Pennsylvania Labor and Employment Lawyer & Attorney : McNees Wallace & Nurick Law Firm : Human Resources, Workplace and Business Law : Harrisburg, Lancaster, Allentown, Lehigh

Union membership and the public perception of the role of labor unions are relatively unchanged in recent years. Union membership was up only slightly in 2007 based on a report by the Bureau of Labor Statistics of the Department of Labor, which published the following statistics on union membership:

     Percentage of unionized workforce
     Total - 12.5%
     Public sector - 36.5%
     Private sector - 7.8%

Public perceptions of unions is also remained constant. An annually conducted Gallop Poll shows a relatively constant union approval rating hovering around 60%, with only 22% of those polled feeling that unions would be “stronger” in the future.

The 2008 Election may dramatically change the landscape of U.S. labor relations with a reinvigoration of organized labor. The following influence could align to compel unprecedented unionization:

• Payback to Union Supporters: Democratic candidates received substantial support from organized labor both financially and in getting out the vote. This support will garner political power, which will likely translate into a pro-union legislative agenda.
• Uncontested Legislative Agenda: Senator Obama is the cosponsor of the EFCA and RESPECT Act both of which are strongly supported by unions. A Democratic majority in the House and Senate will pave the way for an uncontested legislative agenda that will likely include these laws. Republicans could be unable to slow the process down using a “filibuster” if the Democrats secure a 60-seat majority in the Senate to invoke cloture on floor debates.
• Economic Woes: The economy downturn will continue to hurt businesses making necessary reductions in force, smaller paychecks and other cuts in benefits. The promises of job security and better wages are typical union themes. Nervous workers may turn to unions for help.  Traditionally, unions were forced to the bargaining table where strikes were their primary weapon to put economic pressure on an employer. The historic economic balance between unions and employers will be upset by passage of the EFCA, which mandates arbitrator-crafted contracts within 120 days after initial union recognition.
• Unprepared Employers: Passage or the RESPECT Act and the EFCA would be a one-two punch for which many employers will be grossly unprepared. RESPECT would make many working supervisors eligible to unionize and to assist a union in collecting cards and other organizing activities. Employers would be unable to use these working supervisors as advocates for their union-free message or to collect intelligence on organizing activities. The EFCA would eliminate the secret ballot and mandate first contracts through arbitration.

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As the economic meltdown cascades through the financial, banking and related sectors, many employers are planning staff cuts.  Selecting employees for lay off must be collaboration between managers and human resources. HR must be able to influence the process to reduce legal risks and assuage the anxiety of remaining employees:

Establishing Business Justification and Layoff Selection Criteria:

The business justification for the reduction in force or layoff must be established. The justification for layoff typically gives rise to the selection criteria. For example, if a large contract was lost, the production and support functions related to the lost contract will be the focus or the layoff.

Layoff decisions may be challenged under discrimination laws, so it is advisable to develop selection criteria that support the business reasons for selecting one employee over another. Unless dictated by union contract, employers have discretion in developing the selection criteria which can include factors like, seniority, relative skills, performance, and/or disciplinary record.  More than one factor may be used.

Forced Ranking Systems are sometimes utilized to rank employees against one another from the top down based on performance criteria. The subjectivity in forced ranking can be challenged as discriminatory unless uniformly and rationally applied.

Evaluating Impact of Selection Criteria including Bumping, Transfer and Recall Rights:

Once employees are identified for layoff, the results of the section criteria must be assessed in terms of disparate impact and other special circumstances. A disparate impact analysis should be conducted to assess whether the selection criteria have resulted in the disproportionate layoff of members of a protected class. Likewise, special circumstances should be evaluated such as employees with recent employment complaints, union activity, FMLA leaves, etc.  Consider documenting the final layoff decisions, but not the deliberations leading up to them.

Thought must be given to collateral job rights employees may have under employment policies and practices. Typical areas involve shift or department transfers, supervisor demotion in lieu of layoff, and voluntary layoffs. Likewise, the parameters of recall, if any, should be described.

