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A Mild Pain Reliever With A Risk Of Side Effects

Connecticut’s much-ballyhooed new law requiring some businesses to provide paid sick leave to some workers is pretty mild medicine, economically, but it still could have some unpleasant side effects.

The legislation that takes effect in January is the first in the nation to mandate paid sick leave on a state level. Under the new law, employees classified as “service workers” must accrue at least five days of paid sick leave per year. Besides dealing with the worker’s own health, leave can be taken to assist with a spouse or child’s medical needs, or to address problems arising from family violence or sexual assault.

Labor sees the law as a clear triumph for workers. Jon Green, Executive Director of the Connecticut Working Families Party, which campaigned for the law, told the Daily Kos blog, “Especially in difficult times like these, it’s not right to make people choose between their health and their job, or between being a good parent and a good employee.” When the law takes effect, he said, low-income workers will be able to “live a little easier.”

But the law’s carefully constructed limitations indicate that even its drafters were aware of its possible downsides. The law’s definition of “service worker” contains a long list of job categories, from butchers to social workers. What these jobs have in common is that they are nearly all, at least on the surface, difficult to outsource. A crossing guard, one of the jobs on the list, can do little good unless he or she is in fact at the intersection where people are trying to cross. A dental hygienist, another such job, must be in the same place as the set of teeth he or she is cleaning. The law specifically excludes manufacturers, which can most easily relocate or outsource their work, and businesses with fewer than 50 employees, which would be most likely to be forced out of business by stricter regulations.

Connecticut already has a relatively high minimum wage: $8.25 an hour, a dollar above the federal minimum. Like this higher minimum wage, the new law will increase the cost of hiring workers in Connecticut. As minimum-benefit laws go, the paid sick leave requirement will have a relatively minor impact — far less than, for example, a 50 cent increase in the minimum wage would. Still, it will have an impact nonetheless.

The jobs covered by the new law may be harder to relocate than some other types of work, but that does not mean they cannot disappear or move elsewhere. A butcher who works at a supermarket meat counter must, of course, be employed in the state where the supermarket is located. But supermarkets do not need to position their butchers behind meat counters. If staffing an in-store counter becomes too expensive, stores can instead rely on pre-cut chops, brought in from an out-of-state supplier.

If a store employs a human cashier, that person needs to be in the store. But if the state makes it too expensive to hire a human cashier, the store can install self-checkout lanes instead. Yes, those automated voices that tell you to “please slide your card now” can be annoying, but the machines do not have to be given days off for illness.

In still other cases, employers may simply pass the costs of the new benefit on to customers in the form of higher prices, which will likely mean less business and, in turn, fewer jobs.

So while Green is right that the law will make life easier for service workers who have jobs, it will make life harder for those who do not and who will now have to compete for fewer opportunities. Still, because the law’s costs are modest, its direct negative effects should be small too.

However, in addition to its direct costs, the law demonstrates a meddlesome attitude that may have a chilling effect on business decisions out of proportion to those modest direct costs.

I am a business owner, and I, for one, think it makes good management sense to allow people who are sick to stay home. But I don’t think it makes good management sense to designate certain time off as a paid “sick day.” It promotes neither workplace fairness nor honesty. Some people see nothing wrong with playing hooky or taking to their beds for every case of the sniffles, while others power through anything short of double pneumonia. Providing paid sick leave either forces bosses to visit every employee’s bedside, thermometer in hand, or risks rewarding those who are creative, or even downright dishonest, in their self-reported diagnoses.

As I explained in October 2009, when New York City proposed a regulation similar to Connecticut’s recently-passed law, Palisades Hudson does not offer any “sick days.” Instead, employees here are given three “personal days” per year. These can be used to nurse a cold, to consult a doctor about an ongoing condition, or to be a cheerleader at a child’s soccer game. Employees can also generally use vacation days — of which everyone receives at least 10 per year — for any of these purposes. If necessary, employees can make up additional missed time over a weekend or during other scheduled time off. We also try to offer unpaid time off when appropriate.

Because Connecticut will allow any paid personal or vacation days to count as “sick days” under its new laws, our policies would easily satisfy the state’s requirements, were we subject to them. But that does not mean I want the Connecticut Legislature telling me what mix of cash and benefits is best for my business or for my employees, and it does not offer me much reassurance that the next instance of state meddling in my workplace would be equally harmless.

Interestingly, Daniel Schwartz, an attorney at Pullman & Comley who blogs about Connecticut employment law, wrote that the new law may allow the state to oversee the enforcement of all paid-time-off policies created by employers with 50 or more employees, whether they apply to “service workers” or not. While the majority of the law’s text uses the term “service worker,” the section on anti-retaliation instead uses the broader term “employee.” According to the law, “No employer shall take retaliatory personnel action or discriminate against an employee because the employee (1) requests or uses paid sick leave either in accordance with sections 2 and 3 of this act or in accordance with the employer’s own paid sick leave policy […]”

The effect is that even employees who are not “service workers” can appeal to the Labor Commissioner if they are discriminated against for requesting or taking medical leave. Since “retaliatory action” as defined by the act includes “refusal to promote,” the law could potentially prevent a company from promoting a highly dedicated employee who schedules his or her time off to correspond to periods of lower workload over one who takes days off whenever the spirit moves him, regardless of the needs of his employer or the employer’s customers.

Although Palisades Hudson does not currently have a Connecticut office, I have already told employees that I might consider relocating our Scarsdale, N.Y., headquarters to Fairfield County, Conn., when our lease is up in five years. But I will think twice about moving to a state that feels the need to interfere with policies that work well for my firm and for its employees. When New York City considered its sick leave mandate, I wrote that I was glad not to have any offices within city limits. With its new law, Connecticut has, in my eyes, decreased its advantages over suburban New York.

That is a side effect that backers of Connecticut’s new sick leave law may not have fully considered. In economic terms, the legislative cure may prove more harmful in the long run than the now-compensated illnesses in the workplace.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, The High Achiever’s Guide To Wealth. His contributions include Chapter 1, “Anyone Can Achieve Wealth,” and Chapter 19, “Assisting Aging Parents.” Larry was also among the authors of the firm’s previous book Looking Ahead: Life, Family, Wealth and Business After 55.

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