I Can’t Drive 55

I don’t often post about matters political, but my partner Jason just put up an item on his blog I thought worth mentioning. Voters in Colorado will have to vote on Amendment 55, Just Cause for Employee Discharge or Suspension, which proposes to amend the state’s constitution that will effectively end “at will” employment arrangements between employers and employees.

Having been involved in the creation of companies (either as an entrepreneur, advisor, angel investor or VC) for the whole of my professional life, I cringe when I see proposals like this. Startup companies and other small businesses are very fragile things, and putting laws in place that restrict (by making more costly) their ability to hire and fire employees as necessary could seriously harm the startup ecosystem. Many (if not most) startups inevitably face challenging times at some point in their lifecycle, and sometimes, as painful as they are, significant cuts in headcount are the only way for a company to survive and have a shot at eventually going on to greatness. And the greater good scenario is clearly a company that goes through difficult times and winds up bigger than before (i.e. more jobs) than a company perhaps forced to close up shop (i.e. zero jobs) or is never able to invest enough in the business to grow it substantially (i.e. fewer jobs) as a result of onerous costs associated with laws like the proposed Amendment 55.

Even removing the scenario of a large-scale restructuring, in a small company a bad hire can become toxic to that company’s morale and productivity, and as Jason points out, it is in practice extremely difficult to prove/document “cause” when firing someone, and a law like this only encourages a bad egg to try to collect as much money as possible from the company on their way out the door. Ultimately, the biggest winners in these scenarios tend to be the lawyers on both sides of an employment dispute.

If you are a Colorado voter, vote no on Amendment 55.

  • fronesis

    I know I'm not a resident…but….

    There's a BIG PILE of amendments on the ballot in Colorado that amount to a significant, and perhaps very important for the long-term, confrontation between labor and business. Some would seriously undermine the possibility for labor to organize, and some would give certain powers to workers. I totally see the logic of your opposition to 55, but I'm not certain it's fair to isolate this amendment from all the others and encourage people to 'vote no on 55'.

    Again, I understand why 55 might be a bad piece of legislation, one that does more for lawyers than for workers, but what about the other amendments on the ballot that are clearly designed to change Colorado law so as to make it harder for labor to organise?

  • Sam, I agree that there's a host of labor vs. business legislation out there this year, many with conflicting goals, but a patchwork approach like this is rife with problems and serious unintended consequences, and I'm viewing this through the lens of high-techstart-up company formation. Furthermore, all of the businesses I'm involved with are employers where the vast majority of the employees are white-collar and highly paid and have good benefits, health insurance, 401k, etc, so this sort of blanket legislation is problematic and doesn't apply equally to all types of businesses.

    It reminds me of Sarbanes-Oxley, put in place after the Enron debacle. SOX has basically created an “employment for life” dynamic with the large accounting firms, has dramatically increased their revenues, and made them more expense or totally unavailable for start-up companies (since they make so much servicing public companies), and had made going public so expensive (SOX compliance costs a company ~$3m/yr) that fewer start-ups can go public. The deep irony here is that it has rewarded the very folks who helped create the mess in the first place, while the benefits SOX offers in terms of more market transparency for investors are somewhat debatable.

  • I completely agree with your post. I am located in Georgia and we are an “at will” state. I could not imagine it being any different. It is hard enough to make a decision to fire or hire someone as it is with out having to deal with the legal side of it. However, while it is not always easy it is important that a company be able to restructure itself in order for the greater good. No doubt this amendment if approved would raise hiring and firing costs for companies, and in turn reduce the productivity.