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Originally Processed With FOIA(s):
FOIA Number:
S
S
FOIA
MARKER
This is not a textual record. This is used as an
administrative marker by the George Bush Presidential
Library Staff.
Record Group/Collection:
George H.W. Bush Presidential Records
Collection/Office of Origin:
Speechwriting, White House Office of
Series:
Speech File Backup Files
Subseries:
Chron File, 1989-1993
OA/ID Number:
13758
Folder ID Number:
13758-014
Folder Title:
National Federation of Independent Business 6/3/91 [OA 8324] [2]
Stack:
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G
26
21
4
4
THE WHITE HOUSE
WASHINGTON
MEMORANDUM FOR TONY SNOW
FROM:
JEFF VOGT an
SUBJECT:
NFIB JUNE 3 EVENT; SMALL BUSINESS ISSUES
Per our discussion, attached is the following:
1)
Gallup/NFIB parental leave member survey with revealing
statistics;
2)
NFIB's testimony on health care; and
3)
Proposed solutions offered to R. Porter from then SBA
Administrator Susan Engeleiter and her working group. *
*There are some solid recommendations here which we should
consider, many of which require no legislation but could show we
are proactive (i.e. tort reform; deductibility of health premiums
for self-employed/small business; information dissemination on
availability and cost to encourage private sector market forces.
As is most often the case, it would be nice to "push" the policy
process through incorporating health care in the NFIB remarks.
If no "new" policy can be pushed, I think it is essential to
acknowledge the health care crisis, especially as it relates to
small business.
Let me know your thoughts once you have reviewed. Thanks, Tony.
National Federation of
Suite 700
(202) 554-9000
The Guardian of
Independent Business
600 Maryland Ave. S.W.
FAX (202) 554-0496
Small Business
Washington, DC 20024
NFIB
NEWS
SMALL BUSINESS AND
FAMILY LEAVE
A GALLUP/NFIB SURVEY OF
950 SMALL BUSINESSES
Hold for Release Until 2 p.m. Monday, May 6, 1991
Contact: Terry Hill (202) 554-9000
NFIB SURVEY ON PARENTAL LEAVE
The following are the results of a telephone survey conducted by the Gallup Organization during the weeks of March 25 through April 19 across a sample of
950 small and independent business owner members of the National Federation of Independent Business. The sample was subdivided into four groups
[businesses with 2-14 employees, 15-49 employees, 50-99 employees, and 100 employees or more]. The purpose of the subsamples was to obtain sufficient
responses from owners of larger small firms to make observations about various sized businesses.
Survey results are presented in three ways. The column "Sm(all) Bus(iness) W(ei)ghted Total" contains the survey results weighting each subsample for its
proportionate share of the total small business population. The weights applied were: 2-14 employees = 84.4%, 15-49 employees = 11.1%, 50-99 employees =
2.6%, and 100 employees or more = 1.9%. The column, "Empl(o)ye(e) W(ei)ghted Total," contains the survey results weighting each subsample for its
proportionate share of people employed in small businesses. The weights applied were 27.5%, 50-99 employees = 14.3%, and 100 employees or more = 29.5%.
The weights were developed from the Small Business Data Base. (See, The State of Small Business. 1990, Office of Advocacy, Small Business Administration,
pp. 74-75 and 124-125.) Finally, the unweighted total response, "Survey Total" column, is presented for questions 2 through 8. The reason for this form of
presentation is that the number of respondents to these questions was so small that weighting responses could provide misleading data. Therefore, the results of
questions 2 through 8 should be considered no more than suggestive.
Empl* = employee size of business
Sm Bus
Emplye
2-14
15-49
50-99
100+
Wghted
Wghted
Empl*
Empl*
Empl*
Empl*
Total
Total
1. Do you have a policy regarding employees who
request time off for a serious family illness, including
the birth of a child; or, do you handle such requests
for time off on a case-by case basis?
n=260
n=236
n=231
n=233
n=950
n=950
1. Policy
1%
6%
14%
22%
2%
10%
2. Case-by-case
92
89
84
76
91
86
3. Never thought about it
7
5
2
1
6
4
4. Don't Know/No Answer
1
0
0
1
1
0
2-14
15-49
50-99
100+
Survey
Empl*
Empl*
Empl*
Empl*
Total
2. If "Policy" - Is the policy written and available
to employees on request?
n=2
n=14
n=32
n=48
n=96
1. Yes
*%
*%
84%
98%
91%
2. No
*
*
13
2
8
3. Don't Know/No Answer
*
*
3
0
1
2a. Do you have a different policy for employees
requesting time off to care for a sick family member
and employees requesting time to deliver a child?
If "Yes," which gives more time off - maternity
leave or leave for a family illness?
n=2
n=14
n=32
n=48
n=96
1. Yes, maternity leave is more generous
*%
*%
25%
31%
31%
2. Yes, leave for family illness is more generous
*
*
0
10
6
3. No/About the same
*
*
66
53
57
4. Don't Know/No Answer
*
*
9
6
6
3. Which best describes your policy on such matters?
Is it that:
n=2
n=14
n=32
n=48
n=96
1. An employee can come back to work when he or
she is ready
*%
*%
22%
33%
31%
2. Time off is given, but it is limited
*
*
69
58
62
3. No Time off is given, but you try to rearrange the
employee's schedule or duties
*
*
3
4
3
4. No time off given
*
0
0
0
5. Don't Know
*
6
2
4
4. If limited leave given - What is the limit? (Open)
n=1
n-8
n=22
n=28
n=59
1. Less than one week
*%
*%
4%
4%
5%
2. A week to a month
*
*
14
18
17
3. One to three months
#
*
59
32
41
4. Three months or more
*
14
28
24
5. Don't Know/No Answer
#
9
18
13
2-14
15-49
50-99
100+
Survey
Empl*
Empl*
Empl*
Empl*
Total
5. Is the time an employee spends on family leave
with pay or without pay?
n=2
n=14
n=29
n=44
n=89
1. Without pay
*%
*%
70%
68%
69%
2. With pay and/or disability
*
*
10
11
12
3. With disability for maternity leave and without
pay for a family illness or paternity leave
*
*
0
5
6
4. (Depends on other factors, e.g., length of
employment)
*
*
10
14
11
5. Don't Know/ Answer
*
*
10
2
2
6. How long does an employee have to be work for
your firm to be eligible for family leave? (Open)
n=2
n=14
n-29
n=44
n=89
1. Less than four months
*%
*%
45%
46%
45%
2. Four months to a year
*
*
31
27
27
3. More than a year
*
*
14
16
18
4. Don't Know/No Answer
*
*
10
11
10
7. Does your family leave policy apply identically
to male and female employees?
n=2
n=14
n=29
n=44
n=89
1. Yes, Identically
*%
*%
87%
84%
86%
2. Identical for family illness; different for birth of
a child
*
*
7
2
3
3. No, different for males and females
*
*
0
9
6
4. Family leave for males has never been an issue
*
*
3
5
4
5. Don't Know/No Answer
*
3
0
1
8. Why did you establish a family leave policy?
Was it because:
n=2
n=14
n=32
n=48
n=96
1. You had so many requests for leave that you
needed a policy
*%
*%
6%
6%
6%
2. A state law or regulation forced you to
*
*
9
8
7
3. You established a policy to avoid potential
problems
*
25
42
38
4. It was part of a union contract or labor
negotiation
*
*
3
4
4
5. To use as a benefit to attract employees
*
31
27
27
6. Don't Know/No Answer
*
*
3
13
9
Sm Bus
Emplye
2-14
15-49
50-99
100+
Wghted
Wghted
Empl*
Empl*
Empl*
Empl*
Total
Total
9. If you handle requests for time off on an individ-
ual-by-individual basis, what factors do you use (or
would you use) to determine whether to give leave
or how much leave to give?
n=258
n=222
n=199
n=175
n=854
n=854
A. The number of prior requests the employee has made
for time off
1. Very Important
35%
37%
32%
32%
35%
34%
2. Important
44
42
46
46
44
44
3. Not Too Important
11
15
14
15
12
14
4. Not At All Important
5
4
7
5
4
5
5. Don't Know/No Answer
5
2
1
2
5
3
B. The length of time the employee has worked for you
1. Very Important
26%
29%
28%
25%
27%
27%
2. Important
47
47
48
51
47
48
3. Not Too Important
17
16
18
17
17
17
4. Not At All Important
8
6
5
7
7
7
5. Don't Know/No Answer
2
1
2
0
2
1
Sm Bus
Emplye
2-14
15-49
50-99
100+
Wghted
Wghted
Empl*
Empl*
Empl*
Empl*
Total
Total
C. Whether the business is busy at the time
1. Very Important
38%
38%
31%
29%
38%
34%
2. Important
42
37
35
43
41
40
3. Not Too Important
12
18
26
18
14
18
4. Not At All Important
6
6
8
8
6
7
5. Don't Know/No Answer
2
0
0
2
1
1
D. The difficulty of replacing the employee
1. Very Important
39%
35%
33%
33%
38%
35%
2. Important
35
40
39
41
36
39
3. Not Too Important
17
16
16
18
17
17
4. Not At All Important
6
7
9
8
6
7
5. Dont' Know/No Answer
3
2
3
0
3
2
E. The seriousness or nature of the employee's family
situation
1. Very Important
46%
47%
44%
42%
46%
45%
2. Important
43
45
45
51
43
46
3. Not Too Important
5
4
5
3
5
4
4. Not At All Important
4
2
4
3
4
3
5. Don't Know/No Answer
3
2
3
1
2
2
F. The employee's value to the business
1. Very Important
44%
49%
49%
46%
45%
46%
2. Important
47
41
38
42
46
43
3. Not Too Important
4
5
6
7
5
6
4. Not At All Important
3
3
5
4
3
4
5. Don't Know/No Answer
2
2
2
1
1
1
G. The amount of time the employee intends to take
1. Very Important
43%
43%
42%
37%
43%
41%
2. Important
44
42
49
53
44
47
3. Not Too Important
7
12
5
7
7
8
4. Not At All Important
3
2
4
3
3
3
5. Don't Know/No Answer
3
1
0
0
3
1
10. If a typical employee, someone working for the
average wage, average job tenure, etc., asked you
t omorrow for indefinite time off to care for a
seriously ill child or parent, what would you be most
likely to say? Would you say:
n=258
n=222
n=199
n=175
n=854
n=854
1. You can have time off; your job will be here
when you come back
23%
21%
18%
23%
23%
22%
2. You can have time, but I can't hold your job
open indefinitely
45
49
56
56
46
51
3. I can't give you more than a day or two off, but
let's try to rearrange your schedule
16
16
13
10
16
14
4. At most I can give you a day or two, but I have
to have someone in the job
11
9
10
6
11
9
5. Don't Know/No Answer
4
5
3
5
4
4
11. If the law required you to provide unpaid family
leave of up to 90 working days a year, how would
change the way you currently handle requests for
family leave
n=252
n=234
n=231
n=223
n=940
n=940
1. Generally increase the amount of time off
17%
26%
29%
38%
19%
28%
2. Generally decrease the amount of time off
25
17
19
8
23
17
3. Increase time off for some and decrease for others
13
16
11
11
13
13
4. (Nothing/Wouldn't change much of anything)
29
29
29
30
30
29
5. Don't Know/No Answer
15
13
11
13
15
13
Sm Bus
Emplye
2-14
15-49
50-99
100+
Wghted
Wghted
Empl*
Empl*
Empl*
Empl*
Total
Total
12. If the law required you to provide unpaid family
leave of up to 90 working days a year, would you be
more likely or less likely to:
n=260
n=236
n=231
n=223
n=950
n=950
A. Require a doctor's excuse or other documentation
before granting leave
1. More Likely
74%
82%
84%
82%
76%
80%
2. Less Likely
12
7
2
4
11
7
3. (No More or Less Likely)
13
10
14
14
13
13
4. No Answer
1
1
0
0
0
0
B. Hire young women
1. More Likely
12%
4%
6%
5%
11%
7%
2. Less Likely
46
42
38
32
45
40
3. (No More or Less Likely)
39
51
53
59
41
50
4. No Answer
3
1
3
4
3
3
C. Reduce or eliminate other employee benefits such as
paid vacations, unpaid personal leave or health
insurance
1. More Likely
55%
50%
52%
46%
55%
51%
2. Less Likely
17
16
14
18
16
17
3. (No More or Less Likely)
24
31
30
33
25
29
4. No Answer
4
3
3
3
4
3
D. Reduce the number of jobs for low-skilled workers
1. More Likely
48%
37%
34%
31%
46%
38%
2. Less Likely
18
20
19
17
18
19
3. (No More or Less Likely)
29
39
45
47
31
40
4. No Answer
5
4
2
5
5
4
13. Within the last three years, have you had an
employee request time off for a serious family
illness or to give birth?
n=260
n=236
n=231
n=223
n=950
n=950
1. Yes
29%
60%
73%
78%
34%
59%
2. No
71
40
27
21
66
41
3. Don't Know/No Answer
0
0
0
1
0
0
14. If Yes - About how many times has it occurred
in the last three years? (Open)
n=75
n=142
n=168
n=175
n=560
n=560
1. Once
39%
25%
13%
5%
36%
22%
2. Two to three
43
45
35
21
42
38
3. Four to five
6
10
17
12
7
11
4. Six to nine
7
13
15
12
8
11
5. 10 or more
2
6
15
34
4.
15
6. Don't Know/No Answer
3
1
5
6
3
3
15. Think of the most recent instance. Did it involve
a serious family illness or birth?
n=75
n=142
n=168
n=175
n=560
n=560
1. Serious family illness
70%
46%
39%
33%
66%
48%
2. Birth
29
53
60
65
33
51
3. Don't Know/No Answer
1
1
1
2
1
1
16. What best describes how you handled the request
for family leave?
n=75
n=142
n=168
n=175
n=560
n=560
1. Granted the request
95%
89%
87%
93%
94%
92%
2. Scaled back the time off requested, but gave leave
0
7
8
5
1
5
3. Rearranged the schedule and duties, but didn't
give time off
4
1
4
0
4
2
4. Denied the request
0
0
1
1
0
0
5. Don't Know/No Answer
1
2
1
1
1
1
Sm Bus
Emplye
2-14
15-49
50-99
100+
Wghted
Wghted
Empl*
Empl*
Empl*
Empl*
Total
Total
17. If leave given - How did you make up for the
employee's absence? Did:
n=71
n=137
n=160
n=171
n=539
n=539
A. You hire a temporary employee?
1. Yes
20%
32%
34%
35%
22%
30%
2. No
80
67
64
65
78
70
3. Don't Know/No Answer
0
1
0
0
0
0
A1. If Yes - Did that temporary employee eventually
draw unemployment benefits?
n=14
n=44
n=55
n=59
n=172
n=172
1. Yes
*%
7%
15%
8%
7%
8%
2. No
*
89
75
72
80
79
3. Don't Know/N/A
*
4
10
20
13
13
B. You have other employees cover or work more
hours?
n=71
n=137
n=160
n=171
n=539
n=539
1. Yes
79%
85%
91%
87%
80%
85%
2. No
20
15
9
13
19
15
3. Don't Know/No Answer
1
0
0
0
1
0
C. You or a family member of yours work more hours?
1. Yes
93%
55%
43%
32%
86%
57%
2. No
7
45
57
68
14
43
3. Don't Know/No Answer
0
0
0
0
0
0
D. The work did not get done; it was postponed
1. Yes
34%
26%
24%
24%
32%
27%
2. No
66
74
76
75
68
73
3. Don't Know/No Answer
0
0
0
1
0
0
E. You sent the work to another firm to be done
1. Yes
7%
4%
6%
2%
7%
5%
2. No
93
96
94
97
93
95
3. Don't Know/No Answer
0
0
0
1
0
0
F. You limited the amount of business you accepted
for awhile
1. Yes
23%
8%
8%
6%
20%
11%
2. No
76
92
92
94
79
89
3. Don't Know/No Answer
1
0
0
0
1
0
G. You reduced customer services - made fewer sales
calls, etc.
