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%.

On September 23, 2008, the EEOC filed a lawsuit in the United States District Court for the Western District of New York against Sterling Jewelers Inc., the largest specialty retail jeweler in the United States. The EEOC’s Complaint alleges that Sterling "pays its female retail sales employees less than male employees performing substantially equal work and denies female employees promotional opportunities for which they are qualified." The lawsuit seeks relief on behalf of a class of potentially thousands of current and former female employees of Sterling throughout the U.S. Sterling owns and operates the Kay Jewelers and Jared The Galleria of Jewelry stores and various regional retail jewelry establishments.

In both the Complaint and press release issued by the EEOC on September 24, 2008 to announce the lawsuit, the EEOC claims that Sterling’s system for making promotion and compensation decisions is "excessively subjective" and has resulted in both disparate treatment and disparate impact sex discrimination. The "excessive subjectivity" claim is the primary allegation of unlawful discrimination in the complaint.

 

The use of subjective criteria in employment decisions often is unavoidable. Simply put, purely objective criteria is not always available or appropriate for hiring, compensation, promotion, and discharge decisions. "Excessive" subjectivity, however, can give rise to allegations of discriminatory treatment and systematic bias. Employers and their counsel often struggle to balance the desire to use all appropriate criteria when making employment decisions, including both objective and subjective criteria, with the knowledge that "excessive subjectivity" in the decision-making can create perceptions of bias and increase the potential for discrimination claims. 

 

Of course, determining what is "excessive subjectivity," as opposed to typical subjectivity common in many employment decisions, can be difficult. This problem is more significant for larger employers that lack a centralized structure for employment decision-making. An employer with more independent decision-makers has a greater chance for "excessive subjectivity," especially if the employer has not promulgated clear guidelines or requirements for the decision-making process.

 

The EEOC has made clear that it views "excessive subjectivity" in compensation and promotion systems as a high priority enforcement issue for the agency. The Sterling case, with its nationwide scope and focus on this issue, emphasizes the EEOC’s commitment. Employers and their counsel should be aware of this issue and review their hiring, compensation, and promotion procedures to determine whether changes could produce a better structured, less subjective system.

One big frustration for union organizers is access to employees for the purpose of soliciting union authorization cards and peddling the union message. Sophisticated employers have no solicitation policies, which force union organizers out of the workplace and into the parking lots and homes of employees.

The primary barrier to union home visits is determining where employees live. Until a union files a petition for election, an employer isn’t obligated to hand over employee names and address. To file a petition for election under the current law, a union must obtain signed authorization cards from 30% of the employees in an appropriate unit. Home visits are a very effective way of putting pressure on employees to sign cards, because most people view the visit as an intrusion and just want the “visitor” to leave. Therefore, they sign the card without much thought to its significance.

Unions use a variety of methods to get employee addresses such as company directories and just asking employees. Unions will go to great lengths to obtain employee addresses even employing a controversial method called “tagging.” Tagging involves Union members writing down the license plate number of employee vehicles in an employer’s parking lot and running the license plates to obtain the name and address of the person who owns the vehicle. Addresses are then used for home visits. The practice of tagging was recently struck down, in Pichler, et al. v. UNITE, decided by the United States Court of Appeals for the Third Circuit. 

The Employee Free Choice Act will fundamentally alter the role of authorization cards and increase the importance of house calls. Under the EFCA, a union can be recognized as the bargaining representative for a company’s employees if it obtains signed authorization cards from more than 50% of the employees in an appropriate unit. Pressuring employees at home will likely become even more frequently employed tactic.

In Pichler, et al. v. UNITE, the United States Court of Appeals for the Third Circuit has weighed in on the controversial union organizing tactic known as "tagging." In its effort to organize employees of Cintas Corporation, the largest domestic employer in the industrial laundry industry, UNITE (Union of Needletrades, Industrial & Textile Employees) engaged in "house calls," i.e., knocking on doors at the homes of Cintas’ employees in an effort to convince them to support the Union. In order to locate the home addresses of these employees, the Union would record the license plate numbers of cars found in Cintas’ parking lots to access information contained in state motor vehicle records relating to those license plates. This process was known as "tagging."

