In my prior post, I wondered aloud whether there were some rough waters ahead for employers.  Apple recently announced that it would not meet it’s earnings estimates in the first quarter of 2019, in part because of soft demand from China. Other companies are expected to announce some similar issues.

Honestly, I’ve had enough conversations in the last few years with HR professionals who just haven’t lived through a major downturn.

Think about this way: For anyone who joined the workforce since 2010 or so, the era of massive layoffs in the financial and automobile sectors had just passed.

But fortunately, there are still a few of us around who remember.

So here are four things to think about:

  • Performance Reviews.   Why? Because when a downturn hits, your company will need to start a selection process as to who stays and who goes.  Inevitably, you will start looking at performance reviews to see about ranking employees.  You know what you might find? They all start looking alike. Everyone is slightly above average.   While I’m not suggesting everyone convert to a forced ranking system, your performance reviews should be honest indicators of how an employee is doing. Take a look at the ones you are doing this quarter.
  • WARN.  The Workers Adjustment and Retraining Notification Act  is one of those federal laws that you might not have even heard about. But if your company has 100 or more employees, you should. It requires that 60 days notice be given in instances of a mass layoff or plant closing. Before you go down the road of layoffs, you may have obligations to notify your workers and the government of the potential for layoffs. Be sure to comply.  Here’s a brief recap.  
  • Consider a Statistical Analysis.  I know — you didn’t like math in high school. But trust me: There is an entire profession of statistical experts available to help you figure out if the proposed layoff may have a disparate impact on a protected class of workers.  How is this done? You look at the class of workers that may be impacted by the proposed reduction in force and have an analysis done to see whether your neutral criteria may not be so neutral after all. Sometimes there are explanations for the disparate impact; but sometimes, the analysis can force employers to take a second look. Regardless, this can be an important step.  Just make sure to use an attorney to help give guidance here.
  • Understand the OWBPA.  It stands for the Older Workers Benefit Protection Act and it’s part of the federal law on age discrimination.  And if you want your employees to sign separation agreements (as I think you should) when you do your layoffs, your agreements better comply with this act.  I did a recap in 2008 that still holds up today.  

Before you have a crisis on your hands, talk internally about what the reasonable expectations for 2019 are going to be. If a possible cutback to personnel is even being discussed, now is the time to get ahead of things.

You do a blog long enough and everything comes full circle.  Back in January 2008, I took out my crystal ball and suggested that reductions in force (RIFs) and lawsuits would soon follow.

We all know what happened next. The economy crashed and discrimination claims at the EEOC peaked at their highest levels in more than 20 years.  

So here we are 11 years later.  A whole generation of HR professionals have never experienced a significant downturn.  Are we headed there again in 2019?

I’ll leave that to the economists and politicians.  Two weeks ago, the stock market was topsy-turvy. Now, we seem pre-occupied with the partial government shutdown.  And at least in Connecticut, new Governor Ned Lamont has a plan for growth, growth, growth.

But it’s worth considering whether your company is even prepared for a downturn, even if it still is many months away.

Again, we can first look to history. As I said back in 2008:

What is a reduction in force? Really, just a lawyerly way of saying “layoff”. Back in the early to mid 1990s, lots of companies went through them.  And the number of lawsuits arising from those reductions went through a major peak in 1995 or so.

But these types of lawsuits rise and fall with the economy.  When the economy is good, lawsuits go down. When it’s not so good, they go up. One reason is that when people can find another job quickly (i.e. the unemployment rate is low), then tend not to sue as much.

And even back in 2008, I noted that things might be different for employers and indeed they were.  The rise of the internet-fueled lawsuits have been a reality. Here was my prediction back then:

One more factor suggests to me that more lawsuits are on the horizon — it’s much easier for a few employees to band together than in the past. Previously, people would have to use their existing networks to find laid off employees to hear their stories (indeed, outplacement firms were a good source for employees looking to talk with other laid off workers). But now, with the rise of social networking sites, it seems only a matter of time before a group of employees will form a Facebook or MySpace page to compare experiences.  Employees from around the country can share information instantly, making it much easier to figure out if there are trends associated with the layoff that may give rise to a lawsuit.

Just as Uber or the employers in Connecticut facing class action lawsuits that one firm puts on their website have found out.

What’s an employer to do? I’ll tackle that in my next post.

One of the better programs run by the Connecticut Department of Labor that gets almost zero publicity is the “Shared Work” program.  For employers, it’s a useful tool when you’re dealing with a temporary slowdown in work.

I talked about it five (!) years ago in the midst of the recession so I’m not going to rehash it here.