1. Yes
31%
14%
17%
12%
28%
19%
2. No
69
85
83
88
72
81
3. Don't Know/No Answer
0
1
0
0
0
0
18. What was the principal problem caused by the
employee's absence?
n=71
n=137
n=160
n=171
n=539
n=539
1. Finding a temporary replacement
6%
1%
7%
5%
5%
4%
2. Increased workload for others
37
33
35
31
36
34
3. Cost of maintaining benefits and paying the
replacement
6
4
4
6
5
5
4. Training the replacement
3
8
8
12
3
8
5. Lost productivity/disruption of work or client
relationship
20
13
10
12
19
14
6. Shifting workers around to fill in
17
30
29
26
19
25
7. None/No real problems
11
6
2
4
10
6
8. Other
0
5
8
4
1
4
9. Don't Know/No Answer
0
0
0
0
0
0
Sm Bus
Emplye
2-14
15-49
50-99
100+
Wghted
Wghted
Empl*
Empl*
Empl*
Empl*
Total
Total
19. Did you continue to pay all or part of the absent
employee's health Insurance premium?
n=71
n=137
n=160
n=171
n=539
n=539
1. Yes
45%
72%
72%
82%
50%
67%
2. No
10
4
9
6
9
7
3. Employee not covered by health insurance
45
23
18
10
41
25
4. No Answer
0
1
1
3
0
1
20. When family leave was given in the last three
years, did an employer ever:
n=75
n=148
n=168
n=175
n=566
n=56
A. Not use the leave for the intended purpose
1. Yes
15%
8%
17%
14%
14%
13%
2. No
83
85
76
78
83
81
3. Don't Know/No Answer
2
8
7
8
3
6
B. Quit just before he or she was supposed to return
1. Yes
8%
21%
37%
37%
11%
24%
2. No
91
78
61
61
88
74
3. Don't Know/No Answer
1
1
2
3
1
2
C. Use the family illness as an excuse to get out of things
at work they didn't want to do
1. Yes
19%
14%
23%
18%
18%
18%
2. No
77
81
75
76
78
78
3. Don't Know/No Answer
4
5
2
6
4
4
D. Stay out longer than necessary
1. Yes
25%
23%
31%
25%
25%
25%
2. No
74
73
64
69
73
71
3. Don't Know/No Answer
1
5
5
6
2
4
21. Suppose an employee quit his or her job to care
for a sick family membr or to give birth. Would you
be likely to rehire that person when a job opened for
which he or she is qualified?
n-260
n=236
n=231
n=223
n=950
n=950
1. Yes, likely
74%
68%
71%
73%
73%
72%
2. No, unlikely
7
10
7
5
7
7
3. Totally dependent on prior employee performance
and other job applicants
18
22
19
20
19
20
4. No Answer
1
0
2
2
1
1
22. What if the government required employers to
notify such former employees of any job opening
for which they are qualified? Would you favor or
oppose such a law?
n=260
n=236
n=231
n=223
n=950
n=950
1. Favor
20%
14%
10%
6%
19%
13%
2. Oppose
76
83
85
92
77
84
3. (Don't Care)
3
2
3
1
3
2
4. No Answer
1
1
2
1
1
1
23. Please tell me a little about the people working for
you. How many employees work: (Open)
n=260
n=236
n=231
n=223
A. Full-time (ave)
5
24
57
154
B. Part-time (ave)
1
9
34
48
24. How many are:
A. Full-time employ-under the age of 40 (ave)
1
4
15
45
B. Part-time employee are women under the age of 40
(ave)
1
3
14
28
2-14
15-49
50-99
100+
Empl*
Empl*
Empl*
Empl*
25. How many are:
A. Full-time employees are paid less than, or within a
few cents of, the minimum wage (ave)
1
1
2
5
B. Part-time employees are paid less than, or within
a few cents of, the minimum wage (ave)
1
3
7
16
Demographic information -
Sex (interviewer designation)
1. Male
79%
84%
87%
86%
2. Female
21
16
13
14
Please tell me how old you are?
1. < 30
4%
4%
0%
3%
2. 30 thru 39
24
22
22
20
3. 40 thru 49
31
31
27
35
4. 50 thru 59
25
22
32
22
5. 60+
15
20
19
20
6. No Answer
1
0
0
0
State (member data)
SIC (member data)
D
Withdrawal/Redaction Sheet
(George Bush Library)
Document No.
Subject/Title of Document
Date
Restriction
Class.
and Type
01. Memo
Susan Engeleiter to Roger Porter, re: Status Report on SBA
02/14/91
P-5
Health Insurance Initiative. (16 pp.)
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BUSINESS
U.S. SMALL BUSINESS ADMINISTRATION
WASHINGTON, D.C. 20416
1051
OFFICE OF THE ADMINISTRATOR
COPY
TO:
Roger Porter
Assistant to the President for Economic and Domestic
Policy and Director, Office of Policy Development
FROM:
Susan Engeleiter
Administrator
RE:
Status Report on SBA Health Insurance Initiative
DATE:
February 14, 1991
As you know, affordable health care and health insurance are No.
1 issues on the agendas of most trade associations representing
small and medium businesses. In my role as an advocate for small
enterprises, I began a process last October to produce policy
recommendations on this issue. This memo provides you with an
interim report. The policies presented here do not comprise a final
or comprehensive health-care initiative, but rather a status report
on policies emerging from an evaluation of small business insurance
issues.
Background
À major component of the "health care crisis" is the problem of
the uninsured. Between 34 million and 36 million Americans lack
health care coverage. In the last quarter of 1988, some 63 million
Americans went without health coverage for at least one month.
Many of these Americans are "working uninsured". According to the
Survey of Income and Program Participation (SIPP) conducted by the
U.S. Bureau of the Census in 1984, 8.2 million of the uninsured are
private wage-and-salary workers. An additional 1.6 million are
small business owners, primarily sole proprietors. Almost half of
the working uninsured are employed in firms with fewer than 25
employees; a third work in firms where there are fewer than 10
employees.
The bottom line is that the small business community is a large
part of the health insurance problem, and can be a large part of
the solution.
1
The significance of these figures is underscored by the following:
1) health care coverage in the U.S. is predominantly employment-
based; and 2) the U.S. attained almost full employment at the end
of the 1980s. Based upon the experience of the previous decades,
policymakers anticipated that rising employment would result in a
corresponding increase in health care coverage among workers.
Instead, as millions of new jobs were created in the last decade,
the number of uninsured also increased. Small firms (those with
fewer than 500 employees) were responsible for two-thirds of all
the new jobs created since 1980. Health policy officials began to
examine why these firms were unable to provide health insurance to
their employees.
Employers of all sizes sponsor benefit packages for their employees
for a variety of reasons -- attracting qualified employees in an
increasingly competitive market, retaining employees, minimizing
employee turnover and the concomitant costs of training new
workers, maintaining employee morale and minimizing lost production
time due to worker illnesses.
Data from the SBA's Office of Advocacy indicate that these
pressures will intensify on small and medium businesses in the
years immediately ahead. The growth in the labor force is
shrinking, while the number of jobs, most created by small
companies, will continue to increase. To attract and retain those
workers, small companies will have to offer competitive benefit
packages, including health insurance.
A number of factors conspire to make this goal more difficult and
the cost of health insurance more burdensome for small companies
than for larger companies. For example:
*
The composition of the small business work force is
different from that of larger firms. Small firms proportionally
hire more younger and older workers than larger firms (61 percent
and 80 percent, respectively, in 1988). These groups are often
harder and more expensive to insure.
* The turnover rate in small firms is much higher than in
larger firms. About 27 percent of workers in small firms move
every year, compared with 15 percent in large firms. Also, more
workers in small firms are likely to be returning to jobs after
absences.
*
Small businesses use many part-time workers. Over 20
percent of all those employed in small firms in 1988 worked less
than 35 hours per week.
* Very small firms, usually with fewer than 20 employees, and
individuals are medically underwritten, which is an expensive
process. Medical underwriting assesses the health status of each
2
individual to determine whether or not the firm will be accepted
for coverage and whether certain employees or illnesses will be
excluded from coverage. This differs from group coverage where
the rating is based on the group as a whole.
* In a small firm, where fewer people are available over which
to spread the risk, a single high-cost illness has a much greater
effect.
* The administrative costs of insurance are higher for small
companies. It's more costly for an insurance company to cover 10
employees in 100 firms than 1,000 employees in one large firm.
* Costs are also higher because the insurance company, rather
than the employer's in-house staff, must absorb many of the
administrative functions of the plan.
* Moreover, small firms are less likely to self-insure; only
5 percent of firms with fewer than 100 employees are self-insured,
compared to 40 percent of firms with more than 500 workers.
* Plans may also be relatively more expensive for very. small
employers because small employers are more likely to pay all health
premium costs rather than require some employee contribution.
Seventy percent of firms with fewer than 100 workers pay all of
their employees' single premium contracts, compared to 61 percent
of firms with 100 or more workers.
Premiums for health plans provided by small firms can run as high
as 30 to 40 percent above the cost of the same or a similar plan
for larger firms. This is primarily attributable to medical
underwriting and administration costs.
No one -- not employers, not employees, not the health insurance
industry, not the federal government, not state governments, not
the uninsured unemployed, not the providers of health care services
-- no one doubts that something needs to be done to address the
problems facing this nation's health delivery and payment system.
The dilemma continues to be how to do it -- who will pay, how much,
for what services.
We are not in want of studies and recommendations on the issues
and we are not in want of coalitions of interested parties
promoting possible solutions to the problems of the current system.
We are in want, however, of consensus on how to design and
implement comprehensive health care delivery and payment system
reforms.
Without affordable and available health care we have (to name a
significant few problems):
3
* Low birthweight babies who need additional care and
nurturing to meet learning potential;
Workers who are less productive because of absences due to
illness;
Families who postpone routine diagnostic and preventive
health care because they cannot pay for the health care
services;
Higher health care costs when postponed routine and lower-
cost preventive health care results in the need for higher
cost acute care and needless deaths from treatable diseases;
* Increasing demand for programs to address the needs of the
medically uninsurable.
In his 1990 State of the Union address, President Bush charged
Secretary Sullivan with formulating a health care strategy. That
work continues. Secretary Sullivan reportedly has talked about
stressing prevention during the coming year -- a theme mentioned
in the President's 1991 State of the Union address -- and has
discussed the need to strive for a national consensus on health
policy.
Despite the current lack of consensus on comprehensive reform, I
believe that in the interim, the Administration can begin work with
the small business sector to improve the price and frequency of
insurance coverage. These interim steps can show progress on the
health care front, delivering coverage to more Americans and easing
the sense of frustration the business community feels over this
issue.
Process
I initiated a five-step process last fall to engage small business
leaders in a discussion of potential solutions to the health
insurance problem. The five steps were as follows:
* On October 25, 1990, I convened a roundtable that included
representatives of key small business, insurance, regulatory
and medical industry groups. (TAB A lists participants.) Mike
McKevitt, Chairman of the SBA National Advisory Council (NAC)
Health Care Committee, co-chaired this meeting. From it
emerged a great deal of background information on the problems
of insuring small companies and a number of consensus ideas
for addressing those problems. This information was provided
to NAC.
4
In early December, Mr. McKevitt's Health Care Committee
recommended, and the entire NAC endorsed, a series of
recommendations on what the Administrator of SBA should
advocate to address the health care issue. (TAB B lists
participants.)
* In mid-December, the NAC recommendations were presented to
the 11th Annual Small Business Legislative Conference
sponsored by the SBA in Atlanta. The comments of conference
participants, mostly state legislators, were folded into the
evolving policy recommendations.
* In December and January, the emerging recommendations were
reviewed by a nationally regarded consultant on health care
issues, Prof. Roger Formisano of the University of Wisconsin-
Madison School of Business.
* SBA's Office of Advocacy, a statutorily created office of
attorneys and economists who specialize in small business
issues, reviewed all of the materials generated thus far and
made its recommendations to me.
Recommendations
1. "Basic Health Needs" Coverage for Employees of Small Businesses
Issue: Federal law reserves to states the right to regulate health
insurance. Many states have established mandates on health
services. In some cases, mandates prescribe offerings; in others,
they bind employers and the insured to specific policy benefits.
The growth in the number and nature of these mandates has been
substantial. A recent study ("The Price of State Mandated
Benefits", Jon R. Gabel and Gail A. Jensen, Inquiry, Winter 1989)
counts 730 state mandates, up from 343 in 1978. These mandates
significantly increase the cost of health insurance coverage for
small companies. Gabel and Jensen strongly suggest a relationship
between mandated benefits and decisions by small firms not to offer
health coverage.
Most larger companies, because of economies of scale, can escape
these mandates and state premium taxes by self-insuring, which
exempts them from state regulation under the terms of ERISA. Thus,
state mandates not only raise the cost of coverage for small firms,
but contribute to inequities between the insurance capabilities of
large and small firms.
On the positive side, mandates can assure that health consumers
have access to certain important types of health care, such as
prenatal care and mammography. It is not likely or necessarily
5
advisable that all state-imposed mandates be rolled back. However,
market forces can be expected to exert significant pressure on
businesses to offer some coverage now mandated by states.
Demographic factors like the slowing growth of the workforce will
require that small companies offer the best fringe benefit packages
possible in order to attract and retain the best workers.
Because the cost of mandated coverage can price insurance beyond
the reach of small companies, there are signs of a movement to roll
back state mandates. Several states have now legislated rollbacks
(Rhode Island, Virginia, Kentucky, Florida, Illinois, Missouri and
Washington) in order to make basic coverage available to small
companies. More states are expected to follow suit this year.
Some states have minimized the objections of the health care and
insurance industries to these rollbacks by extending eligibility
for basic coverage only to very small firms (less than 25 employees
is a common cutoff) who have had no insurance during the previous
year. Thus, rollbacks do not reduce participation in the insurance
market; they add participation by applying to companies previously
unable to participate in the market.
There are several options for leveraging rollbacks. The least
intrusive is to encourage states to roll back their mandates
voluntarily. The most intrusive option is to amend ERISA to preempt
state regulation of health insurance with uniform federal
regulation.
A middle-ground option would be for the federal government to
"qualify" insurance plans that meet certain basic standards.
Standards might include managed care, copayments and deductibles,
dependent coverage, minimum employer contributions, enlightened
underwriting practices and other policies recognized as beneficial
to help lower the overall costs of insurance. The Administration
could convene a task force to define these standards. Qualified
plans would be exempt from state-imposed mandates and premium
taxes. While this option is not as intrusive as blanket federal
regulation of health insurance, it would still allow selective
preemption of state regulation and would raise serious federalism
questions. In addition, it would require the creation or expansion
of federal bureaucracy to qualify insurance plans.
On the positive side, the option would allow exemption from state
mandates to be used as leverage for the spread of model health
insurance coverage.
This option was suggested by University of Wisconsin Business
School Professor Roger Formisano, who consulted with SBA during
the health policy process. The option was neither considered nor
endorsed by the SBA National Advisory Council or the SBA's national
roundtable in October.
6
Proposals: The National Advisory Council has recommended that I
strongly advocate the rollback of state-imposed mandated coverage,
allowing small businesses to purchase "Basic Health Needs"
coverage.
As a former state legislator sensitive to state rights, I favor
the voluntary approach, at least initially. I recently published
an editorial in the Christian Science Monitor urging states to act.
Federal officials can promote state action by advocating the need
to make basic coverage available to small companies that otherwise
can afford none. We can point out a number of arguments, ranging
from the troubling human dimension of employees and families going
without health coverage to the fact that affordable health
insurance must now be regarded as a basic business climate issue
in each state. In other words, businesses considering where to
locate should investigate the costs of providing health coverage
in host states.
Federal officials can praise states that voluntarily roll back
their mandates. The Administrator of SBA, for example, can name an
"Honor Roll" of rollback states each year during Small Business
Week.
The majority of small business trade associations favor firmer and
faster action: the amendment of ERISA to preempt states' ability
to impose mandates.
2. Full Deductibility of Health Premiums for Sole Proprietorships
and Partnerships
Issue: Current tax incentives are inequitable for employer-
sponsored health care. Corporations, with the exception of Chapter
S corporations, are allowed to deduct 100% of the cost of health
insurance provided to themselves, their spouses and their
dependents.
Most small businesses are organized as partnerships, sole
proprietorships or Chapter S corporations. Under the Tax Reform Act
of 1986, these businesses can deduct only 25% of their health care
costs. This temporary deduction was extended by the last Congress.
Apart from deductibility, large companies enjoy a number of
competitive advantages over small businesses in regard to health
benefits for employees. As I mentioned earlier, large companies
often have sufficient numbers of employees to self-insure, which
allows them to escape state mandate and premium taxes. The
economies of scale of larger companies tends to lower their per-
employee costs. Because they command larger groups of consumers,
large companies can bargain rates with health care providers, who
then shift the cost of those lost revenues to small businesses
without bargaining power. Thus, small business trade associations
view full deductibility as an important issue of equity.
7
In addition to the equity issue, expansion of this deduction makes
for sound health care policy since most of the working uninsured
are found in smaller firms. A major reason for this is cost. As
mentioned on the first page of this memo, 8.2 million of the
uninsured are private wage-and-salary workers. An additional 1.6
million of the total are small business owners (primarily sole
proprietors). Almost half of the working uninsured are employed in
firms with fewer than 25 employees; a third work in firms where
there are fewer than 10 employees.
