I Don't Hate Regulation, But...

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Loren Feldman:
Welcome, Shawn, Jay, and Jaci. There’s been a lot of regulatory news of late, and I want to start by getting your reactions to some of this news. I think I would first point out that all of this is subject to court challenge. So it’s entirely possible that none of what we discuss here today will actually come to pass. But I think it’s important to understand the ramifications of these issues. And who knows? At some point, maybe it will come to pass.

So I’m talking about the potential banning of TikTok by Congress, the FTC’s banning of non-compete clauses, and the Department of Labor’s increasing of the threshold for overtime pay. Let’s start with that one—the overtime pay issue. Do any of you expect that to have an impact on your businesses?

Jay Goltz:
Absolutely.

Loren Feldman:
How so, Jay?

Jay Goltz:
Well, let’s just review what it is. At the moment, if you make less than $35,000 a year, you can’t be salaried or exempt. Okay, they’re moving that to $43,888 July 1st, and then they’re moving it to $58,000. So, in my case, or everybody’s case, here’s the issue: If you’ve got someone making more than $58,000, okay. It’s not gonna affect you at all. All right. But if you’ve got someone making $35,000-40,000, it’s certainly going to affect you.

And my argument is, yeah, that’s probably too low of a number, but here’s the problem: If you do have someone who makes $50,000 a year, and they might be working 42 hours a week, 44 hours a week, whatever, you’ve got three choices. You can either raise them to $58,656—thank you, government, for getting involved in my business. The person was perfectly happy making their $50,000. So now, all of a sudden, you have to either give them a raise, which is substantial: 16 percent. Or you say to them, “Okay, we’re going to make you non-exempt. We’re going to make you hourly, but you don’t have to punch in or out or anything. Nothing’s going to change.” That’s a problem.

Loren Feldman:
It’s a problem because you don’t have it documented?

Jay Goltz:
Right. Because what happens is, let’s assume it’s not your trusted long-term employee who’s been with you for 20 years. You have another employee in the office who is going to be in the same situation. And they didn’t work out, and you got rid of them after six months. And now they run to the Department of whatever, and they go, “Oh, I was working from home all the time. He wasn’t paying me overtime.” You have no documentation. And it so happens, my daughter-in-law is a labor attorney, and she said, “Yeah, you really need to have documentation.” So it causes a problem.

And then also keep in mind: If you put one person in the office on salary, because they make the $58,656, and then the person who makes $50,000 is not on salary, you’re gonna have one punching in and punching out and one not. And all that does is telegraph, “Oh, yeah, they’re making more money than you do.” It’s not great. And I understand the problem they’re trying to address. But I wish they would have called me, because I have a much better answer for it. So simple: If you’re salaried, and you work more than 50 hours a week, you get time and a half. Done. Would have solved the problem. Largely, it would have solved the problem.

Jaci Russo:
Across the board, right? Not just based on salary. Just anybody.

Jay Goltz:
No, no, you can leave it at 40 for hourly. But if you’re salaried—I mean, the thing people don’t realize all the time is, if you’re on salary, you’re also getting paid when you take off for whatever. I mean, it goes both ways. And I have people who are perfectly happy with the way it is—I’m happy, they’re happy—now the government’s telling us, “Oh, we have to go change this.” But if you simply want to get rid of the abuse, you could simply say: If you’re a salaried employee, at 50 hours, you get time and a half. That would have solved the problem, I believe. This is a very clumsy fix.

Loren Feldman:
You still would have the documentation problem, wouldn’t you?

Jay Goltz:
Well, yeah. Like I said, I understand why they’re doing it. And I’m not one of these people who hates regulation. I think the government needs to have some regulations on some stuff, but look at what they did. They raised it, from 35 in six months, it’s going up 65 percent. Really? 65 percent. They couldn’t have taken it to $50,000 and left it there for a while? I just think it’s over-reach.

Loren Feldman:
Shawn, Jaci: Will it have an impact on either of you?

Jaci Russo:
It won’t for me, because we work 32-hour weeks.

Jay Goltz:
Ughhhh. [Laughter]

Loren Feldman:
Couldn’t you still have overtime?

Jaci Russo:
I almost don’t talk about the 4-day work week, because I know it puts Jay into a tizzy.

Shawn Busse:
I’m just here to watch.

Jaci Russo:
Right, right.

