Haynes and Boone's Newsroom

Coping With a Slowing Economy
04/01/2001
Jonathan C. Wilson

According to the Department of Labor, nearly 16,000 companies implemented layoffs in 2000, resulting in 1.8 million persons filing claims for unemployment. Recent headlines reveal that this trend is continuing, affecting not only start-up "dot.com" companies, but employers in manufacturing, distribution and telecom industries. When employers conduct workforce reductions, they are learning that a myriad of employment/labor laws come into play:

• Ex-Amazon Workers Urged Against Deal - Union activists are attempting to convince 1300 laid-off Amazon workers not to agree to the company's severance agreement. Allison Linn, FINDLAW LEGAL NEWS, Feb. 9, 2001. 
  
  
• In Dot-Com Crash, Parachutes Are Scarce - Attorneys General are filing suits against failing technology companies for not complying with the federal Worker Adjustment and Retraining Notification (WARN) Act. Carrie Johnson, WASHINGTON POST, Jan. 31, 2001.
  
  
• Dot-Coms May Need Crash Course in Labor Law Amid Broad Layoffs - Technology companies faced with layoffs are finding themselves surprised by federal laws such as the WARN Act. Stephanie Miles, WALL STREET JOURNAL, Jan. 30, 2001.
  
  
• On the Firing Line - Employers in the Internet industry are finding themselves tangled in legal troubles stemming from a wide range of labor and employment laws, including pregnancy discrimination suits and unfair labor practice charges. Laura Roe Stevens, LAW.COM, Jan. 30, 2001.

These headlines are the tip of the iceberg. Beneath each one is a recurring story of rising unemployment, employees' dashed expectations and their willingness to go to court, seeking significant damages for real and perceived wrongs. Employers who want to avoid these treacherous waters should evaluate:

• Did You Make a Promise? - Determine the existence of employment agreements or contracts, including offer letters. What promises, if any, were made relating to termination of employment, payment of severance or accrued bonuses? Review your benefit plans, including stock options, to see what obligations have vested. Now may be a good time to review your policy manuals, benefit plans and compensation structure, including bonus plans.
  
  
• Your Selection Criteria Will be Scrutinized - Federal and state laws prohibit employment decisions based on protected categories. Although employers are aware of these requirements, they are often surprised when government agencies or private attorneys challenge their decisions. Employees may feel their selection for termination was unjust when compared to individuals who were retained, and may point to other job opportunities within the company that were available but for which they were not considered. Internal consistency and documentation are critical in order to successfully defend discrimination claims. Have you evaluated your selection criteria to ensure that there is not an adverse impact on protected groups? Preventative action now can avoid costly litigation in the future. Will you be able to prove that your process was objective and supported by legitimate business reasoning?
  
  
• Your Waivers Must be Knowing and Voluntary - If you seek waivers of legal claims, you must offer sufficient consideration and must draft the waiver carefully to avoid it being invalidated by inclusion of tender-back language or other impermissible provisions. In addition, the OWBPA requires disclosure of information regarding the ages of employees impacted by the adverse employment action.
  
  
• Vulnerability to Union Activity - Perceptions of unfair treatment, abrupt changes in policies and uncertainty about the future are all flashpoints for potential union-organizing activity. Employers who ignore well-established "signs" may find themselves embroiled in a bitter union organizing. Worse, supervisors often do not know how to lawfully respond to union issues, compounding the problem with expensive, unfair labor practice charges. A thorough Labor Relations Audit and Supervisory Training can often uncover potential problems before they become a reality.
  
  
• Confidential Information and Assets Deserve Special Protection - Employers often have legitimate reasons to require that employees not disclose confidential information about the Company which could give competitors an unfair advantage. Waiting to address these matters at the time of termination is often too late. Advance consideration should be given to ensuring that the covenants you require from employees are enforceable. When implementing reductions in force, arrangements should be made to allow employees limited access to clean out their personal effects, while protecting the facility and equipment from sabotage and theft. Company property that has been taken off the premises must be retrieved.
  
  
• Mass Layoffs Require Notice - Federal law (and many states) require advance written notice to affected employees, union representatives, state employment agencies and local government when large groups of employees are let go. Under The Worker Adjustment and Retraining Notification Act, small groups of layoffs may be aggregated to trigger notice requirements and an obligation to pay employees back pay.
  
  
• Medical Insurance Matters - Under COBRA, most employers must give written notice, offering departing employees the chance to continue under their current group health plan for up to 18 months. Notices of creditable coverage must be issued under HIPAA, to help employees avoid costly pre-existing condition exclusions with their next employer.
  
  
• Final Pay Must be in Full and Timely - Texas and many other states have payday laws that govern what must be included in final pay (to include accrued and unused vacation, in some states) and when it must be paid. In some cases, final pay must be given when the termination is effected.
  
  
• You May Not be Able to Recoup - Many states, including Texas, do not allow employers to reduce an employee's pay for amounts owed to the employer, unless the employee has authorized the specific deduction in writing.
  
  
• H-1B Visa Employees Require Special Treatment - Employers must provide travel costs to employees on H-1B visas, so that they can return to their country of origin unless a prospective employer hires them and files a new petition on behalf of the non-immigrant employee.
  
  
• References Will be Sought - Too much information may trigger invasion of privacy or defamation claims. Do you have a plan for responding to requests for information on your former workers from prospective employers? A centralized source should be established for handling all requests for references.
  
  
• Records Must be Maintained - Federal laws vary as to how long an employer is required to maintain employment and compensation records. Do you have a plan for retention of employment data? Do you know whether you must provide former employees with a copy of personnel files?