations made by Milton Freidman (Schwartz & Saiia, 2012). According to the economist, the sole social responsibility of modern societies was to employ its resources to optimize shareholder wealth as long as its operations were conducted within the confines of the law, ethical and moral obligations. Another core benefit of the shareholder model was that it encouraged the adoption of stock-option pays as a form of inducement to augment employee commitment at the workplace – a privilege that was not available under the stakeholder model (Bottenberg et al., 2017).

Communication with the Management

In a shareholder model, stakeholders employ different approaches to communicate their concerns to the management. The methods were mostly dependent on their proximity to the management. For instance, given that employees are in regular contact with the administration, they had the privilege of sharing their concerns with the managers who in turn briefed the shareholders. On the contrary, given that other stakeholders do not have direct contact with the management, they relied on lobby groups.

Based on recent media reports and empirical observations, it was evident that the US had one of the most vibrant lobby cultures in different sectors of the economy ranging from automobiles, financial services, gun control, and education. However, the lobbying process was capital and time-intensive. For instance, it was reported that lobbies in the US spent 2.6 billion annually (Peterson & Pftizer, 2018). Another critical challenge associated with the lobbying process was that the lobbies might not always be able to convince the shareholders to address the stakeholder concerns.

The claim was informed by the fact that engagement primarily defined shareholder interactions with lobbies and activists. Sodali (2014) claimed that such forms of engagement were characterized by a reactive approach to the stakeholder concerns and less transparency. Besides, it was established that the stakeholder concerns were not addressed in a sustainable manner using this approach given that most of the companies were unable to adopt measures that would pre-empt lobbyism – a process that often has an adverse impact on the image of the company in public.

References

Addison, J., & Schnabel, C. (2009). Worker directors: a German product that didn’t export? Universität Erlangen-Nürnberg, Lehrst