California's 4-day Week Bill: A Good Or Bad Idea?

California does it again! It wants to tell companies in the state how to run their businesses — this time by introducing a bill that would mandate a four-day workweek.

One thing that sets America's economy apart from the rest of the world is its free enterprise market system, which affords companies the freedom to employ people efficiently and effectively. It helps companies deal with changing market conditions, and introduce new products and business models that advance quantity and quality of life.

That's certainly true at the federal level, where the government limits itself to addressing market failures. But not so at the state and local level, where the government has been experimenting with the legacies of failed socialist systems that dictate how companies can operate their own businesses. For instance, several states and cities around the country, with San Francisco and New York City at the forefront, mandate how corporations will pay and deploy their labor force.

California wants to up the game by telling companies how many days per week they will employ their labor force. If passed, bill AB293 would mandate that companies with more than 500 workers pay overtime to people who work for more than 32 hours. The bill, which would cut the workweek to four days while maintaining current wages, is expected to affect an estimated 2,600 firms and 3.6 million people in a workforce of about 17 million.

Is that a good idea or a bad idea? Scott Miller, CEO of Centerpost Media, thinks it's an idea that's time has come.

"Employees are now expecting more work-life balance from their employers," he says. "While they do need to bring home more money to pay for the rising cost of groceries and gas, most want the ability to be home more and be in the office less. Employers also need to base performance reviews on results and not hours clocked in."

But Senior Attorney Rita Mkrtchyan thinks the four-day weekwork mandate, which looks good on paper, is a bad idea that will end up killing jobs.

"The bill terrifies me because it has a high potential to be a job killer. It will certainly make hiring more expensive," she said. "In effect, increased expenses will lead to a decrease in job openings. If the bill is signed into law, employers will decrease employment through hiring freezes and layoffs. Additionally, large companies may move to neighboring states. This bill does not look sustainable and in fact, in its attempt to create a better work-life balance, will drive inflation higher."

That's the last thing any state needs these days, as inflation has been devastating family budgets, especially those who live paycheck to paycheck.

"Labor costs are normally one of the highest costs a business has,” Mkrtchyan explained. “Businesses, especially during inflation, function on minimal profit margins. Shorter workweeks may narrowly work in a labor surplus environment where companies need to spread the jobs. Unfortunately, in our current economy, there is a labor shortage. With a shorter workweek, it will inevitably lead to either (1) non-voluntary reduction of hours or (2) Companies will continue to pay employees overtime at the same rate as before but pass the cost on to the consumer."

The situation could become dire for the California restaurant and hospitality industries, which have been under separate labor mandates and are striving to find workers to keep the doors open. "If passed, the law would force these businesses to hire more people to avoid paying overtime wages and allow a shorter workweek," Mkrtchyan adds.

Attorney Marlene Allen Murray at Fennemore Craig is concerned about another bill's negative impact on the state's heavily regulated economy.

"California businesses are already plagued by numerous restrictions on how to run their companies. Businesses are better positioned than the legislature to know what workweek schedules are best for their company and for serving their customers." That's why Murray thinks California should not put this additional burden on businesses, especially since they have already suffered through Covid and other challenges in recent years.”