Therefore, increasing the deduction for small employers makes sense
if we are to encourage the provision of health care. The net cost
of health insurance to the small business owner will be reduced,
resulting in an increase in the acceptability of offering health
insurance to employees.
The Joint Committee on Taxation estimated on Jan. 15, 1991, that
100% deductibility for partnerships, sole proprietors and Chapter
S corporations would cost $8 billion over five years, including
$1.1 billion the first year. However, these costs must be weighed
against the health costs suffered by small business employees who
lack sufficient insurance coverage.
Proposal: The Administration previously has advocated extension
of 25% deductibility, but has opposed full deductibility. I would
recommend that the Administration endorse full deductibility.
3. Education for Small Employers
Issue: Small businesses need clear and consistent information on
how to find and provide health insurance for their employees.
Information should be disseminated on strategies for reducing
health insurance costs, such as deductibles, copayments and managed
care programs. Training sessions should also be held to provide the
technical assistance needed.
Proposal: Assuming sufficient budget resources, the SBA will
undertake a nationwide effort to train small businesses in how to
construct, shop for and maintain affordable health coverage for
their employees and how to educate employees in the proper use of
health care.
SBA will work with private organizations and other interested
public agencies to design and disseminate educational programs to
small employers. Key subjects of the educational programs will be
prevention; the use of cost-containment strategies, including
deductibles, copayment and managed care; techniques for sharing
and/or spreading risk (risk pooling, the use of employee leasing,
etc.) ; understanding insurance company renewal and underwriting
8
practices; the use of other fringe benefits to support health care
needs, and the education of employees in health care costs and
consumerism.
4. Reform of Medical Malpractice Insurance
Issue: Medical malpractice and defensive medicine significantly
increase health care costs. While various states have enacted tort
reform, many believe that federal legislation is needed. The
threat of medical malpractice claims is estimated to add some $4
billion to the costs of health care each year. It is also estimated
that 70% of physicians order more diagnostic care; 14% were found
to order unnecessary tests and procedures. This defensive action
on the part of doctors costs an estimated $100,000 per year per
physician.
Proposal: States have begun to act on tort reform at the state
level. The SBA should continue to advocate medical malpractice
reform and to support the efforts of the Domestic Policy Council
working group addressing tort reform.
5. Managed care Programs
Issues: Managed care programs involve restricting employee access
to doctors and hospitals as a means of controlling costs (e.g.,
PPOs, HMOs), thereby leading to an increase in health insurance
coverage in small businesses. These programs can reduce the cost
of health insurance based on arrangements made between the payers
and providers. Studies show that the use of a managed care health
plan with built-in restraints on the use of health services can cut
costs by 5 to 10 percent.
Most insurance carriers offer a variety of managed care features,
including prior approval for hospital admissions, second opinions
for surgery, case management and discharge planning. A number of
insurers also offer preferred provider organizations (PPO), a group
of doctors who agree to discount their fees, usually by about 10
to 20 percent.
Studies reveal, however, that providers and employees tend to lack
enthusiasm for managed care programs. At issue for employees is
the fact that deductibles and co-payments are much higher if
covered participants seek care from doctors that are not on
approved lists. Insured employees are also often not willing to
change doctors to those in the PPO. For providers, these programs
have resulted in changes in their levels of control over medical
decisions. Also, they do not necessarily wish to reduce their fees.
Proposals: SBA will conduct a data search to determine and
publicize savings that small and medium businesses can achieve
9
through managed care strategies. If no data exist, SBA will
contract for a study to quantify those savings.
Managed care will be emphasized in the SBA national education and
training initiative outlined above. Other Administration officials
may also want to emphasize the importance of managed care so that
employees are gradually persuaded that this strategy is necessary.
6. Reconsideration of COBRA's provisions on continuation coverage
for employees
Issues: The Consolidated Omnibus Budget Reconciliation Act (COBRA)
requires employers to offer up to 18 months of continued health
care coverage to employees who terminate employment, except those
who were fired for gross misconduct. In addition, up to 36 months
of coverage must be offered to employees' dependents who lost
health care coverage because of the death of the employee, divorce
or marital separation. Employers are permitted to charge
beneficiaries a premium of up to 102% of the group rate.
In 1989, the law was amended to allow former employees to obtain
coverage for 29 months if they are ineligible for Social Security
benefits. , In addition, individuals with pre-existing medical
conditions can retain COBRA benefits even if they are later covered
by another employer plan.
According to employers, COBRA has become extremely expensive.
Employers' costs often exceed the 102% they can charge
beneficiaries. Also, the ability of the original employer to change
insurance carriers is limited since many insurance companies will
not insure employers who have former employees or their dependents
taking advantage of COBRA benefits.
COBRA provides a disincentive to employers to offer coverage, since
it applies only to companies that offer coverage.
Proposal: Assuming sufficient budget resources, SBA will undertake
a study that examines the impact of COBRA on health care costs to
small employers. A current SBA health benefits survey of 5,000
businesses, scheduled to be completed in June/July 1991, will
determine the extent to which COBRA is a barrier to offering health
insurance coverage. However, a follow-up study will be needed to
determine actual costs of continuation coverage to small employers.
SBA will also attempt to determine how costs to the employer could
be reduced by various reforms. Reforms advanced to date include
increasing the amount a beneficiary has to pay by a certain
percentage, repealing the 1989 amendments, and approving a new
amendment that forbids insurance companies from denying coverage
to small businesses whose former employees have utilized COBRA.
10
In addition, the Administration should press for congressional
hearings to examine COBRA and its impact. At no time has a
Congressional Committee addressed the impact of COBRA. If the
committees of jurisdiction are reluctant to hold the hearings, the
House and Senate Small Business Committee should be approached.
7. Copayments and Deductibles
Issues: Although cost control mechanisms are necessary and should
be encouraged, significant numbers of employees are finding it
difficult to meet the copayments and deductibles imposed by
employers. Under some policies, once the deductible is met, full
payment will occur without limit. Other policies, to control costs,
have copayment clauses. Copayments often require the insured to
pay a certain amount for health care in excess of the deductible.
Deductibles and copayments can be expensive for the employee. For
employers, however, the higher the deductible, the lower the health
insurance premium. In addition, when insured make copayments, they
are more likely to shop for the most cost-effective treatment
available. Studies show that cost sharing substantially reduces
the demand for medical care.
Proposal: As a component of any comprehensive approach to the
problem of the uninsured, SBA should encourage utilization of
deductibles and copayments to hold down the cost of health
insurance.
SBA should also work with appropriate business and insurance groups
to develop appropriate levels of cost-sharing for smaller
employers, with consideration given to ensure the availability of
insurance to low-income individuals.
SBA's national health training program should emphasize and explain
cost sharing, including how employers can "sell" these features to
employees. Cost sharing is not necessarily a popular option among
employees, and employers should be given assistance in presenting
information to their employees which demonstrates that these
additional costs are necessary and will lead to increased health
care coverage.
8. Cafeteria Plans/Flexible Spending Accounts
Issues: A cafeteria plan allows an employer to control benefit
costs by defining the employer contribution to group benefits.
Instead of providing benefits at a particular cost level, the
employer provides dollars or credits for employees to buy needed
benefits from a menu of options offered by the employer. This
approach converts the group benefits program from a defined benefit
design to a defined contribution design, giving the employer more
control over benefit expenses.
11
A cafeteria plan includes choices among several benefits and,
within each, several levels of benefit. The employer contribution
is used by the employee to buy the desired level of each benefit.
For example, choices might be provided among several health care
plans, different levels of group term life insurance, plus a
flexible spending account (FSA). A flexible spending account is
an additional benefit, providing an employee with the chance to pay
for premiums, unreimbursed health care, day care or legal expenses
on a pre-tax basis.
In addition to controlling the employers' costs, cafeteria plans
help employees lower their costs. Employees are allowed to
purchase their benefits with pre-tax dollars, i.e., before federal,
state and Social Security taxes have been withheld, thereby
lowering tax liability. It is estimated that an FSA can save
employees 20 to 35 cents on the dollar, since state and federal
income taxes and Social Security taxes are not imposed.
Cafeteria plans have several advantages: the employer has greater
control over total benefit costs; utilization and costs of benefits
decrease since employees elect new options and reduce the incidence
of duplicate coverage, and employees have a greater appreciation
of their benefits due to a better understanding of benefit costs.
There is a range of design alternatives from which to choose.
Premium conversion is the simplest approach to a cafeteria plan.
Under this arrangement, employees have the ability to reduce their
salaries on a pre-tax basis and use these funds only for health-
related costs. The employer's contribution to health care coverage
does not change.
FSAs represent the next level of complexity in terms of plan
design. FSAs allow employees to reduce their taxable income by a
predetermined amount and use these funds to pay for a wide range
of tax-qualified benefits. Benefits that can be purchased under
an FSA include: medical expenses, covering such things as
deductibles; copayments; vision care; any non-covered health care
costs; and dependent care, including children or disabled dependent
adults.
Multiple choice cafeteria plans are the most sophisticated approach
to plan design and, therefore, are usually adopted by larger
employers.
At issue with regard to cafeteria plans is legislative uncertainty.
There have been considerable. efforts by Treasury and the Congress
to limit the tax advantages of these plans. It is anticipated that
pressure to address the budget deficit problem may result in
legislation which limits, rather than expands, cafeteria plans.
12
The legislated "use or lose" clause, which requires an employee to
use all monies placed in an FSA by year end or forfeit the money,
is of concern to employees.
The method of payment to the employee from an FSA account also
concerns employers. Employers are required to reimburse employees
up-front for medical costs, even if their deposits to the FSA have
not accrued enough to cover the amount. Employers may, therefore,
have to absorb expensive payments if an employee leaves before his
or her account can cover the actual cost of medical expenses.
As an alternative to conventional insurance, cafeteria plans
represent a method of softening other cost containment measures,
such as higher deductibles and copayments. Since cost-sharing must
be a component of any comprehensive approach to reducing the cost
of health care, employees will be able to pay for these added
expenses with pre-tax dollars.
Proposals: Working with appropriate small business groups and
insurance leaders, SBA will determine a "model" approach for the
small employer. SBA might encourage employers with 15 employees or
less to implement, as a first step, a premium conversion plan. SBA
could develop a how-to document describing the procedures for
putting a premium conversion plan in place. Another manual might
be developed on FSAs for small employers.
The appropriate level of employer contributions to a cafeteria plan
would need to be developed as well. Typically, an employer will pay
for some benefits directly. In some cases, the employer will also
provide flexible credits or flex dollars that each employee can use
to purchase optional benefits.
SBA should work with Congress to revise the "use or lose" and up-
front reimbursement provisions of current law.
9. Expansion of Medicaid
Issues: It is estimated that if Medicaid were expanded to cover
everyone earning up to 100% of the poverty line, a third of the
uninsured would be covered.
One design for Medicaid expansion is to allow certain classes of
people -- in many states employees in businesses with fewer than
25 employees and no health insurance -- to buy into the Medicaid
program, paying a portion of the premium out of pocket. One way to
expand eligibility is to develop a Medicaid buy-in. Under this
approach, a person would receive Medicaid benefits up to 100% of
federal poverty; above that, there would be a sliding scale so that
those with higher incomes would pay less-subsidized Medicaid
premiums.
13
At issue are the cost of Medicaid buy-in, which is estimated to be
too high, and a lack of uniformity. Since Medicaid is state
directed, standards and eligibility vary from state to state.
Devising a package of benefits that will afford small business
employees adequate health insurance coverage will be difficult in
many states.
Proposal: If Medicaid buy-in were based upon the "basic benefits
package" proposed in Item 1 above, the costs of buy-in presumably
would be reduced. SBA should conduct studies to estimate the cost
of buy-in based upon a basic benefits package.
10. Spreading Risk
Issues: The cost of health coverage often can be reduced by
spreading the risk over larger groups of insured individuals.
However, risk avoidance rather than risk spreading appears to have
become the norm for health insurers. The decision of insurance
companies to only insure low-risk individuals makes it more
difficult for small businesses, who are subject to medical
underwriting practices, to obtain affordable coverage.
Small businesses are seeking ways to spread risk. For example,
some small businesses, in concert with associations, pool their
employees to create larger groups.
Employee leasing is also gaining in popularity, although the
Department of Treasury has made efforts to reduce the availability
of this option. Under this arrangement, a company is created to
lease employees to employers. The leasing company, whose employee
pool is larger than the individual companies it serves, pays health
insurance costs for the employees. In this way, small business
employees can benefit from the same kind of health care coverage
as larger business employees. Small employers pay the cost of
health care through their employment agreements with the leasing
company. Employees often benefit from that arrangement.
Risk pools have also been created to help insure individuals with
higher medical risks, i.e., individuals with preexisting medical
conditions. For particular employers, removing these individuals
from small business policies reduces the risk of cancellation at
renewal and may lower the cost for the group. State risk pools,
which, in part, allow for coverage for this kind of employee, are
insurance programs that are usually funded by state tax revenues
or insurance company contributions. Small businesses can obtain
health care coverage at a more affordable rate than through the
private health insurance market.
At issue is the fact that small businesses are responsible for
paying the state premium taxes to support state risk pools since
they cannot self-insure and avoid taxes like the larger companies.
14
Multiple Employer Welfare Arrangements (MEWAs) have also been tried
in many states. MEWAS are legal trusts established by a plan
sponsor to bring together a number of small, unrelated employers
for the purpose of providing group medical coverage on an insured
or self-funded basis at lower costs. MEWAS, however, are loosely
regulated and there have been problems with fraud in some states.
Proposals: Since there has been fraud associated with MEWAS, no
action supporting them should be undertaken unless there is a
simultaneous push for regulation. The regulation in the past has
been very loose and therefore many employees who thought they had
health care coverage found they had been swindled when they tried
to collect from the MEWA. In addition, MEWAS may be a topic for
study. SBA and HHS may want to collaborate on a study to determine
how widely they are being used, their impact on small businesses
and their potential for expanded use. SBA will also examine a
proposal by former Secretary of Labor Elizabeth Dole to provide
federal regulation of MEWAs.
Risk-spreading techniques will be part of the national training
program SBA undertakes for small and medium businesses.
SBA should work with Treasury in an attempt to resolve any
disagreements about federal tax policy on employee leasing.
11. NAIC and HIAA Model Legislation
Issues: Small businesses have complained about the renewal,
underwriting and rate-setting practices of insurance companies.
Because small companies offer small pools of employees, and thus
less ability to spread risk, a major illness on the part of one
employee can result in the cancellation of coverage or an increase
in premiums for all the members of that pool. Because of modern
communications technology, these changes in coverage or rates can
occur quickly. Computers now allow insurance companies to learn
with unprecedented speed of the health problems of its customers.
Two national associations - the National Association of Insurance
Commissioners (NAIC) and the Health Insurance Association of
America (HIAA) - are developing model proposals meant to address
concerns with small employers' health insurance underwriting,
rating and renewability.
The NAIC has endorsed model state legislation designed to promote
the availability of health insurance coverage to small employers,
prevent abusive rating practices, require rate practices disclosure
to insurance purchasers, establish rules for continuity of coverage
for employers and covered individuals, and improve the efficiency
and fairness of the small group health insurance market place.
15
An NAIC Committee continues to consider other approaches in
addition to the above: a perspective reinsurance option, a
retrospective reinsurance option, allocation options, pooled
employee options, "designated carrier" options, and mandatory
reinsurance.
The HIAA has developed a model proposal designed to make health
insurance coverage more universally available through employers.
In the HIAA model: private health insurance coverage would be
available to entire employer groups; neither an employer nor an
insurer would be able to exclude high-risk individuals from the
group; at renewal time, coverage of certain employees could not be
denied because of deteriorating health; an individual would need
to meet the pre-existing condition only at the outset of coverage,
and insurance carriers would be required to limit how much their
rates could vary for groups in similar geographic areas,
demographic composition and plan design. A carrier's premium for
small groups could not vary by more than 35% from the carrier's
midpoint and there would be a 15% limit on how much a carrier could
vary rates by industry. Carriers would also have to limit a
group's year-to-year increases to no more than 15% above the
carrier's "trend" (the year-to-year increase in the lowest new
business rate).
Proposal: SBA is studying both models to determine whether their
provisions are beneficial to small businesses and whether the
models successfully "package" many of the policies presented in
this paper.
Professor Formisano has suggested a way the federal government
could encourage states and insurers to comply with these models.
