Companies cut hours of full-time employees to avoid providing health care under new rules
Labour groups warn some big firms are cutting workers’ full-time hours to avoid paying health costs for those who need it most
In January, a janitor in Cincinnati received a piece of chilling news from one of her superiors, who had just met with upper management. The company, the supervisor said, was considering cutting some full-time employee hours down below 30 per week in order to avoid paying for new healthcare costs associated with Obamacare.
The janitor, who asked to be called Jennifer for fear of retaliation from management, is well into her 40s and now worries for her livelihood.
After over six years of working for ABM Industries, a company worth $4bn, she works full-time for $9.80 an hour. She says that with so many bills, including several monthly prescriptions, she often finds herself so short on money that she cannot eat satisfactorily. “I want to – I need to – work full-time” Jennifer said. She is a member of the local Service Employees International Union, which has struggled to bargain with ABM for better wages and steady hours.
“Every penny counts for me,” Jennifer said. “I’m working full-time and I’m still struggling to make ends meet. If I got cut down to 20 or 25 hours … oh my God, I would have no money to live on. I wouldn’t be able to pay my bills; I’d hardly afford to eat or pay for my medication. I’d be forced to look for another job.”
“It’s not like mom’s still here – I can’t go stay with mom any more,” Jennifer added.
Her story is not unusual. Three years after the passage of Barack Obama’s signature healthcare law, labor advocates are warning that it could have the unforeseen consequence of harming some of the very low-wage employees it seeks to aid. The legislation’s incentive scheme, they say, could cause a shift toward part-time work that extends beyond companies like Papa John’s and Darden Restaurants, which last year publicized their plans to cut employee hours to avoid costs under the new law.
Such worries are reflected in California, where the state union federation is exploring legislation to lay over the Affordable Care Act to fix the potential problem. “We’re extremely concerned about the structure of employer responsibility penalties under this law” says Sara Flocks, Public Policy Coordinator for the California Labor Federation, which represents over 1,200 trade unions with 2.1 million members. “It encourages a shift toward a part time workforce in industries where that’s possible. In retail, entertainment, restaurants, and hotels, we’ll see a move toward cutting workers below the 30-hour mark.”
Most at risk of this, according to Flocks, is the so-called contingent workforce: those employees with already fluctuating hours, no job security, and little power to bargain with management. These are the workers whose hours can most easily be slashed by employers seeking to avoid paying health insurance.
Under the law that takes effect next year, large employers are exempted from contributing anything towards healthcare costs of employees who work under 30 hours a week. For full-time workers, companies must offer affordable insurance or face steep fines. Employers seeking to dodge this responsibility could impose 29-hour ceiling on workers, Flocks says, and push many onto public insurance subsidies, straining state and federal budgets.
The California Labor Federation has been quietly exploring strategies to stop this potential unintended consequence by reinforcing the ACA with state legislation to discourage large employers from cutting hours. The details of this proposal are undecided, but, at least in theory, a state law acting alongside the ACA could ensure that an employer’s part-time workers are counted toward determining how much a company must contribute to overall healthcare costs. This could eliminate the incentive to skirt the law by cutting hours.
“We want to be very clear that, overall, this law is a very good thing for working people, but we clearly need a fix on the 30-hour-a-week issue,” says Saru Jayaraman of Restaurant Opportunities Centers United, a non-union labor group that represents 10,000 restaurant workers nationwide. The restaurant industry has one of the highest concentrations of workers most likely to have hours cut under the ACA’s 30-hour provision, according to a recent study UC Berkeley.
“We are very supportive of the effort in California. Once we see it in action, we can begin replicating it other states around the country,” said Jayaraman. “We need to make sure that all employers are taking responsibility.”
Republican opposition in Congress makes the path of state rather than federal legislation more appealing. Because many of Obama’s opponents would like to see the healthcare law falter, even practical fixes on the national level would likely fail in the House of Representatives. Apart from legislation, the California Labor Federation hopes to create a database of hour-cutting employers to inform policy makers on whatever trend emerges and who is responsible. Jayaraman says that finding and shaming employer who cut hours will be key in addressing the problem.
“The provision was not thought out all too well,” says Elise Gould, the director of health policy research at the Economic Policy Institute, a liberal thinktank. “It creates a cliff, and we never like to see cliffs in policy.”
Yet Gould does not expect the law to cause a wholesale shift toward part-time. She points to the fact that, because most large employers already offer health coverage to full-time employees, the incentive to cut hours already widely exists. Also, Massachusetts’ own state employer-based healthcare reform enacted in 2006 did not prompt any massive shift to part-time work.
There are some key differences, though, between Massachusetts law and the ACA, says Ed Lenz, senior counsel at the American Staffing Association, a business association of staffing firms. Unlike the ACA, the Massachusetts law enacted by former Governor Romney counts part-time workers toward the size of penalty non-compliant employers must pay, thereby giving more weight to the number of part-timers at large companies under the state law.
Massachusetts also has the second highest per-capita income of any state in America, indicating a workforce with unusually strong job security.
Lenz doesn’t expect a huge shift among temporary staffing firms toward part time work under the ACA, as many staffing agencies’ clients prefer full-time workers.
In Cincinnati, however, the union that represents Jennifer and about 1,000 other janitors is fighting for its members’ hours. ABM has said it may need to cut hours in preparation for the ACA, according to the local SEIU. At the bargaining table in Cincinnati, an association of cleaning companies – including Jancoa Janitorial Services and Scioto Services – represents ABM.
“These contractors have told us repeatedly that they need the flexibility to avoid the guarantees of full-time work that their employees have fought hard to achieve when the ACA goes into effect,” said Laurie Couch, a spokesperson for the union.
In July, the CEO of Jancoa, Mary Miller, said that the ACA would “almost force us to go to part-time employees to reduce the cost that our customers and us cannot afford.” This statement was part of a video released on YouTube by the US Chamber of Commerce.
Jancoa and ABM declined to comment for this article.
“We see the ACA as a three-legged stool made of the individual mandate, employer responsibility, and government subsidies,” said Flocks.
“And all of us are in, except these employers which are skirting their responsibilities. If you cut one leg of the stool it’s going to crash. This is about fair share, but it’s also about the sustainability of the ACA.”