Are You Ready for Paid Family Leave

Taking paid time away from work for baby bonding or to care for a sick parentmight delight your pediatrician or preacher, but the very concept makes membersof the business community crabby and colicky. How about calling it what it is,they grumble: job killer.

Legislators in California have given the nation its first paid family leavelaw, a controversial antidote to the mushrooming problem that workers face injuggling family and workplace responsibilities. If the idea spreads, topmanagement and HR executives will be dealing with issues such as: Replacing moreworkers on temporary leave; higher administrative costs; privacy issues; threatsof lawsuits, and increased future costs as the benefit is increased.

Under California’s new law, 13 million workers will be eligible to receivehalf pay for six weeks for a variety of personal reasons, from tending to anewborn infant to moving a parent into a nursing home. Payments will come from apayroll tax, but employers are up in arms because they face significant newlegal and administrative costs and must pay and train replacement workers. Asfor HR professionals in other states, the problem may not be yours–yet. Thecoalition of labor unions, family advocates, and others that worked hard inCalifornia for the family bill has efforts under way in nearly 30 other states.

You might call the new family-friendly leave plan–known as Family TemporaryDisability Insurance–FMLA on steroids. Once implemented in 2004, the FTDIlegislation promises to come on with a vengeance, critics say. Moreover, with abig win in California, the national coalition that supports paid leave forworkers who take time away from their jobs to care for ill parents or familymembers might gain traction in other states.

Supporters of the measure–labor unions, advocates for children and seniors,church groups, and numerous other organizations–provided the political muscleneeded to get the legislation through a divided legislature. They argue thatpaid family leave is necessary to keep pace with a changing workforce. Thereality of the American family today is that both moms and dads commonly work,there are large numbers of single parents, and working-age adults are helping tocare for ever-increasing numbers of older parents.

In signing the bill in September, Governor Gray Davis declared, “Californiansshould never have to make the choice between being good workers and being goodparents. This bill will make it easier for Californians to help their loved onesthrough a health crisis without going broke in the process.”

The bill was enacted over the opposition of the California Chamber ofCommerce, the California Manufacturers and Technology

Association, and other business groups that portrayed the family leavelegislation as a “job killer” because it will create an even moreinhospitable business climate, which is often blamed for the flight ofmanufacturing jobs out of the state. California business leaders predict thefamily leave program will become a full-employment act for lawyers and a majorheadache for HR professionals. They contend that it will multiply the legalproblems they are already experiencing under the federal FMLA. They also fearthat it will place a tremendous burden on employers with fewer than 50employees, which have been exempted from FMLA but now are included in theCalifornia program.

Workers have already shown that they are willing to take time off without payunder FMLA, and it is feared that the added incentive of replacing 55 percent oftheir pay will open the floodgates. “This bill will cause a significantproblem for employers,” says

Gino DiCaro, spokesman for the California Manufacturers and TechnologyAssociation. “Absenteeism already is one of the larger costs a manufacturercan incur. It’s a certainty that a large portion of the workforce will takeadvantage of it, especially when they are paying for it.”

The law builds on FMLA in a number of significant ways. FMLA provides for 12weeks of unpaid leave, and it’s up to the worker to cobble together enoughdisability insurance, when applicable, vacation, sick time, and savings to getby. California’s FTDI will make up more than half of a worker’s wages forsix weeks. The payments will be free of taxes. FMLA limits coverage tobusinesses with 50 or more employees; FTDI includes businesses of all sizes.Eligibility for FMLA requires a year on the job and 1,250 hours in the previous12 months; eligibility for FTDI begins immediately upon employment, after aseven-day waiting period.

Workers are expected to take advantage of the new program in far greaternumbers. Although 35 million Americans have taken leavesunder FMLA, one federal study estimated that 20 percent of those eligible forleave did not take it because they couldn’t afford losing a paycheck.

Many of those who have taken FMLA leave were forced to turn to publicassistance to make ends meet. Because such large numbers of FMLA leave-takersturn to public assistance, California could save as much as $25 million inreduced welfare payments, supporters say. “All too often, people who takeunpaid leave end up suffering unbelievable economic hardships. That can includegoing on public assistance, taking out second and third mortgages, andbankruptcy,” says Jodi Grant, director of work and family programs for theNational Partnership for Women and Families.