Assuming the models are compatible with the Administrator's and
Administration's positions, a federal commission could be created
to review insurance plans to determine and publicize compliance
with the model. The Administrator of SBA would be a participant on
this commission to ensure that the needs of small businesses are
considered. The commission could be chaired by a health agency such
as the Department of Health and Human Services.
The Administrator could also push for the creation of a federal
panel to certify states that adopt small business health insurance
regulations at least as stringent as those proposed in the models.
In both of these alternatives the states would be relied upon to
impose sanctions.
16
NFIB
National Federation of
Independent Business
STATEMENT OF
John J. Motley III
Vice President
Federal Governmental Relations
NATIONAL FEDERATION OF INDEPENDENT BUSINESS
SUBJECT: Small Business Access to Affordable Health Care and
Health Insurance
BEFORE:
House Ways and Means Committee
DATE:
April 24, 1991
On behalf of the more than 500,000 small business owner
members of the National Federation of Independent Business
(NFIB), I am pleased to participate in this hearing. NFIB's
membership mirrors the national business population in its
make-up. This parallel to the general business community and
our large membership base are particularly important as it
provides validity to the numerous studies the NFIB Foundation
and the NFIB have conducted.
Small businesses have always been a dynamic force in the
American economy. Millions of Americans own and operate small
businesses. Over 19 million Americans report income or losses
from business activity and self-employment is the principal
job for over 13.8 million of our fellow citizens. Of the 10.5
million jobs created in the past decade, a vast majority were
created by small business. Small business employs over half
Suite "00
the work force and provides income for millions of families.
600 Maryland Ave. S.W.
Washington. DC 20024
(202) 554-9000
To better understand and evaluate the health insurance
FAX (202) 554-0496
issue, NFIB has conducted three comprehensive surveys. These
surveys, conducted in 1978, 1986 and 1989, reveal the
practices, opinions and attitudes of small business owners.
Other surveys have been conducted to fill in the gaps. These
surveys are unique in the field and are the basis of today's
testimony and our "Access for Small Business" strategy.
The Guardian of
Small Business
- 3 -
3. Imposition of government erected barriers. These
barriers include state health insurance mandates; state anti-
managed care laws which limit flexibility and cost savings;
COBRA, which drives up the cost of insurance for current
employees; and ERISA, which distorts that marketplace.
4. An unpredictable and distorted insurance market that
rejects the time-honored insurance principle of the law of
large numbers and cross subsidization.
5. Usurpation of individual choice and responsibility,
coupled with a tax code that discriminates against non-
employer-based health insurance purchases and purchases by
unincorporated businesses.
State of Small Business and Health Insurance
As mentioned previously, for small business workers and
their employees, access to health insurance and quality health
care is determined by cost. (2) Cost also explains a recent
phenomenon -- the slight decline in the number of small firms
offering health insurance as a fringe benefit. (3) Cost
prevents new firms from offering health insurance (4) and
jeopardizes the continuation of existing health insurance
benefits. (5)
The cost of health insurance can be the greatest payroll
line-item cost in a small business -- many times exceeding the
combined cost of workers compensation and liability
insurance. (6) Exacerbating the problem, a majority of small
firms pay 100% of the premium cost. These same businesses
have little access to managed care or cost-containment
measures because of the incessant churning that is occurring
in the marketplace. In addition, small firms are unable to
obtain the benefits of self-insurance (7) and therefore must
comply with expensive state-mandated benefit laws (8),
pay state premium taxes, and shoulder a larger portion of the
carrier's administrative expenses. (9) Further, churning has
resulted in higher tracking costs and brokers commissions.
Small businesses are reaching the peak of the frustration
level. (10) This reluctant call for help comes as a result of
the clash between values and reality. Small business owners
believe that every American has a right to health care. (11)
Small business owners also desire to offer health insurance
as a fringe benefit out of both a sense of familial obligation
(12) and competitive necessity. (13) However, the reality of
20 to 300% premium increases, a low profit margin (14),
struggling regional economies, and restricted cash flow
impairs the business' ability to purchase health
insurance. (15)
Two thirds of small businesses offer health
insurance. (16) In general, these firms tend to be more
mature, more profitable, and have more full-time employees
than their counterparts that do not offer health insurance.
- 5 -
some of the insurance costs are directly related to traits
which are inherent in a small business. Rising health care
costs, on the other hand, result from a non-competitive
medical services marketplace. Still other small business
costs are the direct result of changes that have occurred in
the sale of insurance, changes which have forced carriers to
respond in ways adverse to the interests of individual and
small business purchasers.
To recap, the characteristics of smaller businesses that
most significantly impact premiums, include the potential for
adverse selection, the demographics of the small business work
force, high turnover resulting in unpredictable participation
rates, and a lack of expertise and clout in purchasing plans.
Many of these factors drive up the carriers' administrative
costs and make the small business community a less profitable
marketing target.
Rapidly rising health care costs are driving the entire
problem. Without medical cost containment, all mentioned
solutions are simply short-term, temporary measures that will
have little long-term impact. The medical inflation costs can
be tackled through a combination of research, public
information, education and enhanced consumerism. Health care
providers and their patients must be educated to understand
that more does not necessarily equal better, and expensive
does not necessarily connote quality. Patients must be
encouraged to question providers' fees and practices.
Specific cost containment proposals are presented in NFIB's
"Access for Small Business" strategy described later.
Increasing health insurance costs are also linked to the
destruction of the industry's risk pool, induced by the
passage of ERISA, which has forced almost 60% of the business
community to self-insure to escape costly state regulation and
taxes. The shrinking of the traditional insurance marketplace
coupled with the trend toward reliance upon employer-based
insurance has lead to new and aggressive underwriting
practices for small firms.
Aggressive underwriting artificially raises premiums as
insurers seek to protect themselves from all foreseeable,
rather than potential, health risks. These practices have
also institutionalized "churning," where insurers induce
premature and frequent changes from carrier to carrier. This
in turn leads to unforeseen adverse consequences. First, the
preexisting condition clauses imposed on new customers can
leave employees and owners without coverage for critical
medical conditions. Second, each time a small business
changes carriers in pursuit of lower premiums, it
inadvertently raises the cost of the premium by increasing the
carrier's administrative costs and by paying brokers'
commissions. Third, frequent changes preclude the formation
of small business associations or pooling mechanisms. And,
fourth, this unstable marketplace means that insurers are
unable to apply managed care concepts to the small group, thus
leading to higher utilization costs.
- 7 -
to these markets. Simply bringing predictability and
competition to the marketplace will significantly drive down
the cost of premiums. Further, reforms will help to reduce
the cost of insurance packages even further and cost
containment will control medical spending.
It is important, however, to understand the small
business "definition" of insurance. Insurance is first and
foremost a risk transfer mechanism. It is a necessary means
by which one is protected from huge financial burdens, not
simply a method by which to pay providers. Insurance is also
a valuable fringe benefit. It is a means to attract and
retain good workers, and it is a way to protect what is in
effect the owner's extended family -- his/her employees.
Market Reforms and Incentives (21)
Several ways exist to reduce the impact of
disproportionate administrative costs on smaller firms.
It has been estimated that a large business receives 95 cents
of benefits for every premium dollar. On the other hand, a
small business receives only 65 to 75 cents for every dollar
spent, thus 25 to 35% of its premiums are used to pay the
administrative costs and profits of insurance companies. This
administrative burden can be 20 times higher than that borne
by a larger company. If the administrative costs alone could
be reduced, the savings could be passed along to the small
business. We can start that process by reducing the amount
of paperwork flowing through the health care system.
Streamlining and computerizing insurance and health delivery
forms, including Medicare and Medicaid, will save thousands,
if not millions of dollars. Further savings may be possible
by eliminating the duplicate coverage that occur in home,
auto, business and health policies.
*
NFIB recommends the standardization of ratings
practices. Small groups should be rated and charged premiums
on the same basis as a larger business and should have the
same predictability in premium increases. Through our
surveys, NFIB has found that the inability to predict future
premium costs keeps a great many small firms out of the
insurance market and puts other firms on an expensive
treadmill. NFIB believes that the practice by some aggressive
insurers of arbitrary cancellation should be curbed. We also
recommend the elimination of durational rating by restricting
the ability of companies to lowball the initial premium
through preexisting condition clauses.
* NFIB recommends that greater information be available
to the consumer. Access to plain English information serves
several purposes. First, it induces competition. Second, it
aids small business owners (who themselves are the benefits
managers and administrators) to be wiser, informed shoppers.
Third, it aids in cost containment if the concept is boldly
applied. And, finally, it instills accountability in the
system and makes "deceptive" or aggressive ratings practices
and defensive medicine less likely to occur. Further, NFIB
- 9 -
deduction is a needed and obvious incentive to encourage
expanded, voluntary provision of health insurance and would
end the current tax code discrimination against the self-
employed, partnership, S-corporation, sole proprietorship and
farm owners. (22)
* NFIB recommends the establishment of a tax deduction
or a tax credit for individuals for the cost of health
insurance. This deduction, made available to non-itemizers,
would provide an important and necessary subsidy for people
to purchase health insurance on their own. A large part of
the solution to this crisis is to recognize that individuals
bear some responsibility for their own health care.
* NFIB recommends that cafeteria plans and flexible
spending accounts be simplified in order to encourage their
usage. These plans have several advantages. They allow
employees to purchase care with pre tax dollars and permit the
employer to have greater control over total benefit costs.
Unfortunately, the complexity of the requirements, the "use
or lose" and other financing provisions, coupled with the
legislative uncertainty surrounding these devices make them
unattractive to small businesses.
*
The most important reform NFIB recommends is the
across the board elimination of state mandates. The
preemption of the 800-plus state health insurance mandates
and state anti-managed care laws are essential to lowering the
cost of health insurance. The state health insurance mandates
-- ranging from herbal medicine care to invitro fertilization
to chiropractic care to mental health care -- cumulatively can
raise the cost of health insurance for small businesses and
individuals by more than 30%. They also have a proven impact
on increasing utilization and medical inflation.
The elimination of state health insurance mandates would
enable "essential care" packages or standardized nationwide
policies to be sold. These policies would be designed to be
mass marketed, at a lower cost, to cover basic medical and
catastrophic needs. NFIB data indicates that a lower cost
plan would have great appeal to firms that currently do not
offer health insurance coverage and to those that are
struggling to make ends meet. Individuals would also be able
to purchase this lower cost plan.
It is important, however, that the mandates by
eliminated across the board. In order to have the ability to
choose and design an insurance package, the mandates must be
completely eliminated and not simply eliminated for a
federally-determined "minimum benefit" package. This step is
not without precedent. Already over 60% of the business
community escapes the costly burden of state health mandates
and taxes through self-insurance. This proposal simply
provides the same treatment accorded larger firms be given to
smaller ones.
- 11 -
for quality care.
Counterproductive mechanisms
Any government policy that mandates small business owners
to cover their employees will be accompanied by small business
failures (24), changes in employment policies, higher
unemployment and higher product costs to consumers (25). It
also will mean an increase in the burden placed on public
health programs. Small business owners overwhelmingly oppose
mandated benefits (26), pay or play programs (27) and national
health insurance (28). Beyond the philosophical opposition to
mandates, there is the fear of the high uncontrollable costs
it would impose. Most small firms cannot absorb the high cost
and fluctuations in premiums that a mandated program would
impose, nor can they afford to provide extensive benefits to
workers who have little attachment to the work force (29). It
is important to remember that many times when a firm does not
provide health insurance as a fringe benefit or drops
coverage, the owner and his or her family also loses coverage.
A pay or play program is opposed because it is a tax on
labor. Already 37 to 50 cents of every dollar in compensation
goes toward mandated programs such as workers compensation,
unemployment insurance, Social Security, etc. This has had
a significant impact on the growth in salary compensation.
In fact, there has been no real growth in salary compensation
for over six years, a fact mainly attributable to the growth
in the tax burden borne by employees. Unfortunately, this
runs counter to the desire of the employees who would prefer
a wage increase to an increase in benefits, (30) putting small
business owner/operators in the unenviable position of denying
the former to comply with the latter.
Finally, small business workers oppose national health
insurance systems. They remember the efficiency of the Post
Office, the compassion of the IRS, the demeanor of OSHA
inspectors and Pentagon prices. They have come to the
conclusion that the private sector, for all of its problems,
can deliver a higher quality and more efficient product than
the federal government.
For a number of personal and business reasons the
overwhelming majority -- almost 90% -- of America's small
business owners want to provide health insurance for their
employees. Unfortunately, because of run-away medical
inflation, rapidly rising health insurance costs, and an
inability to absorb either, they cannot provide coverage or
are finding it difficult to continue to do so.
Conclusion
NFIB data collected over a decade clearly shows that
cost is the main barrier to increased coverage and the primary
cause of reduced benefits. The only solution is to stabilize
health care and insurance costs. Medical inflation must be
- 13 -
HEALTH INSURANCE AND SMALL BUSINESS
The number one problem facing small businesses since
1983 remains the rising cost of health insurance.
The Dilemma: First, cost is a barrier to expanding coverage to
the uninsured; second, rising costs threaten current coverage.
The Causes:
A. Medical Inflation
B. Government Intervention
1.
Cost shifting from the discounts "given" to the
federal government and large businesses;
2.
Expensive state health insurance mandates;
3.
State anti-managed care laws that limit
flexibility and cost savings;
4.
COBRA provisions which drive up premium cost for
current employees; and
5.
ERISA law which distorts the health insurance
market place.
The Small Business Situation: Two-thirds of small businesses
offer health insurance as a fringe benefit. One-third have no
insurance plan, with a majority of those citing cost as the
reason for not offering insurance. Two out of three who
currently are uninsured indicate that they would offer insurance
if it was affordable. Further, 22% of the uninsured are self-
employed workers.
* In 1990, almost 90% of small business owners indicated
that it was becoming "prohibitively expensive" to provide
health insurance to their employees.
The Small Business Problem: Increasing costs, coupled with
problems finding affordable insurance.
A. Some costs are inherent to small business, such as:
1.
Lack of expertise in designing and choosing plans;
2.
High employee turnover;
3.
Labor force demographics of the business;
4.
The higher probability of adverse selection; and
5.
Higher administrative costs -- an estimated 25-
35% higher for small businesses.
B. Others costs are related to changes in the marketplace,
such as:
1.
Splitting and reducing risk pools through the
prevalence of self-insurance;
- 15 -
END NOTES
(1) A telling illustration of this is the increase in the
number of uninsured self-employed business owners from
19% in 1989 to 22% in 1990.
(2) The NFIB Foundation has conducted three comprehensive
health surveys: 1978, 1986, and 1990. In addition, in
1983 and 1986, small business owners were asked to rank
in order of importance 75 issues from liability insurance
to garbage collection to taxes. Health insurance was
ranked number one. Surprisingly, health insurance even
ranked higher than liability insurance (ranked #2) at
a time when the liability insurance crisis was at its
peak (1986).
(3) Two-thirds of small businesses offer health insurance.
Between the first NFIB study (1978) and the second study
(1986), the number of small firms offering health
insurance increased by 8 percentage points. Between 1986
and 1990, the percentage of small firms declined by less
than 2 percentage points. The decline may be within the
range of statistical error or may be the indication of
a trend. A 1990 follow-up field survey indicates the
latter may be operating. These results were confirmed
by the ICF study sponsored by the Small Business
Administration.
(4) "New" refers to both established and start-up firms.
While two distinct groups, they share at least two common
characteristics -- marginality and very limited cash
flow. In addition, new firms have no past experience
upon which insurance companies can assess the risk.
(5) In 1990, over 89% of small business respondents cited the
cost of health insurance as becoming "prohibitively
expensive." In 1990, 19.7% of firms surveyed without
health insurance indicated that health insurance was
offered at some time in the past.
(6) Between 1987 and 1990, small business health insurance
premiums rose from an average of $1,942 to an estimated
$3,192 [Foster & Higgins data].
(7) Over 50% of the business community self insures, and that
number has been rapidly increasing since ERISA's passage
in the 1970s. Most firms that self insure tend to be
large and profitable. Less than 49% of small firms are
- 12 -
(14) The median small businesses owner takes out of his/her
business less than the median wage and salary worker.
About 40% of the 1989 study respondents took out of
their business less than $30,000 last year.
(15) Small firms are price sensitive. of those firms not
offering health insurance, 28% said they would offer
insurance if premium costs were lowered at least 20%.
(16) To date, the employee-provided health insurance system
has been successful. The number of Americans covered by
employment-based insurance has risen from 40% in the
1940s to over 80% in 1988.
(17) Small businesses typically engage in "one-stop shopping.
