Economical ethics and doing business with ME
June 3, 2011 6:06 PM   Subscribe

Is the US government constitutionally able to enact a law that could make salary equity requirements of all entities doing business with them?

I was remembering the Living Wage Law of years ago and wondered if that tactic for addressing social inequities could be applied on a federal level.

It would not have to address all businesses -- only those who do business with the federal government (and it seems the people who pay for those contracts should have some say about who gets them ... not to mention the integrity of those who get them.)

Actually, when I thought of 'salary equity' I was thinking more of the massive gap between the higher and lower salaries in US corporations. In function this 'equity law' would be most useful if it put a reasonable limit on the gap between the lowest and highest paid in a corporation. I believe Japan has such a law (for all corporations)?
posted by Surfurrus to Law & Government (14 answers total)
 
Japan has also had a stagnant economy for the past 20 years. b1tr0t is correct that such a law would have malign consequences if enacted. Nonetheless, the Federal government can enact whatever law the Congress sees fit to pass and the President sees fit to sign. The real question is not whether the Constitution permits the law but whether the law would withstand the scrutiny of the Supreme Court.
posted by dfriedman at 6:25 PM on June 3, 2011


A lot of federal contacts require that the contractor pay (high) federally mandated salaries to the workers, similar in effect to the living wage laws you mention. But the difference from what you are proposing is that this us only for the duration of the contact and only for the people directly working on it. So would a huge construction company need to change its entire salary structure every time it won a small federal contact?
posted by Forktine at 6:26 PM on June 3, 2011


Best answer: "Actually, when I thought of 'salary equity' I was thinking more of the massive gap between the higher and lower salaries in US corporations. In function this 'equity law' would be most useful if it put a reasonable limit on the gap between the lowest and highest paid in a corporation. I believe Japan has such a law (for all corporations)?"

One similar idea that's been floating around for a while -- I remember Obama talking about it on the campaign trail for the Senate -- is a "Patriot Corporation." Basically, corporations would only be eligible for tax breaks/tax incentives if they met certain criteria. The idea is that companies that benefit Americans directly should get tax breaks; companies that send all their work overseas and just keep the money here should not.

The criteria typically include a multiplier between the highest and lowest salary (CEO can only make so many times more than the lowest-paid janitor), on-shoring a certain proportion of "essential functions" (manufacturing, call center, whatever the "essential function" of the company is), a certain baseline of benefits for full-time employees, a certain baseline of full-time and non-contractor employees (so they can't massage the statistics too much), etc.

There have been a variety of proposals with different emphases, but the point would be to incentivize the "good" behavior through the tax code, which would be quite legal; the tax code is adjusted to create incentives and disincentives all the time.
posted by Eyebrows McGee at 6:35 PM on June 3, 2011


Best answer: What you're proposing doesn't strike me as all that different in terms of constitutional authority from the affirmative action requirements that are currently in place for any employer that contracts with the U.S. government and that even extend to subcontractors (which, in the real world, means that the vast majority of U.S. companies are required to meet those requirements all the time - not just when they're carrying out a government contract).
posted by The World Famous at 7:00 PM on June 3, 2011 [2 favorites]


One thing that would make this problematic is the use of subsidiaries, shell corporations, joint ventures, etc... What happens if four companies team up to jointly provide a service to the federal government? Can they shift all the low-paying jobs to one of the companies to avoid the law? Or perhaps they could spin-off their lowest paid employees into a subsidiary and then subcontract with that subsidiary to provide those services? Can the CEO be employed by the international holding corporation while the contract goes to the US subsidiary? Federal contractors would be aggressively trying to exploit every loophole they can find.

It's also downright hard to deal with the exact definition of a salary in a way that doesn't leave huge loopholes. What if senior employees are paid a fairly low base salary but receive lavish bonuses? What if those bonuses aren't set until well after the contract is awarded? What about stock options? Stock grants? Restricted options that won't vest for years (so you don't know how much they are really worth)? Retirement benefits? Taxable and non-taxable benefits? Do you count overseas employees of a large multinational contractor? What about American employees stationed overseas? You'd have to have a massive book of rules to try to sort all this out, which would further increase the cost of federal procurement.

For a particularly weird case, think about Apple. Steve Jobs takes a $1 salary (plus stock options and such). Even if we ignore that, what do we do about the contracted workers at Foxconn who make most Apple products? They apparently make around $293/month (which is quite high, relatively speaking, as I understand it). Does this mean Apple would only be able to pay its senior executives, say, $6K/month (more than 20X) or the federal government can never buy a Mac? That seems rather unrealistic, and most PC makers aren't paying their contracted workers that much. The problem gets even trickier when we ask why we're drawing the line at the Foxconn assembly workers? What about the component manufacturers Apple uses, who are spread all over the world and may change constantly?

We often think of the janitor as the lowest-paid employee in a corporation, but really most companies don't actually employ janitors anymore; they hire a service like ABM that provides cleaning and maintenance services. The actual workers are employed by the contractor, so it's the janitorial service that sets their salaries and working conditions. How would that factor into this law? If anything, it seems to me that this law would create a perverse incentive for companies to outsource and offshore even more low-paying positions so that it would look like they had a more equitable compensation structure.

