3 Examples Of Unintended Consequences In The Law

Legislators should think carefully about the possible unintended consequences of laws they pass, according to columnist Mark Herrmann, and legislatures should act quickly to amend laws that may, instead of fixing social ills, actually compound them.

dartboard pen on target inside straightThe world is full of unintended consequences.

Raise the minimum wage, for example. Liberals assert that this is a good idea, because it’s unfair that a person works a full-time job, yet still doesn’t earn enough to support a family.

Conservatives don’t object to fairness, but they worry that free markets set salaries accurately. If a job is worth only $5 per hour, and the minimum wage is $8, then the $5-per-hour employee will receive not a raise, but a pink slip. That would be a nasty unintended consequence.

Where do I stand on that issue, you ask? I’m like Sergeant Schultz in Hogan’s Heroes: “I know nothing.” If I support the liberal side of an argument, I’ll offend conservative readers, and they’ll call their insurance brokers to complain. If I support the conservatives, then I’ll offend the liberals, and I’ll still end up taking grief from the brokers with whom I work. So I have no position at all, on anything, ever. (If anyone calls a broker to complain that this column is too boring because I never defend interesting opinions, then I quit. Sorry, Lat.)

Anyway, I recently read that President Francois Hollande has proposed some emergency measures to cure the persistently high rate of unemployment plaguing France. I wish Hollande (and France) the best, of course. More than that: I hope France is soon struggling with inflation triggered by an overheated job market. But the article made me flash back to something I heard several years ago, from a lawyer who had worked for a big international company (not mine, I hasten to add).

(Not only doesn’t this story involve my company, but maybe I didn’t actually hear these words spoken at all: Maybe I dreamed them, or maybe I’m making them up. If anyone ever subpoenas me about the drivel I’ve written here at Above the Law, I have nothing to say. I know nothing.)

Anyway, French law is extraordinarily generous to workers. Basically, all employees in France receive a minimum wage, 35-hour work week, five weeks paid vacation every year, protections against being fired, the whole schmear. It’s great to be a worker in France!

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But the country is struggling with persistently high rates of unemployment. And President Hollande is creating vocational training schemes, subsidies for small companies, and a program to boost apprenticeships.

What else might reduce unemployment in France? Might it help if foreign companies were itching to build plants in France and hire French workers? Which brings me to the thing I may have heard several years ago: “Our CEO repeatedly told the senior business folks that they were forbidden from investing in France. He didn’t want plants there; he didn’t want employees there; he didn’t want anything there. He was adamant: ‘When things go bad, we have to be able to close plants and lay off employees. We can’t do that in France. So we’re not hiring anyone there. Period.'”

It’s an unintended consequence: By generously protecting workers’ rights, a country’s laws may in fact reduce the number of available jobs. (I realize that I’m reasoning from a single anecdote, so I may not be drawing an accurate conclusion. I suspect that some reader can identify an actual study of, say, foreign investment in France compared to investment in similar countries with less generous employment laws, which might tell us whether my speculation is correct and the one CEO’s views are widely held. If you have real information on that subject, please share it in the comments.)

The article about France, in turn, triggered another memory. (My mind seems to be bouncing around a lot these days. Maybe I’ve been spending too much time on my iPhone.)

I was talking to (or dreaming about, or hallucinating) a non-lawyer whose company had agreed to settle a wage-and-hour class action. (The company had allegedly improperly paid fixed salaries to certain employees who were entitled to hourly pay plus overtime.) The guy was naturally complaining about silly laws, and opportunistic plaintiffs’ lawyers, and the injustice of life, and all that stuff. But then he snuck in the interesting bit: “You know what we’re going to do, don’t you? We’re going to pay the settlement, which will give the employees a few hundred, or a couple thousand, bucks each. We’re going to reclassify everyone as hourly employees. And then we’re going to close down the whole damn unit, lay off everyone, and hire a new group in India to perform the same tasks. That’ll be the only way to afford this. Who did that lawyer think he was helping?”

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I’m not taking sides here. It’s entirely right for countries to pass laws that protect employees’ rights, of course. It’s government’s responsibility to weigh the interests of labor and management, and to enact laws that strike an appropriate balance. Once those laws are passed, companies should naturally obey them. If companies ignore their legal obligations, then someone — responsible employees, government agencies, private lawyers — should bring the companies back to the straight and narrow.

But surely legislators should think carefully about the possible unintended consequences of laws they pass, and legislatures should act quickly to amend laws that may, instead of fixing social ills, actually compound them.


Mark Herrmann is Vice President and Deputy General Counsel – Litigation and Employment at Aon, the world’s leading provider of risk management services, insurance and reinsurance brokerage, and human capital and management consulting. He is the author of The Curmudgeon’s Guide to Practicing Law and Inside Straight: Advice About Lawyering, In-House And Out, That Only The Internet Could Provide (affiliate links). You can reach him by email at inhouse@abovethelaw.com.