One independent insurance agent is used to provide all
of the business' insurance needs. In addition, there is
limited expertise in the small business with respect to
benefit design and negotiation. The owner is typically
the benefits manager, payroll administer, etc. The
average small business owner spends 8 to 10 hours a week
on paperwork alone.
(18) Small business owners view full-time employees (defined
as working over 25 hours a week) as distinct from
part-time employees. The limited connection to the
workplace and the part-timers' preference for cash
compensation or flex-time explain a difference between
the benefits offered the two types of employees. This
difference has been institutionalized by the insurance
industry, which charges higher premiums for part-timers
or refuses to cover such employees.
(19) Less than one percent of those not offering health
insurance stated that under no condition would health
insurance be offered.
(20) Less than 4% use HMOs or self insure.
(21) NFIB currently has a follow-up survey in the field
seeking to specifically identify insurance reforms beyond
those mention in this section. The small businesses
owners will be asked for their opinions on items such as
guaranteed issue, community rating, tax preferences and
risk pools.)
(22) The implications of such an expansion are immense -- over
21% of self-employed workers are uninsured and 30% of
these businesses employ one to four people. If the full
deduction were restored, possibly one quarter to one half
- 19 -
APPENDIX 2
Access for Small Business Strategy
OBJECTIVE: To improve access to health care through
affordable health insurance and cost-effective quality medical
care.
I. Renewal of Federal Government Obligations
A. Medicaid reforms
B. Medicare reforms
C. 100% deduction for the self-employed, sole
proprietorship, partnership, and S-Corporation
business ownerS (HR 784)
II. Removal of Government Barriers
A. Pre-emption of state health insurance mandates
B. Pre-emption of state managed care
restrictions
C. Simplification of cafeteria plans and METs
D. Reinstatement of the individual line-item deduction
for health insurance premiums.
E. COBRA reform
III. Cost containment mechanisms
A. Consumer information
B. Outcomes research
C. Physician practices guidelines
D. Wellness education/preventive care promotion
E. Medical malpractice reforms
F. Living wills
G. Coinsurance
H. Hospital outcomes data
IV. Insurance Industry Preforms
A. Return to the "law of large numbers"
B. Underwriting reforms
V. Unacceptable Mechanisms
A. Mandated benefits
B. "Pay or Play" schemes
C. Triggered mandates
D. National health insurance
NFIB
America's
Small
Business
Advocate
Photocopy-Preservation
Sent to 1500 News Outlets
-
SMALL
BUSINESS
ANGLE®
by John Sloan
STRIKER REPLACEMENT LAW
WOULD BE LABOR BONANZA
What do Continental Airlines and your neighborhood auto
repair shop have in common? For different reasons, large and
small companies are the targets of aggressive efforts by organized
labor to pass a law to prohibit companies from permanently
replacing striking workers.
It is easy to read labor's motive in preventing the airline from
permanently replacing strikers. The unions want to shut off
an employer's option to continue operating with newly hired
workers during a strike.
But what's the small business connection? Union organizers
see a way to boost sagging membership by targeting the hundreds
of thousands of non-union employees who work in small firms.
The striker replacement bill would allow labor to tap the small
workplace.
The bill, introduced by Rep. William Clay, D-Mo., and Sen.
Howard Metzenbaum, D-Ohio, would prohibit employers from
hiring permanent replacements for workers who walk out in
disputes over the terms or conditions of employment. Temporary
replacements would be allowed, but business owners know that
attracting skilled, qualified workers for jobs that could last as
little as three days or more than six weeks is difficult. Hiring
temporary replacements for skilled positions, such as mechanics
or plumbers, or finding ready pools of workers in rural areas
is nearly impossible.
And don't forget the union organizing threat. The proposed
legislation contains the "bargaining unit-work" when
referring to what kind of labor disputes would be covered. Sen.
Metzenbaum asserts that this term covers only unionized
workers. Legal precedent suggests otherwise. Bargaining unit
work in this context includes anyone doing his or her job.
Therefore, the impact of this legislation would be felt by
every business owner who employed two or more workers, and
those workers could not be permanently replaced if they walked
off the job in protest over wages, benefits or schedules.
The employees could return at any time. The employer would
be forced to rehire them, and the employer would be prohibited
from showing preference to those employees who stayed on the
job during the dispute. Because workers could strike with im-
punity, the threat of a strike could be enough to coerce em-
ployers into holding an election for union representation.
The AFL-CIO does not acknowledge an ulterior motive in
its drive for passage of the striker replacement legislation. The
union says the measure simply would correct an anomaly in
the law. It also argues that the practice of permanently replacing
workers is on the rise. However, a study cited by the Congres-
sional Research Service indicates that employers rarely use
permanent replacements. In the two years the study reviewed,
1985 and 1989, employers followed through with permanent
replacement of workers in only 15 percent of strikes.
Groups such as the National Federation of Independent
Business, which represents few unionized firms, see the striker
replacement bill as a further attempt by organized labor to
leverage its congressional clout as a substitute for declining
membership. If it works, of course, the unions look for a reversal
in their declining membership roles with a concomitant rise in
union dues and political influence. If it fails, they will still be
in a position to push Congress to substitute mandates and other
legislative mischief for collective bargaining between employer
and employee.
Congress should see this effort for what it is and bow out
of its role as the unions' negotiator of last resort.
John Sloan is President of the National Federation of Independent
Business, representing more than half a million small-business men
3/14/91
and women.
© National Federation of Independent Business
Sent to Full House
ORGANIZED LABOR HAS FOUND ITS ULTIMATE ORGANIZING TOOL
H.R. 5 S0-CALLED "STRIKER REPLACEMENT"
H.R. 5 COULD AFFECT EVERY SMALL BUSINESS IN AMERICA
H.R. 5 COULD AFFECT ALL SMALL BUSINESSES -- UNION AND NON-UNION
H.R. 5 WILL AFFECT EVERY DISPUTE WHERE TWO OR MORE EMPLOYEES WALK OFF THE JOB
*Union organizing attempts would flourish under H.R. 5
If enacted, H.R. 5 would give unions undue influence to force any non-union
small business owner to hold an election for union representation or even outright
recognition of the union by encouraging a strike by just two of the employer's
current key employees. Small employers who are unable to permanently replace
the striking workers, would either have to give in to the demands of the strikers or
face economic hardship, possibly even bankruptcy.
*Non-Union small business especially hard hit by H.R. 5
Whenever two or more employees act in concert and walk off the job in protest
over wages, benefits or schedules their jobs would be guaranteed whenever they
chose to return. Small business, which is labor intensive, cannot simply shift
personnel to cover the duties of striking workers. Where does a plumbing contrac-
tor find a temporary expert plumber? Where does a computer firm find temporary
engineers?
And when the striking employee returns, what does the small business owner do
about the employee that has been hired in the meantime?
*The MacKay doctrine is not a flaw in the law
The doctrine is a manifestation of Congressional intent. For over 53 years the
Supreme Court has consistently ruled that hiring replacement workers has "legiti-
mate and substantial business justifications." Why now do unions believe that the
doctrine is a flaw? H.R. 5 throws aside business justification to give unions the
power to unconditionally guarantee a striking worker his or her job upon the
conclusion of the strike.
*Fairness and Equity must Prevail
The proponents of H.R. 5 want to forget 53 years of equity in labor negotiations
and settlements and install a system skewed toward the interest of organized labor.
In every conflict there are two sides, but H.R. 5 would put the "fix" in for every
labor conflict in the future. No longer would an individual have the right not to
strike and no longer would an employer have the right to stay in business. NFIB,
representing over 500,000 small businesses across the country does not want to see
the scales toppled. Small business urges you not to give unions the ultimate
organizing tool and the unconditional strike guarantee. Oppose H.R. 5 to maintain
the balance in labor disputes.
For more Information, call NFIB at (202) 554-9000.
NFIB
National Federation of
Independent Business
-
-
Sent to Full House
BOEHLERT/WILLIAMS FAILS TO "FIX" H.R. 5
April 29, 1991
Suite 700
600 Maryland Ave. S.W.
Washington, DC 20024
(202) 554-9000
Fax (202) 554-0496
The Guardian of
Small Business
Amendments adopted in the Public Works and Transportation
Committee and the Education and Labor Committee attempted to
eliminate the applicability of H.R. 5 to a non-union small
business. The amendments were offered by Representative Sherwood
Boehlert (R-NY) and Representative Pat Williams (D-MT) in their
respective committees.
The National Federation of Independent Business (NFIB), upon
review of the Boehlert/Williams amendments, find that they fail
to take care of the multi-faceted problems facing small
businesses if H.R. 5 is passed. In no way should members be led
to believe that these amendments take care of small business.
They do not. H.R. 5, as amended, continues to pose a direct and
detrimental threat to this nation's small business.
This paper will lay out the main reasons small business
finds the amendments objectionable.
AMBIGUOUS LANGUAGE OF BOEHLERT/WILLIAMS
The focus of this paper will be on the Williams amendment to
Section 1, dealing with the National Labor Relations Act (NLRA)
as small businesses are primarily covered by the NLRA. The
Boehlert amendment contained nearly identical language, but is
only applied to the National Railway Act (NRA).
As was the case in H.R. 5 unamended, the Williams language
fails to define any of the terms used. Without definition, the
language can be described, at best, as ambiguous.
Moreover, the NFIB believes the Boehlert/Williams amendments
pose two separate problems for non-union small business. By
virtue of the vagueness of the language used, H.R. 5 would still
prohibit replacement of any two individuals working in a small
business who choose to walk off a job to protest some working
condition.
The operative language, ("collective bargaining
representative", "labor organization" and "bargaining unit")
based upon existing legal definitions and pertinent case law
overwhelmingly justifies the legitimate concern of small
business.
The second problem posed by H.R. 5 is derived from the use
of the word "acting." Part II of the paper provides greater
detail into increased union interference in non-union small
business labor relations.
The Williams amendment added language to Section 1 (6) (i) of
H.R. 5. The language of the amendment is underlined below.
COLLECTIVE BARGAINING REPRESENTATIVE
The use of the term collective bargaining representative
would superficially lead one to believe H.R. 5 applies only to
certified or recognized unions. In reality, the use of this
phrase in no way limits the applicability of H.R. 5 to union
shops.
In this section, we will clarify the meaning of collective
bargaining representative as used in the Williams amendment.
II (6) (i) to offer, or to grant, the status of
a permanent replacement employee to an
individual for performing bargaining unit work
for the employer during a labor dispute between
the employer and the labor organization that is
acting as the collective bargaining
representative involved in the dispute; II
By incorporating this phrase, proponents assert that they
have limited immediate coverage of H.R. 5 to only union shops.
What they have not mentioned is that there is nothing within the
(NLRA) which defines collective bargaining representative as a
certified or even recognized union. The one term the NLRA does
define is representative.
"The term 'representatives' includes any
individual or labor organization. [NLRA, Section
(2) (4)]
Obviously, this definition, contained in the law which is
being amended by H.R. 5, indicates that a representative need not
be a certified or recognized union. Moreover, a "labor
organization" within the context of the amendment also need not
be a certified or recognized union to trigger coverage under H.R.
5 as will be discussed later in this analysis.
Further, looking at the accepted definition of collective
bargaining there is still no concrete evidence that a "labor
organization" under this amendment is either a recognized or
certified union as proponents of H.R. 5 would lead one to
believe. The NLRA does not define collective bargaining. But
consulting Black's Law Dictionary, collective bargaining is
defined as negotiations between an employer and organized
employees.
Collective bargaining is: "Negotiation between an
employer and organized employees as distinguished from
individuals for the purpose of determining by joint
agreement the conditions of employment." (Black's Law
Dictionary, Fifth Edition)
Organized employees are not, by law or legal precedent,
union-affiliated employees. Any group of employees who come
together to negotiate a change in employment conditions, like
wages or vacation time or even the temperature of an office, with
an employer is considered organized and is engaged in collective
bargaining. The group could even be appointed on an ad hoc basis
by a large body of employees to act on its behalf. That group,
by definition, is the collective bargaining representative.
LABOR ORGANIZATION
In earlier hearings, proponents asserted that the term
"labor organization" limits coverage of H.R. 5 to union shops.
This assertion has been disproved in the past. Labor
organization is defined in the NLRA, and that definition shows
that a certified or recognized union is not the exclusive "labor
organization" recognized under the NLRA.
II (6) (i) to offer, or to grant, the status of
a permanent replacement employee to an
individual for performing bargaining unit work
for the employer during a labor dispute between
the employer and the labor organization that is
acting as the collective bargaining
representative involved in the dispute; II
The NLRA definition is sufficiently broad to define "labor
organization" to include any employees who are working together
for the same goals:
The term labor organization means "any organization of
any kind, or any agency or employer representation
committee or plan, in which employees participated and
which exists for the purpose, in whole or in part, of
dealing with employers concerning grievances, labor
disputes, wages, rates of pay, hours of employment, or
conditions of work." [NLRA, Section (2) (5)]
Nowhere in the NLRA is a union specifically identified as
the only labor organization recognized. Even in the context of
the surrounding language, discussed above, the use of "labor
organization" does not alter the fact that under labor law, a
group of individuals acting in concert is considered a labor
organization. In fact, two significant court decisions, a Third
Circuit decision in NLRB V. Kennametal. Inc., 182 F.2d 817 and a
Seventh Circuit decision in NLRB V. Jasper Seating Co. Inc.
affirms that labor organization does indeed expand beyond a union
setting. With the inclusion of the Williams amendment, a labor
organization made up of five non-union employees of a small
business working together to collectively bargain for a change in
their conditions of employment would trigger coverage of H.R. 5,
and their action would be protected if they chose to walk off the
job.
BARGAINING UNIT
Bargaining unit was used in H.R. 5 prior to the Williams
amendment. It was discussed in our previous Definitional
Analysis, but needs to be further explored in the context of Rep.
Williams' language.
"(ii) to offer, or grant, an individual any
other employment preference based on the fact
that such individual performed bargaining unit
work, or indicated a willingness to perform such
work, during a labor dispute over an individual
who--" II
This term again raises the question as to why bargaining
unit work is considered by proponents of H.R. 5 to be solely
within the context of a union shop. Bargaining unit is not
defined in the NLRA, nor has it been defined in existing case
law. The following is the closest we have to a legal definition:
"A particular group of employees with a similar
community of interest appropriate for bargaining."
(Blacks Law Dictionary Fifth Edition)
If one considers the definition in Black's Law
Dictionary, any group of employees with similar interests can be
considered a bargaining unit. All the secretaries in an office
have a similar community of interest and therefore could be
considered to be performing bargaining unit work.
Nothing in these terms leads one to the conclusion that
bargaining unit work does not mean a group of employees
bargaining with an employer without representation of a union.
PART II
BOEHLERT/WILLIAMS WILL LEAD TO UNION
DISRUPTION
In the view of small business, Boehlert/Williams has made a
bad bill even worse. By using the word "acting" in the
amendments, proponents have given union organizers carte blanche
to walk into small businesses throughout this country and
generate labor unrest by making outrageous guarantees that cannot
be fulfilled.
Union organizers could potentially provoke strategic strikes
in small business everywhere in an attempt to economically
cripple small businesses to the point of outright recognition.
Unlike a large corporation, such strikes would not be long
affairs.
Small business cannot withstand a strike of any duration
without replacement workers. Ultimately, a small business,
forced to recognize a union, is put in an even more precarious
position than a large corporation because the union would be
given all the power to dictate the policies of that business.
ACTING
The amendment adds language to Section (6) (i) of H.R. 5
which amends the unfair labor practice section of the NLRA by
adding: [It shall be an unfair labor practice
]
II (6) (i) to offer, or to grant, the status of
a permanent replacement employee to an
individual for performing bargaining unit work
for the employer during a labor dispute between
the employer and the labor organization that is
acting as the collective bargaining
representative involved in the dispute; II
By using the word "acting", the Williams amendment creates
significant uncertainty over what triggers coverage of small
businesses under H.R. 5. Proponents argue the protections of
H.R. 5 exist only when there is a union presence in the work
place. Clearly, this is not the case. Even the Majority Counsel
to the House Aviation Subcommittee of Public Works during
questioning on this issue could not clearly define what
specifically triggers a union presence in a work place.
The Williams amendment will encourage unions to contact
employees in an open shop small business to talk to them about
joining the union. During the conversation, union organizers.
will guarantee the non-union employee his or her job should the
employee choose to walk off the job and assist in organizing the
small business. Because the union is acting as that individual's
representative for purposes of collective bargaining, the
individual could not be replaced.
Thus, two employees in a non-union small business could
still walk off the job and have their job protected with one
precondition.
As amended, an open-shop employee of a small business who
wants to protest some working condition must only declare a union
as his or her representative to be protected from being replaced.