Still, the program will cost $78 million in the first year, rising to $117million in the second. The money will come from the disability fund financed bya new payroll tax. About 13 million workers– roughly one-third of the state’spopulation–who are now paying disability insurance, will see an increase intheir DI payments. But countless millions more, represented by their children,parents, and family members, will be beneficiaries of the new law.

The program will be administered by the state Employment DevelopmentDepartment, which is in the process of drafting regulations in anticipation ofthe program’s 2004 start-up.

This is how FTDI works. Beginning January 1, 2004, all employees paying intothe state disability insurance fund will pay an average of $27 a year inadditional payroll deductions into the Family Temporary Disability Fund. Workersmay begin withdrawing money from the fund six months later, beginning July 1,2004. Payments will range from $50 to $728 a week, indexed to increases in theaverage annual wage. Contributions into the fund will be paid 100 percent byemployees, which supporters say minimizes the cost to employers.

Eligibility will essentially overlap FMLA. But in a key departure, once theprogram gets going, workers will be eligible for leave immediately, exempt fromthe 12-month qualifying period required under the federal program. Just likeFMLA, the California program provides time off for new parents and also allowsworkers to take time off to care for a sick or injured family member or domesticpartner.

Perhaps the most troublesome aspect of the new law to business leaders is theloss of the FMLA exemption for businesses with fewer than 50 employees. Thesesmaller firms, which have no experience dealing with the FMLA, will facesignificant new costs in complying with the California law, critics say. Theyare expected to find it more costly to replace and train workers to fill thejobs of absent workers, and additional legal and paperwork problems may havethem running for the aspirin.

Attorney Michael Lotito, a partner in the law firm Jackson Lewis in SanFrancisco, already has held one seminar for HR executives on California’s law.Three hundred anxious benefits professionals signed up. “Just thinking aboutit is a nightmare,” Lotito says. “This is so unbelievably complex thatsupporters who say it isn’t going to cost employers anything are crazy.”

He predicts that many firms will outsource administration of the program tospecialty firms. “There is going to be a real issue in setting up a humanresource structure,” he says. “The people who are going to benefit the mostare temporary agencies, because temps are going to have to be hired to fillvacancies.”

One of the knotty problems to be worked out involves job protection. UnderFMLA, workers taking unpaid leave are promised that they can return to the jobthey left or one equal to it. The California program contains the same jobprotections for firms of 50 or more, but offers no job protection for workers atsmaller firms. Plaintiffs’ lawyers may challenge that, arguing that there isan implied promise that an employee granted leave will have a job when he or shegets back. Consider the touchy issue of the employer that holds a job open forone employee but not another. Would filling a job left vacant by a person takingfamily leave violate the law against unlawful retaliation, since a legal rightis being exercised?

And HR executives say privacy issues may create another legal land mine. Willworkers have to fill out a detailed form listing family members and domesticpartners in the event that they will have to provide care for them?

A provision of California’s law says workers cannot take family leave tocare for a sick family member if another member of the family is available atthe same time. Already some wonder how thoroughly an employer or state workercan investigate the availability of other family members. The law setting uppaid family leave makes it a criminal offense to file a false claim, but to whatlengths will a company or the state go to check out potential fraudulent claims?Under the current unemployment insurance program, employers can contest claims.What happens under the new system if an employer learns something about apossible fraudulent claim? Can it be contested?

“There is no question this is a full-employment act for labor employmentlawyers,” Lotito says. “This will give plaintiffs’ lawyers anotheropportunity to create additional causes of action. The cost to employers isvery, very significant.”

So far, many HR professionals have adopted a wait-and-see approach. Alreadyfaced with problems stemming from the implementing regulations issued on FMLA bythe U.S. Department of Labor, HR professionals shudder to think about additionalproblems created by California’s version of family leave. Eleven differentregulations implementing FMLA have been challenged in 58 suits filed in federalcourts, according to a study presented to Congress in April by the Kansas Citylaw firm Spencer Fane Britt & Browne.

Kenneth A. Buback, vice president of human resources for Sutter Health, whichoperates a chain of hospitals in Northern California, testified before Congresson behalf of the Society for Human Resource Management about “paperworkinflation” resulting from FMLA implementing regulations put out by theDepartment of Labor. He complained that the Department of Labor’sinterpretations of FMLA were vague and contradictory, and created a burden onhis Sacramento-based hospital chain that was driving up costs. He said anincreasing number of lawsuits challenging FMLA regulations are expected.

Buback praises the intent of California’s FTDI. “I think it’s a goodpiece of legislation in that it is family friendly,” he says. “Overall, weneed to be more responsive to work/family issues and bring them more intobalance.”