WARNA Obligations:

Federal and state plant closing/mass layoff laws must be considered. Although Pennsylvania has no state law equivalent to WARNA, employers with multi-state operations must assess the application of such laws. Coverage under WARNA can be complex as it has look back rules which aggregate layoffs for determining triggering events. WARNA coverage will trigger the sixty-day notice period which has a tremendous impact on layoff planning raising issues of pay in lieu of notice, retention, and publicity.

Severance Benefits and Releases:

Careful consideration must be given to describing the benefit package, if any, offered to employees. If an employer is offering benefits that exceed those already provided by policy or mandated by law, it should consider obtaining a release. The federal Age Discrimination in Employment Act (ADEA) contains special rules for waivers of rights of claims of age discrimination including a 45-day consideration and seven-day revocation period for such releases. Furthermore, the ADEA contains informational requirements that mandate publication of summary of employee demographic information in connection with the release.

Communications Plan:

Effective communication is paramount in reducing employee legal claims and assuaging the anxiety of remaining employees. Everything that is said about the reasons for the layoff will be scrutinized in litigation. Consider scripting communications for group meetings and avoid individual discussions of the reason for selection. Large layoffs may generate news media interest for which a press release is a helpful way to influence the message.

UPDATE:

Jerry Kalish at the Retirement Plan Blog made a great observation about layoffs in his post Does a reduction in force or layoff beget a partial termination of a retirement plan?.  He refers to the IRS rules on partial termination of a retirement plan based on the significant reduction in plan participation resulting from the layoff.  IRS Guidance entitled 401(k) Resource Guide - Plan Participants - Plan Termination includes the following summary:

Although a 401(k) plan must be established with the intention of being continued indefinitely, an employer may (fully) terminate its 401(k) plan at its discretion. In certain cases, a partial plan termination is deemed to occur. Whether a partial termination occurs depends on the individual facts and circumstances of a given case. In general, a partial termination is deemed to occur when an employer-initiated action results in a significant decrease in plan participation. As an example, a partial termination may be deemed to occur when an employer reduces its workforce (and plan participation) by 20%.

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Businesses face increasing uncertainty over the availability of financing because of the economic downturn and tightening of credit markets.   Financially troubled businesses may need to curtail operations through a plant closing or mass layoff if additional financing is not received. Employers need to manage compliance with the Worker Adjustment and Retraining Notification Act (WARN) as their negotiations with financial markets unfold.

WARN provides for an exception to the sixty-day notice requirement when a “faltering company” is confronted with a possible plant closing; however, the exception is a narrow one that requires careful employer analysis. An employer claiming the exception must prove: (1) it is actively seeking capital at the time the 60-day notice would have been required; (2) it had a realistic opportunity to obtain the financing sought; (3) the financing would have been sufficient, if obtained, to enable the employer to avoid or postpone the shutdown; and (4) the employer reasonably and in food faith believed that sending the 60-day notice would have precluded it form obtaining the financing.

A recent court decision in In Re: APA Transport Corp. Consolidated Litigation discussed several critical elements of the faltering company exception including the following:

Consolidation of related companies into a “Single Employer”

Related companies may be treated as a “single employer” for determining whether the employer meets the 100-employee coverage threshold for WARN and to assess whether the company is faltering. The faltering company exception is not available if a related has adequate capital to continue operations and it is treated as a single employer. Five factors are used to determine if related companies are liable under WARN on “single employer” grounds:

• Common ownership
• Common directors and/or officers
• De facto exercise of control, i.e., one company was the decision maker for the employment practice that gave rise to the litigation
• Unity of personnel policies emanating from a single source
• Dependency of operations, i.e., interchange of employees or equipment or commingling of finances.

Timing and Proof of “Actively Seeking Additional Financing” 

According to the court, WARN requires that steps to “actively seek financing” be taken “at the time that the 60-day notice would have been required.” Therefore, the actions of the company occurring during the period of time, which is sixty days before the plant closing, must demonstrate active pursuit of financing. The court rejected APA’s argument that a company may qualify for the faltering company defense irrespective of whether it was actively seeking capital at the time the notice was required, so long as it did no foresee the shutdown that occurred sixty days later. Employers must demonstrate the timing and steps it took to secure financing.  The court’s view of the exception places a degree of omniscience on employers to predict exactly when the company will shut down.

Incidentally, the faltering company exception does not apply to mass layoffs under WARN.

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