Unfortunately for the Union, a group of Cintas employees, objecting to what they perceived to be a violation of their privacy rights, sued the Union under the Driver’s Privacy Protection Act. That federal statute provides that a "person who knowingly obtains, discloses or uses personal information, from a motor vehicle record, for a purpose not permitted under this chapter shall be liable to the individual to whom the information pertains, who may bring a civil action …" While the statute enumerates 14 exceptions to the general prohibition, the Court of Appeals affirmed the District Court’s conclusion that union organizing was not listed among the 14 "permissible uses." 

The Court’s majority rejected the Union’s assertion that there were two exceptions which made its tagging permissible: the "litigation" exception and the "acting on behalf of the government" exception. The Court’s majority reasoned that it did not matter whether the Union may have used the confidential information for either of these permissible purposes because it clearly admitted using the information for an impermissible purpose, union organizing. It was on this point that Judge Sloviter dissented. She asserted that summary judgment should not have been granted, so that a jury could determine whether the Union’s "primary purpose" in obtaining and using the confidential information was to monitor potential legal violations by Cintas, a permissible use under the statute.

The Court also reversed the lower court’s finding on punitive damages, holding that the plaintiff employees were entitled to a jury trial on their punitive damages claim. However, the most substantial impact of the Third Circuit’s decision may be in its clear message to union organizers: tag at your own risk. And employers may be heartened to know that if, as many expect, the Employee Free Choice Act is soon enacted, unions will be far less likely to use tagging in their quest to obtain those valuable authorization cards.

 

President Bush will sign legislation amending the Americans with Disabilities Act, which overwhelmingly passed through Congress. The ADA Amendments Act is designed to convey Congressional intent that “the primary object of attention in cases brought under the ADA should be whether entities covered under the ADA have complied with their obligations, and to convey that the question of whether an individual’s impairment is a disability under the ADA should not demand extensive analysis.”

The goal of expanding the coverage of the ADA is achieved by changing the definition of “disability” to:

  • Prohibit the consideration of measures that reduce or mitigate the impact of impairment—such as medication, prosthetics and assistive technology—in determining whether an individual has a disability under the law.
  • Cover workers whose employers discriminate against them based on a perception that the worker is impaired, regardless of whether the worker has a disability.
  • Clarify that the law provides broad coverage to protect anyone who faces discrimination on the basis of a disability.

Congress expressly reversed several Supreme Court decisions that restricted the scope of the ADA. Congress rejected the standard that ameliorative effects of mitigating measures must be considered in determining whether a person is disabled found in Sutton v. United Air Lines, Inc. Congress also rebuked the Court in its restrictive interpretation of “disability” by rejecting the terms “substantially limits ” and “significantly restricted” because the terms as outlined in Toyota Motor Mfg, Kentucky, Inc. v. Williams are too narrow.

 

The ADA amendments will  refocus disability discrimination lawsuits downplaying the examination of whether an employee meets the definition of disability.  Daniel Schwartz of the Connecticut Employment Law Blog discusses the practical impacts.

Lehman Brothers, a 158-year-old investment bank choked by the credit crisis and falling real estate values, filed for Chapter 11 protection in the biggest bankruptcy filing ever on Monday, putting its 25,000 employees worldwide on the unemployment lines or waiting for a selloff to another company. Chapter 11 bankruptcy filing allows a company to restructure its debt and contracts. The restructuring process has many impacts on employees including the following:

  • All equity-based compensation may be worthless. Employee stock options, ESOP holdings, Stock Appreciation Rights and other compensation and incentives tied to the value of the company’s stock may have no value or minimal value once the company emerges from bankruptcy. Lehman Brothers employees owned a large share of the company through its ESOP.
  • Company 401k matches made in company stock may also be worthless.  Employees can take a big hit to their retirement accounts when the company matches 401k contributions with its own stock.
  • Employment and union contracts may be voidable.
  • Employees may lose their jobs through downsizing and reorganization of the company.
  • Remaining employees may be poached by competitors or leave because of the uncertainty created by the bankruptcy.

Given the uncertainty created by a bankruptcy filing, Human Resources must communicate with employees concerning their future with the company. Matthew Angello is Founder and Principal at Bright Tree Consulting Group (www.brighttreecg.com) a leadership coaching and consulting company located in Lancaster, PA.   Matt has a wealth of experience in the strategic importance of communication and his commentary is as follows:

 

Having experienced leading an organization through Chapter 11 when I was the head of HR for Armstrong World Industries, I can personally attest to the power of regular and strategic communication with employees. In my current practice, I coach CEOs and other senior executives of the importance of communication, even to the extent that I call them the CCO (Chief Communication Officer).

