Reductions in Force, Layoffs, Downsizing, Rightsizing or whatever you may call it is occurring with greater frequency as the economic conditions continue to deteriorate. The business objects are reducing costs, preserving talent, treating separated employee with compassion and avoiding litigation. The compassion and litigation avoidance may go hand in glove.

The most prevalent litigation avoidance strategy is getting a release from separated employees for which a company pays severance and provides other benefits. Some companies pay severance without requiring a release and others pay enhanced severance if the employee releases claims.

I frequently get asked how much severance is appropriate. There is no right answer to this question, but depends on a myriad of factors including the size of the company, its financial condition, the number and positions of employees being released, the tenure of the employees and the risk of litigation.

Ann Bares at Compensation Force has a post that notes Global and US Severance Pay Benchmarks. There is a caveat on the international benchmark information. Severance pay is mandated by some governments outside the United States including Canada and many European countries. The amount of mandated severance varies depending sometimes on age, years of service and the reason for separation. Also missing from the analysis might be unemployment benefits received by US employees. As usual, it is not an "apples-to-apples" comparison.

Also keep in mind that releases of employment-related claims should be reviewed by legal counsel.

Webinar Registration

Congress recently passed legislation amending the Americans with Disabilities Act, which will greatly expand the coverage of the Act.  On Thursday December 4, 2008, McNees Wallace & Nurick will host a 45 minute webinar to discuss these new changes to the ADA and what employers should know before the amendments take effect on January 1, 2009.  Please join Samuel N. Lillard and Michael A. Moore, attorneys with McNees Wallace & Nurick’s Labor & Employment Law Practice Group, as they tell you exactly what the new legislation means for employers and what your business should do to comply with the new amendments and avoid costly litigation.

Thursday, December 4, 2008 12:00 PM – 1:00 PM EST : Online Registration link here.

As if HR didn’t have enough on its plate with E-Verify compliance, new FMLA regs, and EFCA planning, next year is one of those strange years with 27 bi-weekly paydays instead of 26. Bi-weekly pay programs pay employees in 14-day increments resulting in a 364 day annual pay cycle. Since there are either 365 or 366 days in a year, every 5 years or so, there is a calendar year with 27 pay periods instead of the typical 26.

The 27 pay periods for 2009 create a compensation issue for salaried employees. Bi-weekly pay is typically calculated by dividing annual salary by 26 and employees are accustomed to a payroll amount based on this division. Continuing this practice in 2009 will result in an "extra" paycheck in 2009, but the normal 26 pay periods will resume in 2010. Some commentators have characterized this as a "timing issue". It is not. There are never years with only 25 pay periods to offset the years with 27.

Employers approach this situation in two ways. Some employers adjust salaried employee bi-weekly compensation for the 27 pay period years by dividing the stated annual salary by 27 rather than 26 resulting in a lower pay for each pay period in the year. Salaried employees are paid the same gross salary in smaller increments. However, this approach can cause problems with automatic deductions. Other employers allow the extra pay check and inflated compensation, not wanting to mess with the largely automated payroll system. Both approaches will require employee communication and may be influenced by an employer’s past practice.   Legal issues can arise from reducing the bi-weekly salary amount.

 

Paying salaried employees on a semi-monthly basis (twice a month) avoids this problem because there are always 24 paydays. However, semi-monthly pay doesn’t always work well for hourly employees because it may require estimating hours and overtime based on misalignment of the 7-day workweek with the 15 or 16-day pay period. Many employers don’t want the expense of running two payrolls so they live with the 27 payday problem.

Many employers traditionally provide year end bonuses and holiday gifts for their employees. Bonuses may be included in a nonexempt employee’s regular rate depending upon the manner in which the bonus is calculated and the company’s prior communication. Inclusion in the regular rate impacts overtime calculations and payments.