The declaration could be based upon a conversation the employee
had with union officials at some time in the past or upon the
employee's signature on a union authorization card used by unions
to show support for a representation election. These cards do
not necessarily connote support for the union.
The union does not have to be officially recognized by
either the business owner or the National Labor Relations Board
to have small business covered by H.R. 5 as amended.
This tactic is one unions already use to organize open
shops. Unions often attempt to pressure employers into outright
recognition of the union without a representation election by
employees. Forced recognition can be accomplished by
recognitional picketing or a simple meeting with an employer to
say that a few of the owner's employees have expressed possible
interest in union representation.
A recent example bears out the authenticity of these
concerns. In September of 1986, a United Mine Workers (UMW)
organizer spoke with Hatfield Dock and Transfer Inc. Vice
President R. Allen Johnson about UMW representing Hatfield
employees. Mr. Johnson told the UMW organizer that the decision
to recognize the union was up to the employees and not the
employer. That reply prompted the UMW organizer to threaten
Hatfield with picketing. A union election petition was never
filed with the National Labor Relations Board.
The real world result of the use of the word "acting" is the
unfair creation of yet another tool for labor unions to organize
small business. A union will have every incentive to go to a
non-union small business and entice one or two employees out of
the shop with promises of inflated wages and guaranteed job
protection. The desires of the majority of employees could be
subverted by economic weapons used against the small business
owner who cannot afford to lose employees for an unknown duration
of time, even if it's a short period.
THE CATCH-22 OF ANY SUPPOSED FIX
It is not unreasonable to assume that proponents of H.R. 5
will come back to the House with yet another attempt to "fix" the
non-union problems with H.R. 5. The difficulty encountered with
every attempt is the exacerbation of a second problem small
businesses face with passage of this legislation.
Interestingly, proponents argue the reason for this
legislation is job protection for striking union members. They
have argued this one point repeatedly. A closer look at the
legislation and subsequent amendments, however, makes clear that
perhaps the true impetus of this legislation is not worker
protection, but the creation of a union organizing tool.
Section (B) of the Williams amendment makes this point
perfectly. One need only read it to realize that the true
purpose of H.R. 5 is union organizing.
"(B) in connection with such dispute has
exercised the right to join, to assist, or to
engage in other concerted activities for the
purpose of collective bargaining or other mutual
aid or protection through the labor organization
that is acting as the collective bargaining
representative."
With the inclusion of this language, the proponents of H.R.
5 have taken the legislation beyond the union setting to a
situation in which a union is attempting to organize a small
business. No petition for election would have to be filed, nor
would a majority of employees have to leave their jobs in support
of the union to trigger protections.
All this provision does is give union organizers the ability
to walk into a non-union small business and entice one or more
employees off the job so they can assist the organizer in
organizing that small business.
The language used in Section (B) is from the NLRA. By
incorporating it, however, H.R. 5 gives union organizers the
power to selectively strike a small business during an organizing
campaign. Any employee who walks off the job during the campaign
could simply assert they were assisting in the organizing effort
and would be protected.
Currently, non-union small business strikes are infrequent.
Passage of H.R. 5, however, would so drastically change the
current balance that non-union small business strikes would
become far more frequent because unions would be given the power
they need to cripple the small business.
This bill is clearly special interest legislation. Passage
of the legislation will threaten the economic vitality of your
small business constituents and will mean you have given
organized labor a powerful and unfair tool to organize every non-
union small business in your district.
Sent to Full House
NFIB
National Federation of
IMPACT OF H.R. 5 ON NON-UNION SMALL BUSINESS
Independent Business
Much of the debate on H.R. 5 has focused on
technicalities and legal interpretations. While this focus
is necessary, it should not be exclusive. To understand the
real ramifications of H.R. 5 on this nation's economic
prosperity one has to look to the backbone of our economy,
small business.
A few little known facts about the characteristics of
small businesses could help in understanding the negative
impact of H.R. 5. Consider the macroeconomic impact small
business has on the economy:
*
Small businesses generate the bulk of the new
jobs in the United States. In the decade of
the 1980's small business created 23 million
new jobs.
*
Ninety percent of small business owners
employ 20 people or fewer.
*
Sixty percent of small businesses have gross
sales of approximately $300,000 annually.
*
In the first three years of business, seventy
percent of small businesses close. This
sector of our economy is the most dynamic and
the most fragile.
With these facts in mind, it is easier to understand
the implications of H.R. 5.
Attempts have been made to insulate small business from
the adverse affects of H.R. 5. These efforts have failed
due to the fact that the bill itself poses not only a
direct, but an indirect threat to small businesses across
the country.
Suite 700
600 Maryland Ave. S.W.
In the view of NFIB, the Boehlert/Williams amendments
Washington, DC 20024
(202) 554-9000
fail to rectify the direct impact of H.R. 5, allowing two
Fax (202) 554-0496
non-union employees to walk off a job and prohibiting an
employer from permanently replacing them. (See NFIB paper
entitled Boehlert/Williams Fails to "Fix" H.R. 5)
Further amending or clarification of Boehlert/Williams
cannot solve the problems raised. Tightening of language
exacerbates threats posed to small business by union
The Guardian of
Small Business
organizing by enticing non-union employees off the line to
engage in union instigated picketing efforts which serve to
force an employer to recognize a union without the benefit
of a full employee election.
More specifically, small businesses and their employees
are adversely affected by enactment of H.R. 5 in five
separate ways.
1. INCREASED WORK DISRUPTIONS
H.R. 5, as amended by the Boehlert/Williams language,
would still permit any two employees to walk off a job in a
"labor dispute" over any employment condition. These
conditions could include such things as wages, vacation, the
temperature of the office, office hours, even Christmas
bonuses.
The subject of the dispute is irrelevant. The criteria
that must be met is simply that the two individuals are
acting together to protest some aspect of their employment.
This being the case, any employer of two or more employees
remain covered by the provisions of H.R. 5.
Consider a small plumbing contractor with 10 employees,
eight of whom are plumbers. Two plumbers have walked off
the job in protest over the amount of overtime they have
been able to work. These plumbers are guaranteed their jobs
back whenever they choose to return. The owner, however, is
left without 20 percent of the work force.
H.R. 5 does allow the owner of this plumbing firm to
hire temporary replacements and to substitute management
personnel for the jobs left open. In a small business
setting neither option is feasible. In most cases, the
employer is the management, the accountant, the benefits
specialist and the trouble shooter. The owner of the firm
could not continue to fill all these duties and cover the
job demands of the two plumbers who walked off the job.
Temporaries would also be extremely difficult to find.
Where would our plumbing contractor find two experienced
plumbers to fill the two vacant positions for an indefinite
(perhaps only a few weeks) period of time?
Unlike larger companies, small businesses do not
normally utilize temporary placement services. They find
their temporaries by placing a help wanted sign in the
window or by word of mouth. If no one sees the sign or gets
the message, the job remains vacant.
Without temporaries or internal substitutes, our
plumbing contractor is facing an unknown future with twenty
percent of the business' work force gone. If the two
employees cannot be persuaded to come back to work, the
owner faces significant losses and perhaps the closing of
the business. Recall that seventy percent of small
businesses close within the first three years of operation.
The owner does not have the option of simply shutting down
for a short period of time and then reopening. Each
contract ensures that the firm can continue operations until
the next contract comes in. Without the manpower to
complete a pending contract, the business goes into default,
loses a customer and loses credibility for reliable service.
2. UNDERMINES ABILITY TO MAINTAIN "OPEN SHOPS" FOR EMPLOYEES
-UNDUE POWER TO UNIONS TO ORGANIZE SMALL BUSINESS
The entire employer-employee relationship is
drastically altered by H.R. 5. The Boehlert/Williams
amendment makes this reality all the more dangerous.
Unions are given the power by Boehlert/Williams to foster
non-union strikes with job guarantees. Thus, where
currently there may be little incentive for a union to
approach a non-union small business, the amended H.R. 5
encourages unions to do SO.
This, in turn, infuses into the employment setting an
element of uncertainty for the remaining employees who may
not be involved in the dispute, but could be adversely
affected. H.R. 5 places a small business operation and the
future of the majority of employees in the hands of a very
few.
Currently, workers have the right to choose whether or
not to join a union and employers are prohibited from
infringing upon that right. Firms whose workers have not
chosen to join a union are known as "open shops." Twenty
states have built upon this premise by passing what are
known as "Right to Work" statutes. These statutes say that
it is the public policy of that state that "the right of
persons to work shall not be denied or abridged on account
of membership or nonmembership in any labor union or labor
organization."
Strategic strikes and pickets may have little effect on
a large corporation, but a small business can be devastated
by such activity. While employees of the small business may
not want to be represented by a union, a union could force
such representation on them by using economic weapons
against the small business owner. The union needs to only
entice one or two employees onto the picket line with
promises of unreasonable wage increases and job guarantees
to force a small business owner into an economically
precarious position.
Small business owners know their employees and have
good working relationships with them. A union organizer
walking into a small business would irrevocably change the
traditional working relationship of conciliation into
confrontation, which ultimately could cause the possible
bankruptcy of the business.
The bottom line is that H.R. 5 permits unions to foster
labor unrest in the small business community which
historically has been free of labor friction. H.R. 5 would
allow unions working with two employees to dictate to the
employer and the remaining employees the work place policy
of that business. A democratic system would be circumvented
and the rights of the majority could be ignored.
3. INCREASED LIABILITY EXPOSURE
If the owner is fortunate enough to find a temporary,
the problem of increased liability exposure remains.
Traditionally, a temporary employee does not have the
dedication to a job that a permanent employee demonstrates.
That lack of determination to do the job right could have
serious consequences for the small business owner.
If a temporary plumber does an unsatisfactory job and a
pipe bursts and floods a residence, the small business owner
is liable for damage. The firm may have to spend scarce
resources to retain legal counsel to settle such a claim.
The owner could even face punitive or compensatory damages
which could put the firm out of business completely.
The cost of liability insurance must also be taken into
consideration. Insurance premiums are based upon the
insured's history. The small business owner, upon making a
claim to cover the cost of damage, faces a dramatic increase
in insurance premiums.
The owner not only has to pay for any damage incurred
by the customer, pay any punitive and compensatory damages,
and pay an increased premium on liability insurance, but the
business has also lost a customer. of even greater
consequence is the loss of business that would result from
poor word of mouth advertising. Most small businesses rely
on satisfied customers to build their business over time. A
negative recommendation could have serious adverse affects
on that business.
4. INCREASED COSTS OF DOING BUSINESS
Temporary employees, as defined by H.R. 5, can be more
expensive than regular employees. Below are listed five
factors that come into play each time a temporary is hired
to replace a striking worker.
*
Temporaries are often paid more than normal
salaried worker wages.
Combined Omnibus Budget Reduction Act (COBRA)
requirements can be triggered if the temporary is
covered under the struck employer's health
insurance. The employer is responsible for
continuing health insurance under COBRA for 18
months for the temporary and 36 months for the
temporary's dependents. Experience shows that on
average COBRA costs the employer 150 percent more
that the premium paid by the separated worker.
*
An employer may be liable for unemployment
insurance compensation for every separated
temporary, depending upon the eligibility
requirements of the state program and the work and
earnings history of the temporary.
The employer's unemployment insurance tax could
increase when a temporary is laid off or fired to
accommodate a returning striking worker.
*
Because temporaries are more likely to be injured
on the job, the employer is more likely to be
exposed to higher workman's compensation claims.
*
Temporaries will be unable to maintain the level
of production that a permanent employee can.
Training and familiarization come with time,
something a small employer has very little to
spare.
5. INCREASED STRIKES WHICH HIT SMALL BUSINESS -
"THE RIPPLE EFFECT"
By creating a business setting that favors
confrontation, the practical affect of H.R. 5 would be to
create more strikes in both union and non-union settings.
This has been the case in Canada where a law similar to H.R.
5 exists. Statistical evidence, prepared by M. Gunderson,
J. Kervin and F. Reid in their analysis The Effects of
Canadian Labor Relations Legislation on Strike Incidence and
Duration, proves this to be the case. In their own words,
"The strongest effects, (of influencing greater strike
activity) both in terms of statistical and economic
significance are those of mandatory strike vote, and the
prohibition on replacement workers."
No strike takes place in a vacuum. It has
repercussions on those employees who chose not to strike, on
the customers of the struck company, the small businesses
that contract out their services to the struck company, and
most importantly small businesses in the immediate vicinity
of the struck company.
The small business contractor is directly affected.
Using our example of a plumbing contractor bears out the
direct adverse affect increased strike activity has on small
business. This plumbing contractor has a $1 million
contract with a local builder to do all the plumbing work on
a new construction project. Knowing that a contract of this
size would tax the firm's resources, the plumbing contractor
has turned down other offers until this job can be finished.
The electrical union representing the electricians
working on the same construction project calls for their
members to strike the builder for higher wages. Further
construction cannot take place until the electrical work is
complete. This leaves the construction at a standstill.
Meanwhile, our plumbing contractor has purchased all
the supplies he needed to complete the job. He has
rescheduled all pending work and put off future contractual
agreements. In a strike situation he must remain idle, not
knowing when the strike may end and fearing making
obligations that may cause him to spread his firm too thin.
The bills for the supplies are coming due. The longer
the strike continues the more dramatic affect it has on the
small business. The owner may be forced to dip into the
meager reserves he had to pay for the supplies he bought.
Now with no reserve, the owner can only hope the strike will
end soon. If it does not, he will have to let his plumbers
go because he will not be able to afford to keep them on the
payroll. Without work and without his plumbers the small
business owner defaults on his own obligations. Ultimately,
if the strike is of any real duration, the plumbing
contractor faces possible bankruptcy or closure.
Small businesses, which are not directly related to the
struck business, are also adversely affected by strikes.
The ripple effect goes beyond the subcontractors to other
businesses that are dependent upon the health of the local
economy. Consider the neighborhood bakery which is
dependent upon the workers of the struck company for
business. During a strike the workers who normally
patronize the bakery are left with limited resources.
Morning doughnuts and fresh baked bread become luxury items
that cannot be afforded. Business for the bakery drops off.
Depending upon the duration of the strike, the bakery could
face a dramatic loss of revenue. The same results will be
felt by other small businesses in the area. The ripple
effect of H.R. 5 is very real.
CONCLUSION
Small businesses are both directly and indirectly the
victims of this legislation. While proponents argue that
they are only fighting for job security, the practical
result could be the loss of existing jobs and a halt in the
creation of new jobs. H.R. 5 adversely affects small
business because it:
*
Increases work disruptions which strains the
ability of the small business owner to continue
operations.
*
Undermines open shop operations which permit
employees the freedom to choose whether or not to
join a union.
*
Increases the liability exposure of a small
business owner which could lead to legal fees and
increased insurance premiums and potentially the
loss of customers.
Increases normal costs of doing business by
forcing a dependence upon more expensive temporary
workers during work stoppages.
*
Encourages strikes rather than negotiation which
can affect the small business contractor or any
small business dependent upon the health of the
economy surrounding the struck firm.
Please join your small business constituents in
opposing H.R. 5. Its enactment will be devastating to your
small businesses.
Sent to Full House
NFIB
National Federation of
IMPACT OF H.R. 5 ON NON-UNION SMALL BUSINESS
Independent Business
Much of the debate on H.R. 5 has focused on
technicalities and legal interpretations. While this focus
is necessary, it should not be exclusive. To understand the
real ramifications of H.R. 5 on this nation's economic
prosperity one has to look to the backbone of our economy,
small business.
A few little known facts about the characteristics of
small businesses could help in understanding the negative
impact of H.R. 5. Consider the macroeconomic impact small
business has on the economy:
*
Small businesses generate the bulk of the new
jobs in the United States. In the decade of
the 1980's small business created 23 million
new jobs.
*
Ninety percent of small business owners
employ 20 people or fewer.
*
Sixty percent of small businesses have gross
sales of approximately $300,000 annually.
*
In the first three years of business, seventy
percent of small businesses close. This
sector of our economy is the most dynamic and
the most fragile.
With these facts in mind, it is easier to understand
the implications of H.R. 5.
Attempts have been made to insulate small business from
the adverse affects of H.R. 5. These efforts have failed
due to the fact that the bill itself poses not only a
direct, but an indirect threat to small businesses across
the country.
Suite 700
600 Maryland Ave. S.W.
In the view of NFIB, the Boehlert/Williams amendments
Washington, DC 20024
(202) 554-9000
fail to rectify the direct impact of H.R. 5, allowing two
Fax (202) 554-0496
non-union employees to walk off a job and prohibiting an
employer from permanently replacing them. (See NFIB paper
entitled Boehlert/Williams Fails to "Fix" H.R. 5)
Further amending or clarification of Boehlert/Williams
cannot solve the problems raised. Tightening of language
exacerbates threats posed to small business by union
The Guardian of
Small Business
organizing by enticing non-union employees off the line to
engage in union instigated picketing efforts which serve to
force an employer to recognize a union without the benefit
of a full employee election.