But here’s what’s new:

The CTDOL just released new regulations to make the program available to more employers and released a new brochure about the program as well. As the CTDOL stated in a press release this month:

As a result of recent changes to the state’s Shared Work Program, eligibility criteria for employers qualified to participate in this unemployment insurance program has expanded and now offers companies more opportunities to take part in the program and thus avoid laying off skilled workers.

The state’s Shared Work program, administered by the Connecticut Department of Labor, can provide partial unemployment benefits to employees when a company is experiencing a temporary economic downturn and wants to avoid layoffs. The goal is to retain skilled workers so companies can quickly return to full strength when the business climate has improved.

As of July 1, employers now qualify for the program when faced with the need to reduce the hours of its permanent full-time and/or part-time workforce by 10 to 60 percent. Prior to the change, companies could only qualify if work hours were reduced between 20 and 40 percent, and eligible employees were required to be full-time workers.

According to State Labor Commissioner Sharon M. Palmer, the program now allows a company to apply if it has at least two employees affected by the change in hours worked. Prior to the July 1 change, the minimum requirement for eligibility was four employees. In addition, the Labor Department will also be able to provide a dependency allowance to those employees taking part in the program that have qualifying dependents on their unemployment insurance claim.

In other words, if you were interested in the program before but didn’t think your business qualified, you may want to look at it again.

While not widespread, the program does have the involvement of over 100 employers in the state.  For more information about the program, contact your local counsel or contact the Connecticut Department of Labor.

Last month, I highlighted a federal case in Connecticut where the court threw out an age discrimination claim because the evidence presented by the employee was not strong enough to survive a summary judgment claim.

A new federal court case however has allowed an age discrimination claim to proceed even while noting that while the evidence was "somewhat tenuous". 

So what tipped the balance here? For one thing, it wasn’t a 50th birthday party thrown on behalf of the employee. But the court said that the statistics of a reduction in force and the allegedly shifting reasons by the employer were just enough.

Background

In Edwards v. Williams Raveis Real Estate, Inc. (Sept. 21, 2010, Hall, J.) (download here), the Plaintiff was hired in 2004 to work as a Purchasing Director; she was 46 years old at the time.  She was promoted to Vice President of Facilities and Purchasing in early 2006 and fired two years later at the age of 50.  

According to the court (and viewing the facts in a light most favorable to the employee — as required at this stage of the case), she received multiple pay raises and positive performance reviews.  

But in late 2007, the Vice President of HR decided to throw the plaintiff a birthday party and placed various "age-related gag decorations around the office." Other similar parties had been held that year for two other employees.  At the party, other employees allegedly referred to her as "very old", "really, really old" and "over the hill".

Within a month or so of the party, the plaintiff was allegedly instructed to train someone on ins and outs of the department she was running.  This other employee — four years younger than the plaintiff — allegedly took over the responsibilities when the plaintiff was terminated as part of a reduction in force in April 2008. 

Birthday Party Not Enough But…..

The court first rejected the idea that the birthday party itself can give rise to an inference of discrimination.  "While the court may question the wisdom of throwing birthday parties at offices
with age-related gag decorations, the throwing of such a party, on its own, does not
create an inference of discriminatory intent on the part of Raveis."  The court found that the comments made at the party do not supply the necessary inference given the context and the "relatively innocuous content."

The court also said that the age difference between the employee and the alleged replacement was also not enough.  "The difference in age…neither supports nor disables an inference of age discrimination".  The court though rejected the application of a same actor inference to benefit the employer since the plaintiff has "categorically aged since the time of her time (…now being ‘in her fifties’ instead of ‘in her forties’)"

But the statistics of the reduction in force were enough for the court to let the case survive summary judgment finding that the layoffs skewed towards the older population (despite the relatively small sample size) and the timing as well (shortly after her birthday party).  Having found an inference of discrimination, the court also looked at the overall explanation given by the employer and found inconsistencies in the reasons provided. There was virtually no documentation supplied and, in the court’s view, it seemed to go against the positive reviews the employee had received previously.

What’s the takeaway from this case?

First, beware the birthday parties. They may be good morale boosters but some people may find them distasteful.  In any event, keep the age-related jokes to a minimum. 

Second, be consistent in the reasons for the termination and make sure they are well-documented.  Any alleged inconsistencies will be construed against the employer. 

Last month, I discussed the topic of furloughs, which have become an attractive option to employers in lieu of layoffs.

Recently, the United States Department of Labor issued a "fact sheet" that provided additional guidance for employers to some frequently asked questions on the topic. 