We deal with these issues to some extent because of the contracting preferences for small businesses, women and minority owned businesses, etc..., but this would be a lot more complex because it would require analysis of every employee's position. If the CEO's multimillion dollar paycheck is on the line, you'd better believe there would be shenanigans.
posted by zachlipton at 7:26 PM on June 3, 2011


Response by poster: I really appreciate all the thoughtful and detailed answers! I knew there would be many (*many*) reasons that the idea could be called 'unfeasible' -- but, as I was writing this I just wanted to know if there were constitutional/legal barriers.

To be honest, I totally agree that all of the above barriers (schemes, loopholes) could be instant reactions to such a law. I do agree that "If the CEO's multimillion dollar paycheck is on the line, you'd better believe there would be shenanigans." ... but ... I think even the discussion of this as a proposed law could bring the ethical questions up front to the public (not to mention could alert American consumers), and that alone could be powerful.

Still, I really do hope others can refute or argue for ways of plugging up the holes in this kind of law. We need something like this so badly.

Thank you, Eyebrows McGee, for sharing Obama's plans for the "Patriot Corporation". I will look into that.
posted by Surfurrus at 8:21 PM on June 3, 2011


There are legal arguments, and ultimately it would depend on how certain judges feel... but yes, the Constitution would permit the federal government to do that.
posted by J. Wilson at 10:12 PM on June 3, 2011


Seems pretty clearly constitutional to me (former civil rights lawyer): contracting requirements, fed spending in general, are basically an open field, unless the feds violate some specific constitutional prohibition (i.e. equal protection), there's very little constitutional restraint.
posted by paultopia at 12:44 AM on June 4, 2011


" Obama's plans for the "Patriot Corporation"."

For your googling ease, I don't think he came up with the idea ... I just first heard about it during his Senate campaign (since he was my senator). So I'm sure it dates to at least 2003/2004. There was a lot more bitching about outsourcing, at that time, than about executive pay, but both were part of it.
posted by Eyebrows McGee at 3:03 AM on June 4, 2011


It's kind of out of left field, but I think I've got a viable argument as to why such a law would be unconstitutional, and even if constitutional, unenforceable.

First, the unconstitutionality. What this law would do would essentially put limits on the ability of the Executive to do business with contractors. On the face of it, that's constitutional enough, as Congress does this sort of thing all the time with respect to affirmative action, unionization, gender equality, etc.

All of those restrictions are pretty easy to implement and don't fundamentally change the operation of a company. As such, finding companies that comply with these rules is really easy. But a law like this one is such a radical departure from the norm that it would probably be the case that there would be frequent instances where not a single qualifying bid was submitted. The result would be that a task which Congress has authorized the Executive to perform and provided funding to that effect would be barred because of contracting requirements. The Executive might well be able to argue that such a restriction is so draconian that it fundamentally interferes with the core duties of the Executive to such an extent that the law is impermissible as a violation of separation of powers.

But second, even if the law were constitutional, enforcing it would be pretty tough. Why? Because of standing. The courts really care about it, and routinely dismiss cases where the plaintiff lacks standing. To have standing, a plaintiff must have suffered some legally cognizable injury. If the Executive were to ignore this law... who would be injured? Congress? Congress can't sue the President; the courts view such disputes as non-justiciable political questions. Congress is entirely capable of enforcing its will by other means, and the Supreme Court is not likely to permit itself to be conscripted in that fight.

Other than Congress, who might be able to claim injury? The obvious answer would be a company that has complied with the regulations but loses a bid to a company that didn't. But if there were such a company, they would presumably get the bid. We're talking about a situation where there are no conforming bids, and the government selects one anyway. Taxpayers don't have the right to sue on the basis of that status, and no one else would seem to have any real dog in that fight.

Why, then, does the Executive comply with current congressional limitations on contracting? Mostly because Congress really is able to enforce its authority in other ways, largely through spending measures. It really is the big dog on the Hill when it wants to be. But a law like this one would so interfere with the ability of the Executive to get things done that the Executive might decide not to play ball. Congress would then have to decide exactly how serious they are about this sort of thing. Congress's normal response to the President doing things it doesn't like is to not pass legislation the President wants or to defund activities he likes. For example, if Congress was really serious about ending the wars in Afghanistan and Iraq (and now Libya) they could do it tomorrow by defunding the Defense Department. But that's kind of a drastic move, so they're reluctant to do it. But for Congress to enforce a law like this one, they'd probably need to look for something just that serious, otherwise the President would probably just ignore it.
posted by valkyryn at 4:05 AM on June 4, 2011


Surfurrus, have you looked at the Davis-Bacon Act?

Prevailing wage is not quite the same as salary equity, but it's a jumping-off point, at least.
posted by pineapple at 9:32 AM on June 4, 2011


Google Service Contract Act.

Of course it would be constitutional.
posted by Ironmouth at 11:46 AM on June 4, 2011


Other than Congress, who might be able to claim injury? The obvious answer would be a company that has complied with the regulations but loses a bid to a company that didn't. But if there were such a company, they would presumably get the bid. We're talking about a situation where there are no conforming bids, and the government selects one anyway.

Somebody in congress would file a writ of mandamus. It isn't a political question if there's a law on the books. It is a question of the chief magistrate not following the laws.
posted by Ironmouth at 11:50 AM on June 4, 2011


Whether a law is complied with - even by an executive agent - seems like a clear legal question... how is that a political question?

Standing is a separate question, but I think a rival corporation could make out a legally cognizable injury.
posted by J. Wilson at 6:43 PM on June 4, 2011


« Older Tell me what to do and where to eat for fun while...   |   Help me not move my office into a dank cave Newer »
This thread is closed to new comments.