More specifically, small businesses and their employees
are adversely affected by enactment of H.R. 5 in five
separate ways.
1. INCREASED WORK DISRUPTIONS
H.R. 5, as amended by the Boehlert/Williams language,
would still permit any two employees to walk off a job in a
"labor dispute" over any employment condition. These
conditions could include such things as wages, vacation, the
temperature of the office, office hours, even Christmas
bonuses.
The subject of the dispute is irrelevant. The criteria
that must be met is simply that the two individuals are
acting together to protest some aspect of their employment.
This being the case, any employer of two or more employees
remain covered by the provisions of H.R. 5.
Consider a small plumbing contractor with 10 employees,
eight of whom are plumbers. Two plumbers have walked off
the job in protest over the amount of overtime they have
been able to work. These plumbers are guaranteed their jobs
back whenever they choose to return. The owner, however, is
left without 20 percent of the work force.
H.R. 5 does allow the owner of this plumbing firm to
hire temporary replacements and to substitute management
personnel for the jobs left open. In a small business
setting neither option is feasible. In most cases, the
employer is the management, the accountant, the benefits
specialist and the trouble shooter. The owner of the firm
could not continue to fill all these duties and cover the
job demands of the two plumbers who walked off the job.
Temporaries would also be extremely difficult to find.
Where would our plumbing contractor find two experienced
plumbers to fill the two vacant positions for an indefinite
(perhaps only a few weeks) period of time?
Unlike larger companies, small businesses do not
normally utilize temporary placement services. They find
their temporaries by placing a help wanted sign in the
window or by word of mouth. If no one sees the sign or gets
the message, the job remains vacant.
Without temporaries or internal substitutes, our
plumbing contractor is facing an unknown future with twenty
percent of the business' work force gone. If the two
employees cannot be persuaded to come back to work, the
owner faces significant losses and perhaps the closing of
the business. Recall that seventy percent of small
businesses close within the first three years of operation.
The owner does not have the option of simply shutting down
for a short period of time and then reopening. Each
contract ensures that the firm can continue operations until
the next contract comes in. Without the manpower to
complete a pending contract, the business goes into default,
loses a customer and loses credibility for reliable service.
2. UNDERMINES ABILITY TO MAINTAIN "OPEN SHOPS" FOR EMPLOYEES
-UNDUE POWER TO UNIONS TO ORGANIZE SMALL BUSINESS
The entire employer-employee relationship is
drastically altered by H.R. 5. The Boehlert/Williams
amendment makes this reality all the more dangerous.
Unions are given the power by Boehlert/Williams to foster
non-union strikes with job guarantees. Thus, where
currently there may be little incentive for a union to
approach a non-union small business, the amended H.R. 5
encourages unions to do SO.
This, in turn, infuses into the employment setting an
element of uncertainty for the remaining employees who may
not be involved in the dispute, but could be adversely
affected. H.R. 5 places a small business operation and the
future of the majority of employees in the hands of a very
few.
Currently, workers have the right to choose whether or
not to join a union and employers are prohibited from
infringing upon that right. Firms whose workers have not
chosen to join a union are known as "open shops." Twenty
states have built upon this premise by passing what are
known as "Right to Work" statutes. These statutes say that
it is the public policy of that state that "the right of
persons to work shall not be denied or abridged on account
of membership or nonmembership in any labor union or labor
organization."
Strategic strikes and pickets may have little effect on
a large corporation, but a small business can be devastated
by such activity. While employees of the small business may
not want to be represented by a union, a union could force
such representation on them by using economic weapons
against the small business owner. The union needs to only
entice one or two employees onto the picket line with
promises of unreasonable wage increases and job guarantees
to force a small business owner into an economically
precarious position.
Small business owners know their employees and have
good working relationships with them. A union organizer
walking into a small business would irrevocably change the
traditional working relationship of conciliation into
confrontation, which ultimately could cause the possible
bankruptcy of the business.
The bottom line is that H.R. 5 permits unions to foster
labor unrest in the small business community which
historically has been free of labor friction. H.R. 5 would
allow unions working with two employees to dictate to the
employer and the remaining employees the work place policy
of that business. A democratic system would be circumvented
and the rights of the majority could be ignored.
3. INCREASED LIABILITY EXPOSURE
If the owner is fortunate enough to find a temporary,
the problem of increased liability exposure remains.
Traditionally, a temporary employee does not have the
dedication to a job that a permanent employee demonstrates.
That lack of determination to do the job right could have
serious consequences for the small business owner.
If a temporary plumber does an unsatisfactory job and a
pipe bursts and floods a residence, the small business owner
is liable for damage. The firm may have to spend scarce
resources to retain legal counsel to settle such a claim.
The owner could even face punitive or compensatory damages
which could put the firm out of business completely.
The cost of liability insurance must also be taken into
consideration. Insurance premiums are based upon the
insured's history. The small business owner, upon making a
claim to cover the cost of damage, faces a dramatic increase
in insurance premiums.
The owner not only has to pay for any damage incurred
by the customer, pay any punitive and compensatory damages,
and pay an increased premium on liability insurance, but the
business has also lost a customer. Of even greater
consequence is the loss of business that would result from
poor word of mouth advertising. Most small businesses rely
on satisfied customers to build their business over time. A
negative recommendation could have serious adverse affects
on that business.
4. INCREASED COSTS OF DOING BUSINESS
Temporary employees, as defined by H.R. 5, can be more
expensive than regular employees. Below are listed five
factors that come into play each time a temporary is hired
to replace a striking worker.
*
Temporaries are often paid more than normal
salaried worker wages.
*
Combined Omnibus Budget Reduction Act (COBRA)
requirements can be triggered if the temporary is
covered under the struck employer's health
insurance. The employer is responsible for
continuing health insurance under COBRA for 18
months for the temporary and 36 months for the
temporary's dependents. Experience shows that on
average COBRA costs the employer 150 percent more
that the premium paid by the separated worker.
*
An employer may be liable for unemployment
insurance compensation for every separated
temporary, depending upon the eligibility
requirements of the state program and the work and
earnings history of the temporary.
The employer's unemployment insurance tax could
increase when a temporary is laid off or fired to
accommodate a returning striking worker.
*
Because temporaries are more likely to be injured
on the job, the employer is more likely to be
exposed to higher workman's compensation claims.
*
Temporaries will be unable to maintain the level
of production that a permanent employee can.
Training and familiarization come with time,
something a small employer has very little to
spare.
5. INCREASED STRIKES WHICH HIT SMALL BUSINESS -
"THE RIPPLE EFFECT"
By creating a business setting that favors
confrontation, the practical affect of H.R. 5 would be to
create more strikes in both union and non-union settings.
This has been the case in Canada where a law similar to H.R.
5 exists. Statistical evidence, prepared by M. Gunderson,
J. Kervin and F. Reid in their analysis The Effects of
Canadian Labor Relations Legislation on Strike Incidence and
Duration, proves this to be the case. In their own words,
"The strongest effects, (of influencing greater strike
activity) both in terms of statistical and economic
significance are those of mandatory strike vote, and the
prohibition on replacement workers."
No strike takes place in a vacuum. It has
repercussions on those employees who chose not to strike, on
the customers of the struck company, the small businesses
that contract out their services to the struck company, and
most importantly small businesses in the immediate vicinity
of the struck company.
The small business contractor is directly affected.
Using our example of a plumbing contractor bears out the
direct adverse affect increased strike activity has on small
business. This plumbing contractor has a $1 million
contract with a local builder to do all the plumbing work on
a new construction project. Knowing that a contract of this
size would tax the firm's resources, the plumbing contractor
has turned down other offers until this job can be finished.
The electrical union representing the electricians
working on the same construction project calls for their
members to strike the builder for higher wages. Further
construction cannot take place until the electrical work is
complete. This leaves the construction at a standstill.
Meanwhile, our plumbing contractor has purchased all
the supplies he needed to complete the job. He has
rescheduled all pending work and put off future contractual
agreements. In a strike situation he must remain idle, not
knowing when the strike may end and fearing making
obligations that may cause him to spread his firm too thin.
The bills for the supplies are coming due. The longer
the strike continues the more dramatic affect it has on the
small business. The owner may be forced to dip into the
meager reserves he had to pay for the supplies he bought.
Now with no reserve, the owner can only hope the strike will
end soon. If it does not, he will have to let his plumbers
go because he will not be able to afford to keep them on the
payroll. Without work and without his plumbers the small
business owner defaults on his own obligations. Ultimately,
if the strike is of any real duration, the plumbing
contractor faces possible bankruptcy or closure.
Small businesses, which are not directly related to the
struck business, are also adversely affected by strikes.
The ripple effect goes beyond the subcontractors to other
businesses that are dependent upon the health of the local
economy. Consider the neighborhood bakery which is
dependent upon the workers of the struck company for
business. During a strike the workers who normally
patronize the bakery are left with limited resources.
Morning doughnuts and fresh baked bread become luxury items
that cannot be afforded. Business for the bakery drops off.
Depending upon the duration of the strike, the bakery could
face a dramatic loss of revenue. The same results will be
felt by other small businesses in the area. The ripple
effect of H.R. 5 is very real.
CONCLUSION
Small businesses are both directly and indirectly the
victims of this legislation. While proponents argue that
they are only fighting for job security, the practical
result could be the loss of existing jobs and a halt in the
creation of new jobs. H.R. 5 adversely affects small
business because it:
*
Increases work disruptions which strains the
ability of the small business owner to continue
operations.
*
Undermines open shop operations which permit
employees the freedom to choose whether or not 'to
join a union.
*
Increases the liability exposure of a small
business owner which could lead to legal fees and
increased insurance premiums and potentially the
loss of customers.
*
Increases normal costs of doing business by
forcing a dependence upon more expensive temporary
workers during work stoppages.
*
Encourages strikes rather than negotiation which
can affect the small business contractor or any
small business dependent upon the health of the
economy surrounding the struck firm.
Please join your small business constituents in
opposing H.R. 5. Its enactment will be devastating to your
small businesses.
NFIB
-
Sent to Full Senate
National Federation of
Independent Business
April 2, 1991
Honorable
United States Senate
Washington, DC 20510
Dear Senator:
Since its introduction, questions have been raised as
to whether or not S. 55 applies to non-union small
businesses. The National Federation of Independent Business
(NFIB) has reviewed the language contained in S. 55 to
ascertain if and how it applies to non-union businesses.
S. 55 incorporates many of the definitions contained
within the National Labor Relations Act (NLRA) and existing
case law. In so doing, the bill implicitly covers any
business that employs two or more employees.
Enclosed is an analysis of the legislation prepared by
NFIB. The analysis specifically looks at the terms, "labor
dispute," "labor organization" and "bargaining unit work."
It provides the context in which each term is used in S. 55,
the definition included in the NLRA and any case law that
has expanded upon the breadth of the terms.
If you need additional information, please do not
hesitate to contact the NFIB at 554-9000.
Sincerely,
John Vice President
John J. Motley III
Federal Governmental Relations
Suite 700
600 Maryland Ave. S.W.
Washington, DC 20024
(202) 554-9000
Fax (202) 554-0496
The Guardian of
Small Business
NFIB
Sent to Full House
National Federation of
Independent Business
Why H.R. 5 Applies to Non-union
Small Business
An Analysis of Definitions
The National Federation of Independent Business (NFIB) believes that
H.R. 5 poses a direct and detrimental impact on this nation's non-
unionized small business community. This paper will outline the legal
and technical reasons why NFIB sees the worker replacement legislation
as a threat to non-unionized small businesses.
H.R. 5 would amend the National Labor Relations Act (NLRA) to make
it an unfair labor practice to permanently replace workers involved in
a labor dispute. There are specific terms used in H.R. 5 which would
result in its applicability beyond the large corporation setting which
is unionized. To ensure a complete and accurate description of the
operative phrases contained within the legislation, this analysis uses
Suite 700
the definitions found in statute, the National Labor Relations Board
600 Maryland Ave. S.W.
Washington, DC 20024
(202) 554-9000
(NLRB) decisions and existing case law. The bolded type is the
Fax (202) 554-0496
language contained within the bill; an explanation follows. If you
have additional questions, please contact NFIB at (202) 554-9000.
The Guardian of
Small Business
DEFINITIONS OF LANGUAGE IN H.R. 5
LABOR DISPUTE
The legislation amends the unfair labor practice section of the NLRA
by adding: [It shall be an unfair labor practice.. ]
"Section 1 (6)(i) to offer, or to grant,
the status of permanent replacement loyee
to an individual for performing bargaining
unit work for the employer during a labor
dispute."
This is one of two instances in H.R. 5 in which the term "labor
dispute" appears. The legislation does not specifically define labor
dispute. Instead it incorporates the definition already contained in
the NLRA as follows:
"The term labor dispute includes any controversy concerning terms,
tenure or conditions of employment or concerning the association or
representation of persons negotiating, fixing, maintaining,
changing, or seeking to arrange terms or conditions of employment,
regardless of whether the disputants stand in the proximate relation
of employer and employees." [NLRA, Section (2)(9)]
The use of "labor dispute" as defined in the NLRA reinforces the
applicability of this legislation to non-unionized small business
settings. As was presented in testimony before the Labor-Management
Subcommittee of the House Education and Labor Committee, labor dispute
is very broad both in definition and interpretation. Any two employees
who walk off a job to protest a "working condition" are considered to
be engaged in a labor dispute. Every business with two or more
employees could be therefore covered by the legislation.
In fact, by incorporating the NLRA's definition of labor dispute,
H.R. 5 would cover not only disputes over conditions of employment, but
also include union organizing efforts. Thus, not only would two
individuals acting "in concert" in protest over an employment
condition, such as hours, be covered; but so would two employees who
walked off the job at the urging of union representatives seeking to.
organize a non-union shop.
LABOR ORGANIZATION
H.R. 5 also adds the following to the unfair labor practice section,
Section 8, of the NLRA. [Any individual is protected by this Act if he
or she ]
"Section.1 (B) has exercised the right to
join, to assist, or to engage in other
concerted activities for the purpose of
collective bargainingor other mutual aid or
protection through the labor organization
involved in the dispute;"
Proponents of H.R. 5 have argued that by using the words, "labor
organization", they are only talking about certified union
representation. A look at the definition incorporated from the NLRA,
however, disputes this claim.
The term "labor organization" means "any organization of any kind,
or any agency or employer representation committee or plan, in which
employees participated and which exists for the purpose, in whole
or in part, of dealing with employers concerning grievances, labor
disputes, wages, rates of pay, hours of employment, or conditions
of work." [NLRA, Section (2)(5)]
This broad definition is certainly inclusive of two or more
employees who are acting in concert. It can be generally considered
that "whenever any group of employees act in concert for a wage
increase, or concerning other terms or conditions of employment, the
group constitutes a labor organization within the meaning of the NLRA.'
(Source: Thompson, Mann & Hudson) In 1950, the Third Circuit in NLRB
V. Kennametal, Inc., 182 F.2d 817 reaffirmed this concept. The courts
have also decided in NLRB V. Jasper Seating Co. Inc., (Seventh Circuit
1988) that also inclusive in this definition are spontaneous walkouts
made in furtherance of demands. You do not need to have a certified
union represent your employees to have a labor organization as
recognized by the definition contained in the NLRA.
BARGAINING UNIT WORK
In this section, we will clarify the meaning of bargaining unit work
as used in H.R. 5 and the NLRA. [It shall be an unfair labor practice
to...]
"Section 6 (i) to offer, or to grant, the
status of permanent replacement employee to
an individual for performing bargainingunit
work for the employer during a labor
dispute;
or" *
Ambiguity exists over the definition of "bargaining unit work."
Nothing in the NLRA, case law or H.R. 5, however, leads one to the
conclusion that bargaining unit work does not mean two employees
bargaining with an employer without the representation of a union.
* This language was discussed earlier under the section dealing with labor
dispute. It is repeated here for discussion of the term bargaining unit work.
Without a precise definition to the contrary, bargaining unit work can
easily mean the work or working conditions about which two employees
and their employer are in dispute, and therefore are bargaining.
