Business Update with Mark Lacter

One way businesses are avoiding health care coverage for employees

Businesses are cutting back on hours to avoid having to provide health care coverage under the new Affordable Care Act.

Steve Julian: Business analyst Mark Lacter, who's affected here?

Mark Lacter: Thirty hours a week is the magic number for workers to be considered full time under the new law.  If a business has 50 or more full-time employees, health care coverage has to be provided.  Except that a lot business owners say that the additional cost is going to be a financial killer, so instead, some of them have been cutting back hours to below that 30-hour threshold.  More than 200,000 Californians are at risk of losing hours from the health care law - that according to one study.

Julian: What kinds of businesses are doing this?

Lacter: Restaurant chains have received much of the attention, but the city of Long Beach, as an example, is going to reduce hours for a couple of hundred of its workers.  And, last week came word that the L.A.-based clothing chain Forever 21 will cut some of its full-time employees to a maximum 29-and-a-half hours a week, and classify them as part time.  That touched off an outcry on the Internet - people were saying that Forever 21 was being unfair and greedy - though the company says that only a small number of employees are affected, and that its decision has nothing to do with the Affordable Care Act.  There's really no way to know - Forever 21 is a private company, which means it's not obligated to disclose a whole lot.  What we do know is that those people will be losing their health care coverage.

Julian: And, the ultimate impact on businesses and workers?

Lacter: Steve, you're looking at several years before the picture becomes clear.  Here in California, workers not eligible for health care through their employer can get their own individual coverage, and if their income levels are not over a certain amount, they'd be eligible for Medicaid.  And, let's not forget many businesses already provide coverage for their employees.  So, lots of rhetoric - but, not many conclusions to draw from, which does make you wonder why so many business owners are unwilling to at least give this thing a chance.  Just doesn't seem to be much generosity of spirit for their workers, not to mention any recognition that if people can go to a doctor instead of an emergency room we'd probably all be better off.

Julian: Health care is far from the only controversy for Forever 21, true?

Lacter: In some ways, it's one of the biggest Southern California success stories.  Don Chang emigrated here in 1981 from Korea at the age of 18, opened his first store in Highland Park three years later (it was called Fashion 21), and he never looked back.  Today, revenues are approaching $4 billion.  But, the guy must have some pretty hefty legal bills because his company has been accused of all kinds of workplace violations.  The lawsuits alleged that workers preparing items for the Forever 21 stores didn't receive overtime, that they didn't get required work breaks, that they received substandard wages, and that they worked in dirty and unsafe conditions - sweatshop conditions, essentially.

Julian: Are most of their claims settled out of court?  You don't hear much about them.

Lacter: They are, which means there's usually a minimal amount of media coverage.  If a privately held company decides to keep quiet by not releasing financial results or other operational information, there's not likely to be much of a story - unlike what happens with a company like Apple, which is always under scrutiny.  Sometimes, plaintiffs will try to organize class-action suits, but that's extremely tough when you're dealing with low-wage workers who are often very reluctant to get involved because of their legal status.  And, let's not forget that Forever 21 - like any low-cost retailer - is simply catering to the demand for cheap, stylish clothes that are made as quickly as possible.

Julian: I guess you can't make that happen when wages and benefits are appreciably higher than your competition.

Lacter: The next time you walk into a Forever 21 store and wonder how prices can be so reasonable, that's how.

Mark Lacter writes for Los Angeles Magazine and pens the business blog at LA Observed.com.


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