Bonuses paid to nonexempt employees are included in the determination of the employees’ regular rate under section 778.208 unless the bonus falls into one of several exceptions. The bonuses are allocated to the pay period and added to other wages paid to nonexempt employees and then divided by the hours worked for the same period to determine the new regular rate under the methodology described in section 778.209. For bonuses earned over more than one work week, the bonus must be allocated to pay periods to which the bonus applies and the regular rate recalculated. If overtime was worked during this period, the overtime rate must be revised to be time and a half the recalculated regular rate that includes the bonus payment. This is a nightmare.

 

Department of Labor regulations provide for several exclusions. Among these excludable bonus payments are discretionary bonuses, gifts and payments in the nature of gifts on special occasions, contributions by the employer to certain welfare plans and payments made by the employer pursuant to certain profit-sharing, thrift and savings plans. These exemptions are discussed in Section 778.211 Discretionary Bonuses, Section 778.212 Gifts and Holiday Bonuses, Section 778.213 Qualified Profit Sharing and Savings Plans, and Section  778.214 Other Qualified Plans.  Bonuses which do not qualify for exclusion from the regular rate as one of these types must be totaled in with other earnings to determine the regular rate on which overtime pay must be based.

 

Typically any bonus announced in advance and tied to work performance, hours or other productivity will not qualify for an exemption.  There three ways to manage the recalculation problem, other than utilizing qualified plans:

 

1.  Holiday Bonuses: The Holiday Gift and Bonus exemption under section 778.212 allows for the exclusion from calculation of an employees “regular rate” of pay “sums paid as gifts; payments in the nature of gifts made at Christmas time or on other special occasions, as a reward for service, the amounts of which are not measured by or dependent upon hours worked, production, or efficiency…”   The following sets forth some of the parameters of the exclusion:

If the bonus paid at Christmas or on other special occasion is a gift or in the nature of a gift, it may be excluded from the regular rate under section 7(e)(1) even though it is paid with regularity so that the employees are led to expect it and even though the amounts paid to different employees or groups of employees vary with the amount of the salary or regular hourly rate of such employees or according to their length of service with the firm so long as the amounts are not measured  by or directly dependent upon hours worked, production, or efficiency. A Christmas bonus paid (not pursuant to contract) in the amount of two weeks’ salary to all employees and an equal additional amount for each 5 years of service with the firm, for example, would be excludable from the regular rate under this category.

 

2.  Discretionary Bonuses: This is an area of DOL audit scrutiny and should not be used on a regular or aggressive basis. Truly discretionary bonuses are not included in the regular rate of pay under section 778.211, if both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the employer at or near the end of the period and not pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly. The following sets forth some of the parameters of the exclusion:

For example, any bonus which is promised to employees upon hiring or which is the result of collective bargaining would not be excluded from the regular rate under this provision of the Act. Bonuses which are announced to employees to induce them to work more steadily or more rapidly or more efficiently or to remain with the firm are regarded as part of the regular rate of pay. Attendance bonuses, individual or group production bonuses, bonuses for quality and accuracy of work, bonuses contingent upon the employee’s continuing in employment until the time the payment is to be made and the like are in this category. They must be included in the regular rate of pay.

 

3.  Percentage Total Earnings Bonus: Bonuses based on a percentage of the nonexempt employee’s total earnings under section 778.210 do not result in a recalculation of the regular rate because overtime is already been accounted for in the calculation.   Under this method, the bonus is described as a percentage of the nonexempt employee’s total (W-2) earnings, thereby including both regular and overtime payments and obviating the need for recalculation of the regular rate.

 

The Ohio Employer’s Law Blog is also a great resource on this topic.

Basic Provisions: EFCA amends the NLRA to change the procedures for union certification and first contract negotiation. The primary components of the act are as follows:

  • Allows NLRB certification of a relevant bargaining unit upon authorization card showing from 50% plus one of employees bypassing the NLRB-supervised secret ballot election.
  • Mandates initial collective bargaining contract be negotiated within 120 days of union certification. If no contract is reached, the first contract is produced by an arbitrator through an interest arbitration process. The first contract covers employees for 2 years.
  • Imposes sanctions on employers who engage in unfair labor practices during a union representation drive including $20,000 per violation and double back pay awards for discharged employees.