According to labor experts, past positions taken by the NLRB and the
courts make it clear that, while not defining "bargaining unit work",
the NLRA has always been interpreted to apply to all workers, whether
they are affiliated with a certified union or not. The term "concerted
activities" by workers also has not been differentiated on the basis
of union affiliation in the past. Brown & Root, Inc. V. NLRB, 634 F.2d
816 (5th Circuit 1981)
The NLRA protects all types of actions of both union and non-union
employees who engage in "concerted activities" for "mutual aid and
protection." One landmark case in particular is illustrative of this
principle, NLRB V. Washington Aluminum Company, 370 U.S. 9 (1962). In
this case 7 non-union employees walked off the job in protest over cold
working conditions. No specific demands were made on the employer by
the protesting employees. The Court found that the actions taken by
the 7 employees were considered protected activity under the NLRA.
CONCLUSION
Without specific definitions for the language used in H.R. 5, one
must look at the statute being amended and the 53 years of case law
governing it. In so doing, it becomes apparent that while perhaps
intended to affect only certified union shops, H.R. 5 has consequences
for all businesses.
NFIB
National Federation of
Independent Business
April 18, 1991
Dear Member of the Education and Labor Committee:
The over 500,000 members of the National Federation of
Independent Business (NFIB) appreciate the efforts of Rep.
Boehlert in the House Public Works and Transportation
Committee and Rep. Williams in your committee to offer
language which attempts to eliminate non-union small business
coverage under H.R. 5. We cannot support their amendment,
however, because it fails to adequately resolve the problems
small businesses would face under H.R. 5.
NFIB has made a concerted effort to understand exactly
how non-union small business would be affected by this
legislation. At the request of several Members of Congress,
on both sides of the aisle, NFIB initiated discussions across
the country with prominent labor attorneys and experts in the
field to see if language could be crafted to effectively take
non-union small business out of the scope of H.R. 5.
After a complete investigation, it became clear that non-
union small business could not be insulated from the coverage
of H.R. 5. This includes a careful and thoughtful look at the
language Representative Williams will likely offer before this
committee.
We took no stand on the Boehlert amendment during its
consideration in the Public Works Committee because the
amendment applied exclusively to the Railway Labor Act under
Section 2 of this legislation.
The same language used within the context of the NLRA,
Suite 700
however, forces NFIB to take a strong position against the
600 Maryland Ave. S.W.
amendment. We oppose the amendment for one simple reason -
Washington, DC 20024
it fails to resolve the multi-faceted difficulties H.R. 5
(202) 554-9000
Fax (202) 554-0496
poses for small business. Instead, it misleads members who
are truly concerned about H.R. 5's impact on small businesses
into a false sense of security that the problems are resolved.
H.R. 5 as amended by the Boehlert/Williams language poses
a direct threat to the continued vitality of this nation's
small businesses. Further analysis of this legislation should
only strengthen members' opposition to H.R. 5 because of its
dramatic impact on small business.
The Guardian of
Small Business
Please oppose the Williams amendment and vote against
H.R.5.
Sincerely,
JohN Motley III
Vice President
Federal Governmental Affairs
An Employer's Nightmare
As an employer, you need to
ages, disabilities and religions consistent
You would not be reimbursed for attor-
learn now what the proposed Civil
with that of your community, that by itself
neys' fees if no discrimination is found
How would the bill affe
could land you in court. An employee or
(except under extraordinary conditions).
Rights Act of 1991 would do to
job applicant does not even have to
But if the plaintiff wins, you would be
my business?
your business.
prove that any actual discrimination
required to pay witness and attorney's fees
Supporters of the legislation (H.R. 1) claim
has occurred.
in addition to any compensatory and puni-
that they seek only to reverse several U.S.
Under H.R. 1, statistics alone could be
A.
The proposed legislation could for
tive damages awarded.
to change your hiring and promoti
Supreme Court decisions covering employment
enough to drag you into a long, costly
A study of employment law in Califor-
practices.
discrimination laws. The bill's sponsors, how-
legal battle. And the cost of defending
nia, where jury trials are available in state
All businesses with 15 or more e
ever, have gone beyond restoring federal anti-
yourself is high-even for a frivolous case.
cases, showed that plaintiffs were three
ees would be required to comply V
discrimination law. H.R. 1 would throw out doz-
"Modest" attorneys' fees for a case that
times more likely to win before a jury
law. In many states the employee e
ens of federal employment laws, statutes that
goes before a jury range from $80,000 to
than a judge. Jury-awarded damages aver-
tion would be even lower.
have stood for decades.
$100,000.
aged $342,000.
If your workforce or a segment C
NFIB and NFIB members support nondiscrimi-
Historically current employment law has
These legal expenses would force many
a lower percentage of minorities or
natory employment practices, but civil rights
worked. It allows plaintiffs to file a com-
business owners-whether they believe
women than the local working pop
legislation must remain fair legislation. This bro-
plaint with the local Equal Employment
they're innocent or not-to try to settle
an employee or job applicant could
chure addresses the concerns small business has
Opportunity Commission, which reviews
disputes out of court. Even these settle-
a lawsuit against you.
with the proposed civil rights bill, how it would
the case and negotiates a solution with the
ments cost from $12,000 to $50,000 per
To stay out of court you would h
affect your business, what NFIB is doing to cor-
employee and employer. If a settlement
case. And with the carrot of multi-million
little choice but to hire by the num
rect it and what you can do to help.
cannot be agreed upon, the case is sent to
dollar damages awards, employees would
rather than by experience, educatic
a judge.
have little incentive to settle.
certifications and standard applicati
If discriminatory practices are found, the
H.R. 1 would set up a system that holds
forms-unless you could prove that
Q.
How would the Civil
victim is restored what was lost by the dis-
employers guilty until proven innocent.
criterion is nondiscriminatory.
crimination, such as back pay, restoration
With potentially huge damage awards
Supreme Court Justice Sandra Da
Rights Act of 1991 change
of benefits, reinstatement of job and attor-
hanging over employers' heads, plain-
O'Connor wrote, "If quotas and pre
ney's fees. On the other hand, if a com-
tiffs' attorneys could practice legalized
tial treatment become the only COSI
plaint is deemed frivolous, it's weeded
blackmail.
employment law?
tive means of avoiding expensive lit
out here.
The scope of civil rights law is broad. If
and potentially catastrophic liability
The bill Congress is considering would
H.R. 1 is enacted, its provisions would
measures will be widely adopted. T
A.
For the first time in employment law his-
do away with these procedures in favor of
cover employment discrimination based
dent employer will be careful to en
tory, federal discrimination cases could
a system that invites litigation.
on race, gender, ethnic origin and reli-
that its programs are discussed in et
be tried before juries who could award
gious affiliation. Through related laws, dis-
mistic terms but will be equally car
unlimited punitive and compensatory
crimination stemming from disability, age
ensure that the quotas are met."
damages.
and both physical and mental impairments
Continued on ba
Under the legislation if an employee can
also would be covered.
show that your workforce does not
include a cross-section of the races, sexes,
at is NFIB doing about
Q.
What can I do to help?
e bill?
A.
Start today by writing, calling or visiting
your lawmakers. Acting now may protect
en lawmakers introduced the civil
you later.
its bill in the 101st Congress, NFIB
Tell your lawmakers to
d to negotiate for legislation that
1. Forbid using juries to decide
uld be fair to both you and your
employment cases.
ployees. But proponents of the bill
uld have none of it.
2. Oppose punitive and compensatory
Jthough the measure passed in the
damages, which would encourage
use and in the Senate in 1990, it was
litigation.
The Proposed Civil
oped when President Bush vetoed the
3. Oppose quotas for hiring and
NFIB helped garner enough votes in
Rights Act of 1991:
promotion.
agress to sustain the veto.
Call your Representative and Senators at
An Employer's
n the 102nd Congress, NFIB continues
block this legislation, but the bill is one
(202) 224-3121 or write them at the U.S.
Nightmare
the top priorities of congressional lead-
House of Representatives, Washington, DC
With this brochure and other mate-
20515 and at the U.S. Senate, Washington,
NFIB
S, NFIB is educating lawmakers and
DC 20510. Send copies of your letters to
National Federation of
all employers about the measure.
NFIB, and we'll use them for ammunition
Independent Business
FIB is working to retain language in
on Capitol Hill. See the address below.
rent law including provisions that
If you think your business associates
should know about this bill, you can
L. Allow employers to hire and pro-
obtain additional copies of this brochure.
mote on the merits of education,
Write to NFIB, Dept. CR, Suite 700, 600
skill and experience without using
Maryland Ave. S.W., Washington, DC
quotas and without the fear of a
20024, or call (202) 554-0822, ext. 244.
Employment Discrimination Law
costly lawsuit.
2. Encourage conciliation and negotia-
tion over litigation.
150 W. 20th Ave.
Suite 700
NFIB
San Mateo, CA 94403
600 Maryland Ave. S.W.
3. Permit judges rather than juries to
(415) 341-7441
Washington, DC 20024
National Federation of
decide appropriate remedies.
(202) 554-9000
Independent Business
Offices in all 50 state capitals
© 1991 National Federation of Independent Business
4/91
Contained in "Legislative
Workforce
Priorities"
Worker Replacement
Issue:
Should an employer be able to hire permanent replacement workers during a labor
dispute?
Background:
In 1938 the U.S. Supreme Court ruled that the National Labor Relations Act (NLRA) does
not prevent employers from hiring replacement workers for employees who have walked
off the job in an economic strike - a strike over issues such as pay, hours and benefits.
However, after a settlement, the striking employees have the right to jobs that replace-
ment workers leave.
During an unfair labor practice strike - one involving an alleged illegal act by an em-
ployer - striking employees are guaranteed the opportunity to regain their jobs, even if
they displace replacement workers.
During several economic labor disputes in the 1980s, employers exercised their rights
under the NLRA to permanently replace striking workers in order to continue to operate.
Unions now are advocating changes to the NLRA to prevent employers from continuing
to operate their businesses during labor disputes.
Legislative History:
In the 101st Congress legislation was introduced that would have barred employers from
hiring permanent replacement workers during a labor dispute. Under the legislation two
or more employees could have walked off the job, saying only that they were protesting
terms and conditions of employment. They would have been guaranteed their jobs back
whenever they chose to return. The bills covered both unionized and non-unionized busi-
nesses. Hearings were held in both the House and Senate.
NFIB Position:
NFIB opposes any attempt to curb employers' rights to replace workers who walk
off the job.
Action Needed:
Congress should oppose legislation that denies employers the right to replace workers
who walk off the job.
Benefits:
Worker replacement legislation permits no flexibility to respond to changes in the work-
place. As a result it will inhibit the most vibrant, productive sector of the economy-
small business. Permitting cooperation and flexibility results in more small businesses and
more jobs.
NFIB
National Federation of
Independent Business
JOHNJ. MOTLEY III
Vice President
Suite 700
600 Maryland Ave. S.W.
Washington, DC 20024
(202) 554-9000
16
NFIB
Sent to over 1600 NFIB Members
National Federation of
Independent Business
MEMORANDUM
To:
NFIB Sales Force
From:
John Motley
Vice President
Federal Governmental Relations
Subject: Action Request
Date:
March 13, 1991
Enclosed you will find 50 copies of an important and
hard-hitting Action Request to hand out to NFIB members as
you work renewals. A longer, more detailed version is being
mailed to over 200, 000 members over four weeks. So don't be
surprised if a member seems familiar with our request. Just
tell them that this shows how important we believe this
issue is to them and how hard we're working on their behalf.
The Action Request notifies members of three issues:
-
Mandated Parental Leave,
-
Striker replacement,
-
Employment discrimination (the so-called "Civil
Rights Act").
They are at the top of Big Labor's and the Democratic
Leadership's agenda, and they are moving through Congress
like a hot knife through butter. If small business owners
don't speak up -- soon and loudly -- these bills will become
the law of the land. And they will pave the way for the
enactment of even more oppressive anti-small business
legislation.
Suite 700
Please distribute the Action Requests to members who
600 Maryland Ave. S.W.
you believe will call or write their Senators and
Washington, DC 20024
(202) 554-9000
Representative. Urge them to get involved and express their
Fax (202) 554-0496
opinion -- and good selling.
The Guardian of
Small Business
ACTION REQUEST
STOP ANTI-SMALL BUSINESS PROPOSALS IN CONGRESS!
The U.S. Congress is considering and may soon vote on
legislation that would dramatically change the way you do
business and give government bureaucrats and the courts even more
authority to control your day-to-day business operations.
If small business owners across the country don't speak up -
- soon and loudly -- we will all pay a steep price as these new
laws restrict your freedom to run your business.
Mandated Parental Leave
This proposal would require employers to give 12 weeks of
unpaid leave to any employee for the birth, adoption, or illness
of a child or for the illness of a parent or spouse. Employers
must guarantee the employees their jobs and continue their health
insurance.
Both the Senate bill, S.5, and the House bill, H.R. 2,
apply to businesses with 50 or more employees. This exemption is
an illusion -- a ploy to ensure passage. In fact, Sen. Kennedy
has already said that if this legislation passes he intends to
begin expanding it.
Striker Replacement
This legislation would require employers to rehire any 2 or
more employees who walk off the job for economic reasons. It
applies to non-union businesses as well as union ones. It
effectively prevents an employer from replacing workers who walk
off the job over wages and benefits. And, it overturns 50 years
of labor law. With it Organized Labor gains a strong organizing
tool.
The Senate bill is S. 55; the House bill is H.R. 5. Passage
of this legislation is Big Labor's number one priority. It is a
loaded gun meant to help unionize smaller firms.
Employment Discrimination
This legislation, the so-called "Civil Rights Act of 1991,"
holds you guilty of employment discrimination until proven
innocent. If your workforce doesn't mirror the local community
in percentages of racial, ethnic, sexual, and religious groups
you could be sued, face a jury trial and be fined an unlimited
amount of money. It would have the effect of turning equal
opportunity and merit promotion into illegal acts -- all in the
name of civil rights.
The House bill is H.R. 1; Sen. Kennedy will introduce the
Senate version soon. The number "H.R. 1" means that it is the
Number 1 priority of the House Democratic Leadership for this
Congress.
Contact Your Congressional Delegation
Supporters of these anti-small business bills are working
very hard to get them on the books. They are on Capitol Hill
every day saying how necessary these bills are, how fair they
are, and how cheap they are.
The business owner's side of the story is barely being heard
at all. Act today: call and/or write both your Senators and
your Representative and express your opinion on these anti-small
business bills. Urge them to:
Oppose mandated leave.
Oppose striker replacement.
Oppose the so-called "Civil Rights Act".
You can contact your representatives by writing:
Honorable
Honorable
U.S. House of Representatives
United States Senate
Washington, DC 20515
Washington, DC 20510
Or calling:
Capitol Switchboard
(Ask for the office you want by name.)
202/224-3121
NFIB
Sent to over 1500 Local Chambers
-
National Federation of
of Commerce
Independent Business
Your Help Urgently Needed
April 2, 1991
Dear Chamber Executive:
The Democratic Leadership in Congress wants to reward
its favorite allies and constituency groups -- big labor,
trial lawyers, and others -- with federally mandated
benefits and advantages, and they expect your small business
members to pay for it. They have announced their intention
to pass a series of bills that will undermine the ability of
small business owners to run their businesses and support
their families.
The Congressional Leadership wants to guarantee an
employee's job by mandated parental and family leave. It
wants to make it easier for Big Labor to organize even small
businesses by guaranteeing workers who strike their jobs
back. And, it wants to make it possible to "legally
blackmail" business owners into hiring and promoting by
quotas.
The bills imposing mandated parental leave, job
guarantees for strikers, and outrageous legal expenses for
employment discrimination are going to be voted on very,
very soon.
These three bills are part of Sen. Kennedy's and Big
Labor's agenda to begin a whole new era of unprecedented
government intervention in the workplace. The entire labor
agenda to socialize the nature of the American workplace is
a long one -- but these bills are at the top of its list.
Two of them passed the Congress last year, but never
Suite 700
became law only because Congress could not override
600 Maryland Ave. S.W.
President Bush's vetoes. Proponents of this "new social
Washington, DC 20024
(202) 554-9000
contract" are expected to try to ram these bills through the
Fax (202) 554-0496
Congress during the upcoming weeks.
Organized labor has pulled out all the stops to enact
this agenda -- they're having union members write letters,
call and visit their elected officials and demand immediate
enactment. They've even produced a soap opera video to
plead their case to Congress.
Small business needs your help!
The Guardian of
Small Business
Enclosed you will find 10 copies of an NFIB Action
Request. I would like you to circulate to your small
business members. It outlines the disastrous legislation
before the Congress and urges them to contact their Senators
and Representative.
Our united efforts to get America's small business
owners activated will help us defeat this legislation.
Thank you for your help.
Sincerely,
John J. Motley III
Vice President
Federal Governmental Relations