Proposition F - Paid Sick Leave

What it does

This initiative ordinance would require employer-financed paid sick leave for all employees in San Francisco. Employees would earn paid sick leave at the rate of one hour for every 30 hours worked after the first three months on the job. Employees who work in businesses with fewer than 10 employees could accumulate up to 40 hours (five days) of paid sick leave per year. Employees at businesses with 10 or more employees could accumulate up to 72 hours (nine days) of paid sick leave per year. Employees who remain at the same business could roll over unused sick leave into subsequent calendar years, up to the maximum accruals. There is no "cash out" upon termination of employment. Unless both parties opt out, it would supersede collective bargaining contracts.

Under the ordinance, paid sick leave could be used for the employee's own physical or mental illness, injury, diagnosis or treatment, or to provide care in case of the employee's child, parent, spouse, sibling, grandparent, grandchild, legal guardian or ward, domestic partner, or any other person designated annually by the employee.

Employers could require employees to give reasonable notification of an absence and could take only reasonable measures to verify that an employee lawfully used paid sick leave. Enforcement would be allowed by the City, an aggrieved individual or any member of the public. Relief could be in the form of back wages, reinstatement and penalties. Employers would have to maintain records documenting hours worked and paid leave taken for up to four years.

If an employer already provides sick leave, vacation time or paid time off greater than or equal to the amounts required in this ordinance, then the employer already is in compliance with this ordinance and does not need to provide any additional sick leave. This is an "equivalency requirement."

This measure requires only a simple majority for passage.

Why it is on the ballot

In recent years, San Francisco has become a national leader in legislation focused on improving wages and benefits for employees, particularly in low-income industries. This has become more common as incomes have become increasingly polarized and union representation in service industries continues its steady decline (thus limiting labor's ability to increase wages). Previously, unions represented larger segments of the restaurant, hotel, retail and building services (janitorial) industries. Lacking the power to set wages and benefits through industry-wide bargaining agreements, unions recently formed coalitions with community groups to push for changes to local legislation such as living-wage laws for city contractors, minimum-wage laws for all employees, health care benefits for the uninsured and now paid sick leave.

In 2003, San Francisco passed a citywide minimum-wage ordinance that placed the City's minimum wage at $8.50, plus inflation. With that increase, the City's wage floor became $1.75 an hour higher than the State's. The wage is currently $8.82, and applies to all adult and minor employees who work two or more hours per week.

In June of this year, the City passed legislation to provide health benefits to all uninsured people in San Francisco. That measure included numerous public meetings and triggered the writing of an economic-impact assessment prior to its passage.

Pros

Those who support this measure claim:

• This measure would improve the quality of the work experience for all workers who otherwise would not receive paid sick leave. All employees deserve a work environment where they go to the doctor or care for a sick child without fear of losing employment or wages. This is particularly true for people with lower wages in industries where they have less bargaining power as employees.
• Increased benefits not only improve employee morale and productivity but also reduce employee turnover, and thus administrative costs to employers. Turnover among workers is costly to employers, as they have to find and then train new workers.
• Time off with pay for employees who are sick or are caring for others will have significant benefits in terms of workers' health outcomes, reducing the spread of illness among coworkers and increasing the likelihood that workers can access preventative care.
• This measure would level the playing field for employers already offering paid time off and thus reduce a competitive cost disadvantage to employers who provide such benefits.
• Some employers take punitive measures when workers take their paid time off. This proposition would impose a penalty on employers who take such measures and could possibly help prevent such punitive actions from happening.

Cons

Those who oppose this measure claim:

• Proposition F does not need to be on the ballot. The Board of Supervisors could enact this legislatively, as it did with recent health care legislation. It is on the ballot to avoid having to compromise with the needs of the restaurant industry as well as with the requirement for an economic impact assessment.
• The number of paid sick days in this measure is arbitrary and does not provide any incentive for workers to stay at any job longer than three months. It is standard practice for most employers with paid sick leave or time off to offer an incentive for workers who remain on the job for more than a year. The ordinance should have been written to provide five sick days for the first year or two and then increase the benefit to a maximum of 10 days.
• Many recent pieces of legislation benefit workers but impose significant costs to businesses. There has yet to be a cumulative impact assessment for all these measures. Instead, each is introduced independent of the others. Prior to enacting one additional measure that imposes such added costs, it would be prudent to study the cumulative impacts.
• Like any measure that increases the costs to employers, this could result in a decrease in employment, particularly in high-labor, low-margin industries such as restaurants and retail. In order to stay in business and comply with both the health care legislation and the paid sick leave ordinance, many employers will simply make do with fewer employees, whether that comes through layoffs or hiring freezes.
• Establishing this sick leave benefit will project a negative message about San Francisco's business climate. San Francisco already is one of the most expensive places in the country for businesses, and a paid sick leave benefit will reinforce the impression that San Francisco is unaccommodating, deterring new businesses from moving to the city.
• The vast majority of San Francisco businesses provide paid sick leave or have a paid time off program. Many others have unofficial leave policies. Local government should not be regulating issues unrelated to workplace safety and base wages, such as vacation and leave policies.