Jay Goltz:
And enjoy.

Jaci Russo:
Yeah, I don’t think we can have overtime if we’re not even working 40 hours a week. Like, I don’t know how this will affect us. But I’m watching to see if something changes.

Loren Feldman:
Isn’t it conceivable that you could have a crush, and you could have people who end up having to work 40 or 50 hours in a given week?

Jaci Russo:
Well, the only time that’s ever happened, the people who did that work were named Russo. [Laughter] They did it to keep their company going and do whatever. I do, for sure, take advantage of the flexibility of my job. And so there are times when I’m working at night, because I didn’t work during the day, because I went to a kid’s school activity or whatever.

Jay Goltz:
Wait a second, though. This does affect you. Let’s think this out for a second. Do you have employees who make less than $58,656?

Jaci Russo:
Yes.

Jay Goltz:
Okay. This is saying that you can’t just put them on salary. You have to pay them hourly, which means that there’s gonna need to be some documentation now about the hours they’re working. I mean, that is the reality.

Jaci Russo:
They’re gonna be very sad.

Jay Goltz:
Is that a problem?

Jaci Russo:
No, I mean, the documentation is not that hard. We will do it. But the reason why we have the schedule that we have and work the time that we work is that the creative types in my industry aren’t real fond of documentation. And in the agencies where I worked before starting this one, it just became a system of lies where the graphic designer, for example, did not track his time all week long like he’s supposed to. Now he has to turn it into payroll. And so, he just makes something up and turns it in. And I thought, “Well, that’s just not a good system for anybody.” So we adapted and do it this way. And it’s worked pretty well for us for 23 years. But if we have to have documentation, we’ll have documentation. We’re still gonna only do a four-day workweek.

Jay Goltz:
Keep in mind, though, you have exposure now, meaning you hired this person. You thought they were great, and it turns out, they’re terrible. And they run to the Department of Labor in whatever state they’re in, and they say, “I’ve been working 60 hours a week for this woman. She’s not paying me overtime.” And then they call you, and they go, “Well, we’ve got a complaint that you’ve been making people …” And you go, “No, that’s not true. They’re only working 32 hours a week.” And they go, “Great, send us your records.” And you say, “Yeah, I don’t really have any records.”

Jaci Russo:
Right. No, that’s a fair point. So it will affect us, in the sense that we’ll have to have records now. You know, I’m sure that I could pull the data of everybody’s logins for emails and for our Basecamp, and for all of our tools. And you can see quite clearly, no one’s logged in and doing any work in those things. But I’d rather not have to do that retroactively. So, yes, in answer to your question, Loren, it will affect us. We’ll have to start tracking things differently.

Jay Goltz:
You certainly could make documentation saying that: You’re not allowed to work overtime, and if there’s an exception, you need to contact me. You certainly, I think, could do something to—

Jaci Russo:
I like that.

Jay Goltz:
My point is, this law is not really affecting you. You’ve got the same exposure today that you’re going to have then. Well, no—are they salaried? They are salaried.

Jaci Russo:
Salaried. Yep.

Jay Goltz:
All right, I take it back. They are salaried. Now this is going to affect you, because now they’re going to not be able to be salaried. So yeah, sure.

Jaci Russo:
Right, right.

Loren Feldman:
Shawn, any impact on you?

Shawn Busse:
No.

Loren Feldman:
Your salaries are too high?

Shawn Busse:
Salaries are too high. We live in a really expensive city. I shifted the company a long time ago. Interestingly, we were hourly for a long time, and I sort of had this theory that, to Jaci’s point, getting people to track their time, if you pay them by their tracking, it would create more accurate timekeeping. I don’t know if that actually held true, and it created a lot of other problems. So just sort of an overarching change in the company towards a greater level of professionalization. And doing higher value work meant paying people more money, choosing to do certain types of work and not other types of work. So I guess in some ways, we’re fortunate in that this doesn’t impact us. It means my payroll is really high. But I guess…

Jay Goltz:
And in my case, I have 130 people. It’s affecting two people. So it’s not the end of the world. It is affecting two people who I’m going to have to decide on. You know, the one guy—if you recall, they were going to do this a few years ago, and so I had to have the conversation. He’s 50 years old. He said, “I haven’t punched in since I was 20 years old at a pizza place.” So he wasn’t happy about it. They backed off, so it wasn’t an issue. So it’s causing a little issue. It’s not the end of the world.