The RESPECT Act changes the definition of supervisor under the NRLA to allow working supervisors to become union members. Working supervisors are those who don’t spend a majority of there time in strictly management activities. Working Supervisors have there current status as supervisors as a result of assigning or directing the work of others.

 

Employment Implications: EFCA is a monumental change to the NLRA which eliminates the employer’s campaign to rebut a union organizing drive following the filing of a petition with the NLRB. Authorization cards are an unreliable mechanism for determining employee union interest. Interestingly, there are no changes to the decertification process in EFCA. To get rid of a union, employees must file a petition with the NRLB and go through the traditional secret ballot election process.

 

Much has been made of the abrogation of the secret ballot election, but equally dramatic are the limitations placed on collective bargaining and contract determination by an arbitrator if no agreement is reached in 120 days of negotiations.  Reliance on arbitrators to craft a contract where none has existed before is ridiculous. The arbitrator will likely be unfamiliar with the business and the result will likely be a cookie cutter agreement that ignores important operational issues.

 

If enacted, EFCA will result in unprecedented organizing activity with employers losing their ability to demand a secret ballot election and engage in hard bargaining over a first contract. With the RESPECT Act, working supervisors will gain the right to organize and employers will lose one of their primary avenues to influence employees and obtain information.

 

Obama Administration Views: The Obama Administration’s transition website (Change.gov) states that the Administration will "fight for the passage of the Employee Free Choice Act" and supports the passage of the RESPECT Act.

With the first measurable snowfall hitting many parts of Pennsylvania this week, it’s time to start thinking about inclement weather policies. Closing a business for any reason can have a dramatic impact on customers and employees.  Many employers struggle with business closings and delays necessitated by inclement weather. Good communication and planning can help eleviate some of the issues created weather-related closures.  However, there are a few legal issues thrown in this wintery mix.  I recommend adopting a policy that addresses at least the following three areas:

Will employees be paid for the time when the business is closed?

Nonexempt employees need not be paid for time when they do not work because the business is closed. Exempt employees must be paid their salary for the week regardless of the business closing. PTO or vacation may be charged, but exempt employee salaries may not be docked for time when the business is closed. A Department of Labor Compliance Assistance Letter details some of the Wage and Hour considerations applicable to the payment of wages for exempt employees.

 

Will employees be paid if they don’t report to work due to inclement weather when the business is open?

Nonexempt employees need not be paid for times they are absent from work. Exempt employees need not be paid for a whole day absence taken due to inclement weather. An exempt employee absent for part of a day may be forced to use vacation or PTO time. If the exempt employee has no vacation or PTO time, his or her salary may not be docked for a partial day absence.  The same Department of Labor Compliance Assistance Letter addresses this situation.

 

Can an employer discipline or discharge and employee for failing to report to work due to weather conditions when the business is open?

An employer may generally apply its normal attendance policy to weather related absences; however, most will make an exception for absences due to weather if the employee makes a reasonable effort to get to work. Collateral issues abound such as childcare, public transportation, and the “snow phobic” employee (chionophobia). With the ADA Amendments Act, this may be an area of accommodations. Keep in mind that “exceptions” should be uniformly made to avoid discrimination claims.

 

There is one major legal exception. Under Pennsylvania law (43 P.S. §§ 1481-1485), an employer may not discipline or discharge an employee who fails to report to work due to the closure of the roads in the county of the employer’s place of business or the county of the employee’s residency, if the road closure is the result of a state of emergency declared by the Governor.  The most obvious and likely scenario is a snow storm or other inclement weather.

 

Employers are not required to pay an employee who is a no show based on road closures, unless a union contract dictates otherwise.  An employee who can prove the employer’s "knowing and intentional" violation of the law may recover lost pay, be reinstated or have discipline revoked, and may collect attorneys fees and costs.The law does not apply to the following jobs: drivers of emergency vehicles, essential corrections personnel, police, emergency service personnel, hospital and nursing home staffs, pharmacists, essential health care professionals, public utility personnel, employees of radio or television stations engaged in the gathering and dissemination of news, road crews and oil and milk delivery personnel.