But he wants to withhold judgment until he has seen how the state implementsthe California program. “It’s so new, and because it won’t take effectuntil 2004, we are still waiting to see how this will play out,” Buback says.He is troubled by FMLA’s track record. “It would be great to fix what wehave.”

Allan Zaremberg, president of the California Chamber of Commerce, led theunsuccessful fight to defeat the bill, which was authored by state senatorSheila Kuehl.

Opponents were able to get some amendments. Originally, the bill was to haveprovided 12 weeks of paid leave. Kuehl agreed to reduce that number to six.Employees and employers originally were going to make equal contributions to thefund. Employees now will make 100 percent of the contributions. Those amendmentssoftened the blow, but the legislation “is still horrible for small business,”Zaremberg says.

Paperwork is another concern. So are lawsuits. “Small business just can’tafford litigation,” Zaremberg continues.

In any case, there are mountains of work ahead. HR executives will have toreview policies on leave. Supervisors will have to be educated. Employees willhave to be notified of their new rights. Regulations formulated by the stateEmployment Development Department will have to be tracked.

Other countries even more generous
    As new and burdensome as it may seem, paid family leave is a core benefit forworkers in most of the rest of the world. The United States is one of only threeindustrialized nations that do not provide paid family leave. Employees in manyother countries work under family policies that are even more liberal than thosebeing implemented in California.

In Norway, parents are entitled to 42 weeks of leave at 100 percent pay or 52weeks at 80 percent pay. Norway places such great emphasis on involving fathersin the care of their children that penalties are imposed if they don’t takeleave. The California law mirrors a program in Canada. Australia, which is alsowrestling with paid leave, found in a study of its trading partners that NewZealand is implementing a program funded by social security–12 weeks of paidleave for both women and men. China, Korea, Malaysia,

Indonesia, Hong Kong, and Saudi Arabia require employers to pay for maternityleave. In Thailand, the employer pays full wages for 45 days, and then socialsecurity kicks in to pay 50 percent.

In the United States, a question on many minds is whether paid family leavewill spread to other states. Supporters of paid leave have introduced proposalsin 28 states. So far, California is the only one to have passed a paid-leaveprogram. And even then, voting broke along party lines, with majority-partyDemocrats providing all the aye votes. In the state senate, the bill passed witha bare 21-vote majority, usually a sign that some party members begged to stayoff the roll call.

Even so, passage of the law was a big win for labor, which led the fight inCalifornia and is mounting campaigns in other states. The victory came at a timewhen employers have been scaling back health insurance, pensions, and otherbenefits. Some see the action by the California legislature as evidence thatworkers may increasingly be looking to government, rather than employers, toshore up benefits.

“This bucks the trend. The citizens of California took it into their ownhands because they saw they were not getting this out of their own companies,”says Karen Nussbaum, assistant to AFL-CIO president John Sweeney and longtimeadvocate for paid family leave. She believes that passage of paid family leavewill have “enormous consequences” for the rest of the nation.

“It is the first big victory on paid leave since the family leave waspassed by Congress in 1993,” Nussbaum says. “People trying to balance workand family life are just stressed to their limits. We see it as a fundamentalcore issue.”

That California proved to be fertile ground for advocates of paid familyleave should not be surprising. The state legislature over the years has beenout front in passing tough air-pollution standards, legislating overtime basedon an 8-hour workday rather than a 40-hour week, and creating worker-friendlyergonomics standards to deal with repetitive-stress injuries.

But other states have often been reluctant to follow California’s lead. Thestate of Washington considered a paid-leave program, but backed away. MarilynWatkins, economic security and tax policies director of Seattle-based EconomicOpportunity Institute, predicts the issue will catch on and ultimately spreadbeyond California. “Our polling found good support across political lines,gender lines, regional lines. There is very strong public support for paidleave,” Watkins says.

As in California, business lobbied heavily against it, and there was adivided legislature. The bill died.

Deanna Gelak, executive director of the National FMLA Technical CorrectionsCoalition in Springfield, Virginia, says she’s concerned that California issending the wrong message to employers. The California law raises “a host ofprivacy concerns, not to mention the monstrous bureaucracy that will be requiredto track this leave.”

Reports that paid leave “is spreading like wildfire are greatly overrated,”she adds. “The California approach is extremely controversial and unique.” 

Workforce, January 2003, pp. 38-42 — Subscribe Now!