SPUR's analysis

While the process to develop the health care legislation was not universally praised, Proposition F had virtually no public process. Two weeks before the ballot deadline, the Board of Supervisors held a hearing on the general topic of sick leave. However, no legislation was presented or introduced. The coalition supporting this ordinance also held several meetings with the Chamber of Commerce and the Golden Gate Restaurant Association before placing this measure onto the ballot. Since those meetings were informal and outside of a legislative process, they did not result in substantive changes to the proposed legislation. For example, this sick leave ordinance introduces a new definition of a small business that differs from the one recently adopted within the City's health care legislation. While the health care legislation defined a small business 20 or more employees, this measure defines a small business as 10 or more employees. Enshrining such inconsistencies in law will make it more difficult to provide small-business assistance and develop a comprehensive set of regulations that benefit both workers and businesses.

Despite the lack of an impact assessment in the development of the legislation, the lack of access to paid sick leave is a real and pressing problem. Nationally, 42 percent of all private-sector workers do not have paid sick leave, nearly double the 23 percent who lack paid vacations. Although this number has declined since 2000 (when 47 percent lacked paid sick leave)⁶, this percentage who lack paid sick leave is higher in many low-wage industries such as food service and retail. As many as three-quarters of workers who receive the bottom quartile of wages lack paid sick leave.⁷

The sick leave ordinance would increase the cost of labor in San Francisco by approximately 3.3 percent for employers that do not currently provide sick leave or paid vacation. Standard economic theory presumes that as the cost of labor increases, employers will seek to reduce the cost of labor by laying off workers, thus reducing overall employment. In addition to hiring fewer workers, it is possible that employers may choose to not provide pay raises beyond what is required by law or union contract. Because the value of the sick leave increases as an employee's wages increase, for all workers the paid sick leave constitutes in effect pay increase without any related increase in productivity, based on earning one hour paid leave for every 30 worked. For a worker to accrue the maximum benefit of 72 hours, he or she would have to work 40 hours a week for 52 weeks straight. Employers may choose to forgo expected salary increases by instead paying for the sick-leave provision.

Others argue that these cost increases will simply result in businesses closing. As costs go up in restaurants, the customers will spend less when they eat out. This would result in less overall revenue to the restaurants and could lead to the loss of employment at restaurants. Already, 10 percent of restaurants in San Francisco have gone out of business in the past few years. The largest growing segment within the restaurant industry is "fast casual" (that is, counter service), where there are fewer employees. It is expected that these increased costs could provide an additional disincentive to restaurants to provide full sit-down service, given the higher labor costs associated with that service.

Proponents counter these assertions by claiming that many workers will not make use of the maximum number of days, so the total cost could be much less than expected.

The proposed ordinance also attempts circumvent labor agreements. Many building trade unions have taken extra wages in lieu of sick leave. This would affect those contracts and may require the reopening of those contracts to decide whether both sides want to exchange the sick leave for other benefits.

While SPUR supports the idea of workers having paid time off to care for themselves and their families, this measure was brought forward without significant analysis of its impacts and was not drafted to accommodate industry standards. Although it purports to reduce turnover, it would provide no added benefit for workers who remain at the same job because it would never increase the accrual rate of sick leave. Further, in recent months and years there have been several new policies that collectively place a significant added financial burden on employers (such as citywide minimum wage and health care requirements). While these measures will improve the quality of the work environment for employees, there has not yet been any assessment of the cumulative economic impact of these measures both on employers and the city's overall economy. It would have been prudent to assess these cumulative impacts prior to bringing forth so many measures at once. Finally, this particular sick leave measure does not need to be before the voters. It should have been introduced at the Board of Supervisors and should have been subject to committee hearings, debate, compromise and action by the full board. As San Francisco continues to chart new policy territory in economic and social policy, it is incumbent on the proponents of new legislation to provide a thorough review and analysis in the legislative process.

SPUR recommends a "No" vote on Proposition F.

⁶ See www.bls.gov. go to "Wages, Earning and Benefits" and search for "Percent of All Workers with Access to Paid Sick Leave."
⁷See graph on page 12 in http://www.iwpr.org/pdf/B242.pdf.