The Department of Labor issued 762 pages of regulations covering the FMLA. . As expected, 2009 will be a busy year for Human Resources Professionals because of compliance and legislative changes.  The following is a brief summary of the regulatory changes:

Military Caregiver Leave: Implements the expanded FMLA protections for family members caring for a covered service member with a serious injury or illness incurred in the line of duty on active duty. These family members are able to take up to 26 workweeks of leave in a 12-month period.
Leave for Qualifying Exigencies for Families of National Guard and Reserves: The expanded FMLA protections allow families of National Guard and Reserve personnel on active duty to take FMLA job-protected leave to manage their affairs — "qualifying exigencies." The rule defines "qualifying exigencies" as: (1) short-notice deployment (2) military events and related activities (3) childcare and school activities (4) financial and legal arrangements (5) counseling (6) rest and recuperation (7) post-deployment activities and (8) additional activities where the employer and employee agree to the leave.
The Ragsdale Decision/Penalties: The updated rule contains technical changes to be consistent with the U.S. Supreme Court’s decision in Ragsdale v. Wolverine World Wide Inc. The court ruled that the regulation’s so-called "categorical" penalty (requiring an employer to provide 12 additional weeks of FMLA-protected leave after the employee had already taken 30 weeks of leave) was inconsistent with the statutory limit of only 12 weeks of FMLA leave and contrary to the law’s remedial requirement that an employee demonstrate individual harm. The new rule removes these penalties and clarifies that if an employee suffers individual harm because the employer did not follow the notification rules, the employer may be liable for the leave and penalties.
Waiver of Rights: Employees may voluntarily settle their FMLA claims without court or DOL approval. However, prospective waivers of FMLA rights are prohibited.
Serious Health Condition: The six individual definitions of "serious health condition," are continued with guidance on their implementation. First, the rules clarify that if an employee is taking leave involving more than three consecutive calendar days of incapacity plus two visits to a health care provider, the two visits must occur within 30 days of the period of incapacity. Second, they define "periodic visits to a health care provider" for chronic serious health conditions as at least two visits to a health care provider per year.
Light Duty: Time spent in "light duty" work does not count against an employee’s FMLA leave entitlement, and the employee’s right to job restoration is held in abeyance during the light duty period. If an employee is voluntarily doing light duty work, he or she is not on FMLA leave.
Perfect Attendance Awards: Companies need not grant a "perfect attendance" award to an employee who does not have perfect attendance because he or she took FMLA leave — but only if the employer treats employees taking non-FMLA leave in an identical way.
Employer Notice Obligations: All employer notice requirements into a "one-stop" section of the regulations to clear up some conflicting provisions and time periods. Further, the final rule clarifies and strengthens the employer notice requirements to employees in order that employers will better inform employees about their FMLA rights and obligations, and allow for a smoother exchange of information between employers and employees.
Employee Notice: Employee must follow the employer’s normal and customary call-in procedures, unless there are unusual circumstances. The final rule modifies the current provision that had been interpreted to allow some employees to notify their employers of their need for FMLA leave up to two full business days after an absence, even if they could provide notice sooner.
Medical Certification Process (Content and Clarification): The rule limits who may contact the health care provider and bans an employee’s direct supervisor from making the contact. The rule address the requirements of HIPAA’s medical privacy rule to communications between employers and employees’ health care providers.
 

 

Federal government contractors and subcontractors will be required to begin using the U.S. Citizenship and Immigration Services’ E-Verify system starting Jan. 15, 2009 (now 5/21/09), to verify their employees’ eligibility to legally work in the United States.  The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council amended the Federal Acquisition Regulation (FAR) to reflect this change.  E-Verify must be used to verify all new employees and all employees who work on the covered government contract unless the employees were previously verified or commenced work for the employer before the June 6, 1986 the effective date of the Immigration Reform and Control Act.  Contract Officers will insert clauses in new contracts and solicitations.  In addition, certain existing government contracts may be amended to include the requirements.