 

In bankruptcy, the communication “ante is upped” by an order of magnitude. Even in normal business conditions, an information vacuum leads employees to “fill in the blanks” regarding the direction and vitality of the business, leading to loss of focus and compromised results. In bankruptcy, because the stakes are so high, information voids take on a more insidious nature as the workforce becomes fixated on the “rumor du jour” as opposed to those activities that are necessary to drive results (and ultimately facilitate the best outcome for all stakeholders).

 

Like any other successful aspect of the business, communication (especially during bankruptcy) must be strategic, planned, targeted and implemented. Informal channels cannot be relied upon during bankruptcy because the specific and technical content of the communication is vitally important. Put a plan together that includes regular written updates to employees, postings on the company intra-net (if you have one), and most importantly, regular briefings from the CEO (face to face or video presentations). The strategic communication plan should govern the frequency of the various forms of communication. I strongly advise that no more than a one-month interval between formal written communication and three months between all employee meetings. Even if there is little “new news” to report, these tools will be highly effective at blunting the “mis-information superhighway” that is prone to develop in a company in financial distress.

The specter of business failure and personal financial setbacks wreak havoc on employee morale challenging Human Resources with dual management problems. First, HR needs to formulate a communication strategy to address the concerns of employees surrounding job security and compensation. Employee jitters surround the viability of their employer and the security of their jobs. Retirement savings evaporate as the stock market plummets leading some to forego matching 401k contributions. Compensation packages and incentives tied to stock continue their downward spiral. Wordsmith the message that the CFO might send out: “They are lucky to have a job.”

Second, HR must manage the collateral effects of an employee’s personal financial problems, which can lead to bankruptcy, foreclosure and even divorce, any of which may influence his or her job and job performance. Businesses must be prepared to respond to employee performance issues created by financial problems. Employers should be aware of legal limitations placed on their actions with regard to an employee’s financial problems. In addition, human resource professionals should appreciate the relationship between their performance management program and other resources to address employee issues created by financial distress.

 

Pennsylvania and federal laws limit actions employers may take against employees that file for bankruptcy or are subject to wage attachments. Many employers, particularly those in the financial sector, face customer relation problems when one of their employees does not pay his or her bills or files for bankruptcy. Legal limitations on employer responses are as follows:

  • Garnishment/Attachment of Wages. Pennsylvania prohibits garnishment/attachment of wages for the repayment of personal debts, except in limited circumstances for child support, alimony or student loans.   Employees may not be disciplined, discriminated against or discharged because of wage garnishments.
  • Employee Bankruptcy. Section 575 of the Bankruptcy Act protects employees and applicants from discrimination if an individual:(1) is or has been a debtor under this title or a debtor or bankrupt under the Act; (2) has been insolvent before the commencement of a case under the Act or during the case but before the grant or denial of a discharge; or (3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Act. Courts have limited the reach of this provision by requiring that the discrimination be "solely because" of the individual’s bankruptcy participation.
  • Worries about Temptation for Theft. Businesses may become concerned that an employee in financial distress may be more likely to embezzle and react by trying to find out the scope of an employee’s credit problems. The Fair Credit Reporting Act limits an employer’s use of employee credit information. A business’ usual financial controls should be uniformly applied, but, if inadequate, should be revised for all employees.

Employees experience financial distress are subject to performance problems including declining productivity, absenteeism and depression.  The usual performance management tools can be used: however, special attention should be paid to other resources like the EAP and Debt/Credit counseling.

 

On September 3, 2008, the EEOC issued "a comprehensive question-and-answer guide addressing how the Americans with Disabilities Act (ADA) applies to a wide variety of performance and conduct issues."  The guidance contains a brief introductory section that includes some general legal requirements and definitions and then sets forth 30 questions and answers on various ADA-related subjects, including performance, conduct, and attendance issues, dress codes, drug and alcohol use, and confidentiality. Included within the EEOC’s answers are numerous points of generally applicable "practical guidance."