As the Employer Law Report said,  "While the fact sheet contains no new law or interpretation, in these economic times, it is extremely helpful for employers to have the DOL’s prior guidance on these issues consolidated in one sheet."

Among the questions that the guidance seeks to address:

  • If an employer is having trouble meeting payroll, do they need to pay non-exempt employees on the regular payday? (Yes)
     
  • Is it legal for an employer to reduce the wages or Photo Courtesy Library of Congress circa 1943number of hours of an hourly employee? (Yes, if minimum wage and overtime laws are followed)
     
  • Does an employer need to pay an hourly employee for a full day of work if he or she was scheduled for a full day but only worked a partial day due to lack of work? (No)
     
  • In general, can an employer reduce an otherwise exempt employee’s salary due to a slowdown in business? (Not for back work, though an employer and prospectively reduce future compensation so long as other tests are met.) 
     
  • Can an employer reduce the leave of a salaried exempt employee? (Yes, though in Connecticut, consider whether such leave is akin to accrued vacation.) 
     
  • Can a salaried exempt employee volunteer to take time off due to lack of work? (Yes, which allows an employer to deduct for a full day absence, but the voluntary nature of this will be challenged greatly.)  

Employers in Connecticut should continue to be aware that state labor laws may apply as well. (There are other options for companies facing difficult economic times, as well, such as the shared work program.) But the newest guidance provided by the U.S. Department of Labor will be a good start for employers having to deal with this thorny issue.

One of the latest fads in employment law has become a peculiar side effect of this recession — the increase in the usEmpty officee of mandatory furloughs.

What are they? Well, in simple terms, they are orders from an employer to an employee that they take a day (or multiple days) off without pay. In doing so, the employee is to refrain from working.

An excellent post up this morning on the HR Daily Advisory site, runs through the risks of using furloughs, particularly for exempt employees.  Indeed, the title is particularly apt – "Attractive, but Legally Tricky".

There are plenty of traps for employers to fall into. An employer, for example, may decide to reduce salaries by 20% and then reduce workweeks by one day a week.  The post suggests that in general, this approach may not work because of the Department of Labor’s pronouncement that "reducing exempt employees’ work schedules with a corresponding reduction in salary because of lack of work violates the salary basis test."

The post does suggest a ray of hope, though:

The DOL further clarified that an employer may make a "fixed" and "permanent" decision to reduce the hours and corresponding pay for exempt employees. For instance, an employer could reduce the work schedule for the year from 52 five-day workweeks to 47 five-day workweeks and 5 four-day workweeks, and also reduce the pay of exempt employees as a result of the shortened workweeks.

The linchpin of the distinction between this permitted approach and the impermissible hours reduction is the permanence of the schedule reduction as contrasted to a temporary reduction in the normal scheduled workweek to address a short-term work slowdown or temporary economic conditions.

So, for employers considering using mandatory furloughs as a way to keep their workforce intact through this recession, be careful and cautious.

At a CBIA seminar yesterday where I spoke, several speakers discussed the challenges that exist for companies in these economic times. One CBIA economist projected that the current recession will not bottom out in Connecticut until late summer or fall 2009.

But the times also present opportunities, as well, the speakers said. Indeed, now may be the time for companies to find and recruit terrific talent that may be available in the labor market through no fault of their own.

Indeed, an article in today’s BusinessWeek suggests that for small companies, now may be a great time to make such an investment.

Still, despite the overall gloomy forecasts, the downturn also presents hiring opportunities for small businesses. For starters, there is a huge wealth of talented applicants in search of work at the moment. "If you want to hire someone today, it is like buying a car or house," says [one economist]. "Employees are cheap, good, and readily available. Nobody is complaining about the quality of applicants. The choices you have now are much improved." … "If you are a buyer of labor, this is a buyer’s market."

The major job cuts at large corporations also translates into a boon for small business owners who have the resources to hire workers who were perhaps unattainable previously. In November, the Computing Technology Industry Assn., an information technology trade group based in Oakbrook Terrace, Ill., published a survey that showed that 85% of the 772 small- and medium-size businesses in the U.S., Canada, and Britain that it questioned planned to hire new employees within the next 12 months. And in a slight shift away from the deluge of dreary numbers, SurePayroll, the Glenview (Ill.) payroll administrator that tracks small-business hiring trends, reported in November that 214 small businesses that participated in its survey increased their hiring by 0.26% to 3.3%, year-to-date.