E-verify provisions on covered contracts apply to all government contractors and subcontractors with limited exceptions detailed in the final regulations. Each covered contractor and subcontractor must: 

  • Enroll in the E-Verify Program within 30 days of the award of a contract, if not already enrolled.
  • Those employers already enrolled in E-Verify for 90 days as of the effective date of the new regulations must verify all new employees with 3 days of hire.
  • Those employers not enrolled in E-Verify must begin to verify all new employees within 90 calendar days of E-Verify enrollment whether or not such employee performs work on the government contract or subcontract within 3 days of the date of hire.
  • Verify each existing employee assigned to the contract within the later of 90 calendar days of E-Verify enrollment or 30 calendar days after the employee’s assignment to the contract
  • Employees previously verified through E-Verify are exempt.
  • Elect to verify all employees hired after June 6, 1986 whether or not assigned to the contract.
  • The phrase “employee assigned to the contract” refers to individuals who were hired after June 6, 1986 who are “directly performing work under the contract,” and to exclude employees who normally perform support work, or who do not perform any substantial duties applicable to an individual contract.
  • Subcontracts must include a clause requiring compliance by the subcontractor.
  • A new Memorandum of Understanding (MOU) will be published shortly.

The Final Regulations are summarized by the Office of Acquisition Policy and appear on the DHS website with a Small Entity Compliance Guide.

Final Regulations in .pdf: FAR Employment Eligibility Verification

DHS Website: Frequently Asked Questions: Federal Contractors and E-Verify

 

UPDATE:  Mandatory use of E-Verify for Government Contractors delayed again to May 21, 2009

Change is coming to Washington and to America’s workplaces. President Elect Obama launched a new website Change.gov where he explains his labor agenda which included passage of the Employee Free Choice Act. The Obama Administration’s transition views are summarized at the Connecticut Employment Law Blog.
Unions are on board too. After their push for Obama, Unions seek new rules for organizing workforces through the EFCA, as observed by Steve Greenhouse of the NYTimes:

With union membership sliding to 7.5 percent of the private-sector work force, one-third the rate in 1983, unions see enactment of the bill as the single most important step toward reversing their loss of membership and power. Some labor leaders predict that if the bill is passed, unions, which have 16 million members nationwide, would add at least five million workers to their rolls over the next few years.

The impact of the EFCA will be monumental so we will be dedicating a lot of blog time to this topic. Look for future posts in the following areas:

  • Nuts and Bolts of EFCA: examines the specifics of the proposed legislation.
  • Employer’s Guide to Authorization Cards: looks in detail at authorization cards, their legal significance and how they are solicited by unions.
  • Identifying and Training Supervisors to Maintain your Union-Free Status: outlines the role of supervisors in disseminating the employer’s message including the impact of the RESPECT Act.
  • Employee Engagement Surveys as a Tool to Combat Union Organizing: keeping your finger on the pulse of employee.
  • Becoming Politically Active in Response to EFCA: making your business’s voice heard in Washington and particularly by the one Republican Senator, Arlen Specter of Pennsylvania, who has co-sponsored the EFCA.
  • How to Avoid Unfair Labor Practices when you are an Organizing Target: negotiating the legal landscape of traditional labor law.

 

President-Elect Obama told his hometown crowd that "Change has come to America." Through his election speeches, website and co-sponsorship of Senate Bills there is a road map of what changes will likely be coming to the American workplace.

Employers would be well served by examining the impact of likely legislation on their business and planning accordingly. The most significant changes will likely come from the Employee Free Choice Act  and RESPECT ACT which will reshape union organizing. The building trades, healthcare, and manufacturing will be the first to feel the effects, but so will business that were not traditionally union targets like financial services.  The balance of Senator Obama’s legislative agenda involves expanding existing areas of employment protection through the Paycheck Fairness Act, Ledbetter Fair Pay Act, Employment Non-Discrimination Act.

Prior posts have summarized the content of these bills and their impact on the workplace. In the coming weeks, we will provide more extensive guidance on planning to meet the changes posed by these and other legislative initiatives.

Related Posts:
Employer’s Guide to the Election
Obama Victory may give rise to Unprecedented Unionization of the American Workplace
Bosses do not Deserve RESPECT