The EEOC’s new guide does not have the legal effect of federal regulations or change the ADA’s existing accommodation and discrimination requirements. It does, however, contain a useful resource on an often difficult and complicated issue, namely what to do when an employee’s performance or conduct problems may be, or are, caused by a disability. Among the guidance provided by the EEOC are the following:

 

Job Performance

 

  • An employee with a disability may be required to meet the same production standards, whether quantitative or qualitative, as a non-disabled employee in the same job. Lowering or changing a production standard because an employee cannot meet it due to a disability is not considered a reasonable accommodation.  However, a reasonable accommodation may be required to assist an employee in meeting a specific production standard.
  • An employer should evaluate the job performance of an employee with a disability the same way it evaluates any other employee’s performance.
  • If an employer gives a lower performance rating to an employee, and the employee responds by revealing she has a disability that is causing the performance problem, the employer still may give the lower rating. If the employee states that her disability is the cause of the performance problem, the employer should follow up by making clear what level of performance is required and asking why the employee believes the disability is affecting performance. If the employee does not ask for an accommodation, the employer may ask whether there is an accommodation that may help raise the employee’s performance level.
  • Ideally, employees will request reasonable accommodation before performance problems arise, or at least before they become too serious. Although the ADA does not require employees to ask for an accommodation at a specific time, the timing of a request for reasonable accommodation is important, because an employer does not have to rescind discipline (including a termination) or an evaluation warranted by poor performance.

Conduct Problems

 

  • If an employee’s disability does not cause the misconduct, an employer may hold the individual to the same conduct standards that it applies to all other employees. In most instances, an employee’s disability will not be relevant to any conduct violations.
  • If an employee’s disability causes a violation of a conduct rule, the employer may discipline the individual, if the conduct rule is job-related and consistent with business necessity and other employees are held to the same standard. The ADA does not protect employees from the consequences of violating conduct requirements, even where the conduct is caused by the disability.

Attendance

  • An employer may have to modify its attendance policies for employees with a disability as a reasonable accommodation, absent undue hardship.
  • Although employers may have to grant extended medical leave as a reasonaable accommodiation, they have no obligation to provide leave of indefinite duration.  Granting indefinite leave, like frequent and unpredictable request for leave, can impose an undue hardship on an employer’s operations.

The effective date of Pennsylvania’s Clean Indoor Air Act is fast approaching leaving many employers with questions about what they should be doing to comply with the new law. Here are some steps that employers may wish to consider in fostering good employee relations and avoiding the civil and criminal penalties associated with violations of the CIAA:

Get Familiar with the Requirements of the Law. An Employer Toolkit is available from the Department of Health setting out the basic requirements of the law. We have posted on the CIAA as follows:

Pennsylvania enacts Clean Indoor Air Act Prohibiting Smoking in most Public Places including Workplaces

Department of Health Issues Guidance for Employer Compliance with the Pennsylvania Clean Indoor Air Act

 

Post Required Signage Designating Nonsmoking Areas. Employers must post signs prohibiting smoking in the workplace and designating outdoor smoking areas that are not too close to entrances or exits. Downloadable signs for both “No Smoking” and “Smoking Permitted” in English and Spanish are available from DOH.

 

Adopt a Policy on Workplace Smoking for Employees and Customers. Adopting a policy is not an express requirement of the law but makes good sense for effective employee communications and to establish the employer’s good faith defense to civil and criminal penalties under the law. The DOH (through its partner PACT) has a sample policy, which I do not recommend. At a minimum, a policy should designate the all indoor workplace areas as nonsmoking and, if elected, those outdoor areas where smoking is permitted. Other restrictions on smoking such as time and frequency of breaks should be addressed. The consequences of violating the policy should be set forth along with acknowledgment of the CIAA anti-retaliation provisions for employees who complain about violations.

 

Conduct Training for Supervisors and Employees. Employers should notify employees of the new law and its restrictions either in conjunction with introduction of the policy or otherwise. Avoid pitting the smokers against the nonsmokers. This is a state law, you don’t have a choice. Mention of the criminal fines and consequences of violation of the law is appropriate.

 

Consider a Smoking Cessation Program to help Smokers Adapt to the New Law. As mentioned previously, the CIAA may be a chance to offer a wellness program including a smoking cessation component.

Tobacco Free Workplace Policies may be integrated with Wellness Programs

 

Apply for Necessary Exemptions.  Drinking Establishments, Cigar Bars, and Tobacco Shops should apply for an exemption if they intend to allow smoking under the exemptions provided in the CIAA. 

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.