Of course, there is a word of caution as well.  If employers are laying off staff for "financial reasons" and then hiring new staff to fill those positions, it will have some explaining to do. On the other hand, if the company wants to shed some of its poorest performers (and tells them that their employment is terminated for performance-related reasons) and cherry-pick from the talent available, now may be a good time to do so.

For anyone who watched 60 Minutes last night, you know that there is a great deal of pessimism out there about how quickly this recession will end.

Employers are struggling to control costs and keep layoffs to a minimum. A new, thoughful article by the Wharton school suggests that employers be innovative in their approaches to dealing with this economic crisis.

[Wharton Professor Peter] Cappelli suggests that it’s worth thinking about what kind of problem a company is trying to solve. If there is a concern about what happens when business activity picks back up, for example, companies that hold on to their workers would be in much better shape than companies that have undergone large-scale layoffs.

The costs of layoffs go beyond the morale problems they cause — both for those laid off and those who keep their jobs. Unemployment insurance premiums spike. Depending on the company, there are severance packages to consider and outplacement services (costly in these days of bigger demand for them). Litigation is a not insignificant risk. Cappelli suggests that if a company can cut back without instituting layoffs, it should do so. "Then you don’t have those start-up costs" once things are back on track.

On the other hand, there’s nothing like a good economic downturn to get rid of dead wood. A sagging economy can be an opportune time for management to deal with performance problems by using the bluntest instrument possible, Cappelli says. Firing people is often difficult to execute, but an over-arching justification tends to lessen complications.

The subject of alternatives to layoffs is almost always seen from the point of view of the employer, he adds. It would be a rare employee who suggests his or her hours be cut. But executives can share the decision by asking for voluntary pay cuts in exchange for some sort of deferred compensation, such as shares of stock or extra vacation.

In giving my presentation tomorrow on the subject of RIFs, the article’s points are timely.  Layoffs are never easy and coming up with solutions to lessen the impact may make the company stronger in the long-term. 

Ultimately, if company does decide to conduct a round of layoffs, making sure that it has considered alternatives will only strengthen the company’s rationale for the layoff (thereby preserving a valuable legal defense).

With all the talk about layoffs, separation agreements have moved front-and-center to the discussion on how companies can reduce their liability exposure.

But how much severance should a company offer to its employees when laying them off?

There is, of course, no set rule in Connecticut — or the United States — on how much severance is warranted under the circumstances. But one study released last week suggests some benchmarks.  (H/T to Pennsylvania Labor & Employment Blog and Compensation Force).

The survey, by Right Management, found that U.S. employees typically earn the following amounts of severance (which represents mean weeks of severpublic domain - from wikipedia common imagesance for each year of service)

Voluntarily Separated:

  • Top Executives – 2.76
  • Senior Executives – 2.23
  • Department Heads/Managers – 1.55
  • Professional/Technical – 1.39
  • All other employees – 1.23

Involuntarily Separated:

  • Top Executives – 3.04
  • Senior Executives – 2.49
  • Department Heads/Managers – 1.78
  • Professional/Technical – 1.60
  • All other employees – 1.44

In advising employers, several seem to have adopted the one week or two weeks per year of service formula.  But in doing so, the employers provide the severance only in exchange for a full release of claims by the departing employee. 

Just be sure that when setting up the release, that you comply with the various rules associated with such agreements, including the OWBPA.  

The headlines over the weekend for Connecticut have not been kind.  Two were particularly striking. First, the Courant ran a story entitled "Sizable Job Losses Expected in State".  The second wCourtesy morgue file "depression"as a story about the expected closing of The Goodwin Hotel, one of Hartford’s premier hotels. 

Both indicate a local economy that is teetering between lousy and downright awful.  As a result, there is likely to be more unemployment .  And with that, more people will be considering filing suit; such is the nature of economic downturns.

For those companies looking for a free primer on the subject of wrongful discharge claims in the state, the Connecticut Law Libraries have just posted a pretty good website with links to a variety of key statutes and summaries.  (You can also save the date of December 16th; I’ll be presenting a program for the CBIA on reductions in force as well.  Details are forthcoming soon.)

Although times may be looking bleak, companies should still not ignore the law at this point.  A prior post earlier this year focused on five issues that employers should become knowledgeable on in this economic downturn. (You can also click here, for all of my reduction in force posts.)  For employers, ask yourself how prepared you are to confront these issues.  Preparation is the key and often, when layoffs are needed, they always seem to need to occur in just a few days time.

For companies looking for other ways to save costs, the Ohio Employer’s Law Blog has an interesting post up this morning about the risks that increase with such an action.

Times are tough, but employers that abide by the law can ensure that they don’t compound the issues and financial difficulties that they may already be facing.