Shawn Busse:
I think this is another good example of who’s abusing the system. And the folks that are abusing the system, I think, by and large, are large corporate chains that love the idea of having a quote-unquote salaried manager at a low price point that they work 60-70 hours a week. And what happens over and over and again: You’ve got a lot of small business owners, some, I’m sure, who abuse the system, but by and large, you’re getting caught up in a fix that’s designed for a different group, which is larger corporations. That’s going to impact smaller businesses. And this is kind of the theme, I think, of a lot of regulation: It’s that intentions are good, but it creates an undue paperwork burden on small business owners. And I think that’s the frustrating part of it.

Jay Goltz:
Here’s another issue. This is a national thing. How could you have the same number? Shawn, you think you’re one of the highest income areas in the country?

Shawn Busse:
We’re pretty high, yeah.

Jay Goltz:
Let’s say you, California, New York. Okay. How do you do that same number for you, California, New York? Fine. And then have it for Alabama, Mississippi, where the average income is so much lower?

Shawn Busse:
It’s crazy. It’s totally crazy.

Loren Feldman:
Well, I think the answer to that—it may still be crazy—but I think they determine the number based on indexing to the lower cost areas. Jay, in your case, I didn’t realize it’s only going to affect two people. That makes it sound like this is not really a money issue for you. It’s more the bureaucracy. Is that right?

Jay Goltz:
No, no, no, it is a money issue. Let’s talk about one person in particular. What do you do about the person who’s making $50,000 a year: It’s the market rate. They’re being paid well. They’re happy with what they’re making. I’m happy with paying it. They’re salaried. And now, I have to—well, I guess it is the paperwork. Now, I have to say to them: You can’t be on salary. Or I have to go pay them $8,000 more. Or: Okay, you’re no longer an exempt employee. You’re now hourly. You’re now non-exempt, and you need to document your time. And when you’re off for a day, you’re not going to get paid.

It is a problem with one or two people. I mean, that’s the problem with drawing a line in the sand somewhere. That’s why I say, if they would have made it 50, there’s a lot of people in this country making $50,000-some a year. Lots. They could have gone from 35 to 48, and it would have taken care of some of the problem. But you know, like I said, I understand they’ve got a problem. I don’t know that this is going to fix it in the big corporations. Here’s the problem. So now they pay the manager $58,656, and they still work 70 hours a week. Did that really fix the problem?

Shawn Busse:
I don’t think there’s an easy answer to this. I think from a small business perspective, one drawback towards—so you can look at it through the larger, cultural perspective of: Hey, we want to do right by people. We want a society where people are paid fairly, and we need regulation, because large corporations are really abusive to their employees, for the most part. It takes away the competitive advantage that small businesses have, where we can go, “You can work at those large companies, and they’ll just totally abuse you. Or you can come here and have a great experience and we’re really innovative and how we pay people.” And so it’s sort of like applying a cookie-cutter methodology to everybody, even though I think small businesses like creativity. I think that’s the problem with all of these kinds of labor and wage laws.

Jay Goltz:
With that being said, there are certainly some small business people who—I don’t know if taking advantage the right word, but—

Shawn Busse:
For sure. Oh, yeah.

Jaci Russo:
We just passed—or, not we, they just passed—a law in Louisiana, that you no longer have to provide a lunch break for minors.

Shawn Busse:
For children. Your state is so f-ed, Jaci. It’s such an abusive state. It’s crazy. It’s like a corporatist.

Jaci Russo:
Tell me about it. It’s awful.

Jay Goltz:
Which is why we all agreed the government does need to have some regulation. I don’t have a problem with that.

Loren Feldman:
Let’s move on to the next one: non-competes. The FTC believes that by banning non-competes, they will free up employees to take better jobs or to start their own businesses. They expect a lot of business starts and new jobs as a result. Business groups are opposed—big business groups in particular. They see employees stealing the secret sauce and running off to a competitor. Do any of you use non-competes?

Jay Goltz:
I have. And I think there’s so much nonsense in what you just said, repeating what they’re doing. First of all, there’s a difference between a non-compete and confidentiality thing. The secret sauce? I’m not a labor attorney, but I believe that can be covered by a confidentiality agreement. They’re not the same thing.

Loren Feldman:
You’re absolutely right.

