Course Hero Logo

Labor Law

Impact of Labor Law on Employees and Employers

Impact of Labor Law on Employees

Labor law tips the balance of power in bargaining so that the position of the worker is enhanced. This has resulted in safer workplaces, the reduction of child labor, and improved pay.

Unions first organized in the United States in the 1820s, during an economic depression. They took stances against excessive taxation, prisoners being used for inexpensive labor, and debtors' prisons (prisons specifically for those unable to pay debts). They also fought for 10-hour workdays and protested a business’s use of a sweatshop, places where workers are employed at low wages and for long hours and are subject to unhealthy or oppressive conditions.

In 1890 the Sherman Antitrust Act was enacted to prohibit contracts or conspiracies that would affect trade. Persons who formed monopolies in an industry were subject to fines and jail sentences. It applied to any activity that would interrupt the free flow of commerce. Workers and citizens hoped the act would limit the power of monopolistic companies, but instead, businesses used it to harm unions. For about a decade, more legal actions were brought against the unions than against big business, using the Sherman Act and restriction of commerce as the reason for lawsuits.

The Clayton Act of 1914 was supposed to strengthen the Sherman Act. But courts ruled that the Clayton Act did not apply to individuals on strike because they were no longer employees, union organizers were not employees, and yellow-dog contracts were in effect. A yellow-dog contract is an agreement in which workers promise not to join a union. Employers required workers to sign yellow-dog contracts. Courts upheld yellow-dog contracts in accordance with the legal principle of noninterference—that is, the bias for courts to not interfere with contractual business relations.

Federal Laws Related to Unions

Labor laws have changed dramatically since 1890, with employee power strengthening over time.
The Railway Labor Act of 1926 outlawed yellow-dog contracts and strengthened the right to peaceful strikes. The act also established the National Mediation Board (NMB), which encourages voluntary problem-solving efforts between management and laborers.

The Norris-LaGuardia Act of 1932 marked the end of using the Sherman and Clayton Acts to bring legal action against labor. In other words, employers could no longer ask courts to forbid strikes by employees.

The National Labor Relations Act (NLRA) of 1935 (also called the Wagner Act) ensured employees' right to organize and participate in labor unions. This act also prompted the creation of the National Labor Relations Board (NLRB), the federal board (or agency) that enforces the NLRA. The NLRB has investigatory and enforcement power to protect private-sector employees' rights to join together to improve wages and workplace conditions, whether those employees are union members or not.

The Taft-Hartley Act, also called the Labor Management Relations Act of 1947, somewhat restricted unions' power. It declared the closed shop, an arrangement in which the employer only hires and retains union members, illegal, giving workers the right not to join a union.

Collective bargaining, or the method by which workers join together as a group (usually as a union) to negotiate with their employer over employment conditions, has provided many benefits to workers. These include higher wages as well as overtime pay, cost-of-living adjustments in pay, vacation time, personal days, promotions, pension benefits, and health-care coverage. Collective bargaining has also changed the minimum hours required to earn full-time status, description and classification of jobs, and rules regarding employee behavior. It has brought about committees and policies to handle grievances related to employment termination, as well as procedures for contract disputes.

Impact of Labor Law on Employers

Labor laws have weakened some of the power that employers once had while increasing predictability and stability in the workplace by reducing threats of strikes, sit-ins, and protests. Standards have been instituted for worker protection, minimum wages, and stricter rules about what an employee can and cannot do. Labor law has imposed costs and potential liabilities on the employer, but in doing so it has brought about a much higher standard of living for many workers.

The Supreme Court hands down decisions that cause businesses to change. Workers receive more protection and improved working environments as a result of labor laws. These laws have weakened some of the power employers had in economies where jobs were scarce and labor plentiful. In that situation, prior to the legal protections being imposed, employers could demand long hours for lower pay, as workers had very few employment options, for example. Labor laws have imposed additional costs and some greater liabilities and responsibilities on employers.

As more labor laws are enacted, the standards increase for the workplace. This results in a greater potential for lawsuits, especially in areas such as workplace injuries, wrongful termination, harassment, and discrimination. Regulations now require employers to post notices of these rights. Employers must also update rules and regulations in their company handbooks. Failure to post notices or update handbooks can have serious consequences if there is a lawsuit. For example, employers may have to bear litigation costs as well as paying fines or settlements.

Employers have had to increase workers' base pay and overtime pay as a result of labor law. This has economic and strategic effects on employers, since they may not be allowed to ask employees to work overtime. Payroll costs also cause an increase in overall expenses, and physical aspects of the workplace may need upgrades to meet safety standards. Additionally, employers have to hire lawyers to protect themselves, and there may be an additional cost put on the human resources department, because following the latest changes in labor laws requires ongoing attention.