Jay Goltz:
I read some of the stuff. They said, “Oh, there’ll be more free flow of information and more best practices.” Oh, great. So you can figure out how to do something better. And like, “Oh, let’s share with all your competitors.” Again, it’s not going to ruin my life. They did carve out, people making a lot of money can still get them. Have people been abusing those? I guess? I haven’t been.

Shawn Busse:
Again, it’s the same situation, right? It’s these businesses where, I mean, come on, they’re making hairdressers sign non-competes? I mean, it’s just crazy.

Jay Goltz:
You know why they’re doing that. They’re doing that because the hairdresser has a following, and when they leave and go to another salon, they take their clients with them. The question is: Do you really think you’re gonna stop that, for God’s sake?

Shawn Busse:
Yeah. What do you think, Jaci? I mean, kind of the industry, we’re sort of adjacent here. You know, I remember meeting a guy years ago who worked at an ad agency. He brought in like a million dollars a year in business to the agency. One day, he up and left, started his own thing, and I promise you, a bunch of those clients went with him. What’s your take on this idea?

Jaci Russo:
That’s the risk, is that you absolutely can have, whether it’s an agency business development person who walks out the door with a client roster and starts to have an agency. I’ve seen it in my market over and over and over again. Or a TV newscaster who has a huge following, a radio DJ who leaves to go to a competitor. I think it’s very sticky. I think that those non-competes can be abusive, but they also, in some ways, protect the business that invested a lot of resources in building that person’s brand.

Jay Goltz:
But then it gets back to: Okay, but it’s their brand. This one’s tricky. Part of me thinks, “Okay, business could use a little protection from that.” But on the other hand, I think it’s laughable when they go, “Oh, it’s going to spur a lot of new business.” I think that’s just laughable. “Oh, I would have started a new business, but I can’t because I have a non-compete. Oh, now that I don’t have a non-compete, I’m gonna go and leverage up my house and quit my job and start my new business.” Really? Really? That’s going to be the difference between starting your own business. I have a hard time believing it’s going to make any meaningful effect on that. Am I wrong?

Loren Feldman:
I think you might be a little bit wrong.

Jay Goltz:
Just a little, though. That’s my point. I’m not saying it won’t happen. I just doubt it’s gonna be a big engine driver for the country.

Loren Feldman:
Are you aware that, in California, non-competes are effectively banned? So Silicon Valley hasn’t been able to use non-competes, and there are a lot of people there who credit it with the success—to whatever extent you consider Silicon Valley a success. You know, you’re talking about tech businesses where there really are secrets, and it doesn’t really seem to have put the brakes on there. And certainly, you have people leaving companies and starting businesses there.

Shawn Busse:
I think this is largely a good thing. I generally think it’s something that’s abused more than a fair situation. And I also think it makes for—I might insult some people here, but I think a lot of times non-competes are a representation of a lazy business, meaning that the business hasn’t built itself in a way to where the customer is buying the brand. It’s buying a person within the business. And that can be a hard thing to change in some businesses, but it is something that you can do and should do as a business to not make it about a person, but to make it about the company. And I think a lot of businesses substitute these non-competes for being kind of lazy about it. I could be wrong on that.

Loren Feldman:
Is that something you think about, Shawn?

Shawn Busse:
Well, yeah, I thought about it from the minute I heard this story of the account manager leaving and taking all his clients with him. And I realized that I have to build a business where the value derived from it is from the team—not from a super smart individual, or super charming or super charismatic. And I think that’s often the problem in businesses. You know, in an attempt to be efficient, it creates sort of an Achilles’ heel with the organization. I see that a lot in ad agencies and marketing firms, where they say, “This is your point of contact. This is Bob. He’s your account manager.” And Bob makes himself really indispensable to the clients. And then when Bob leaves, the client’s like, “Wait a minute.”

We just had this happen with our insurance broker. We had an awesome insurance broker. The company she worked for was garbage. And when she left, they actually were really bad. They were like, “We’re gonna close your account,” and all that sort of thing. It was like, “Whoa.” You know, it’s very combative. And I was like, “Yeah, let’s leave these guys. They’re terrible.” But our person was wonderful. And so I think it’s a really good example of, you can have great people operating in bad businesses. And the bad business will use things like non-competes and threats and so forth to try to kind of keep the status quo. And so I like that this prevents that type of behavior.

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