Strategies - Jackson Lewis

Seeing the Big Picture at eye LeveL: Working Smarter During the receSSion

Less than a year ago, we reported a finding from the Pew Research Center that one-quarter of middle class workers felt it somewhat likely they would suffer job loss sometime in 2008. The national unemployment rate stood at 5.5%, and job losses averaged 80,000 per month. In November, the National Bureau of Economic Research confirmed what most people already knew: the economy was in “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in

production, employment, real income, and other indicators” – a recession. What a difference nine months makes! In the spring of 2008, no one had heard of the Emergency

Economic Stabilization Act of 2008, or the “bailout,” the Troubled Assets Relief Program, or “TARP,” or the $787 billion “American Recovery and Reinvestment Act of 2009.” By January 2009, the unemploy-ment rate reached 7.6%, and the month’s loss of nearly 600,000 jobs was described by the Department of Labor’s Bureau of Labor Statistics as “large and widespread across nearly all major industry sectors.”

Workforce Restructuring: The Risks and Rewards

Since the start of the recession in December 2007, 3.6 million jobs have been lost – half of them in November and December 2008, and January 2009. Many employers have been forced to announce layoffs, and all indications are the unemployment claims numbers will continue to climb past the 6.5 million mark reported in the first week of February, more than double the number a year ago.

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S t r a t e g i e sPREVENTIVE

EmPloymEnt, labor, bEnEfits and immigration law for EmPloyErs

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EdiToRial BoaRd Roger S. Kaplan Mei Fung So Margaret R. Bryant This bulletin is published for clients of the firm to inform them of labor and employment develop-

ments. Space limitations prevent exhaustive treatment of matters highlighted. We will be pleased to provide additional details upon request and discuss with clients the effect of

these matters on their specific situations. | Copyright: © 2009 Jackson Lewis llp Reproduction in whole or in part by any means whatsoever is strictly prohibited without the advance

written permission of Jackson Lewis. | This Bulletin may be considered attorney advertising in some states. Furthermore, prior results do not guarantee a similar outcome.

PrEvEntivE stratEgiEs | first Quarter 2009 Jackson lewis llp

When the Situation Calls for Workforce Reduction

he decision to conduct an involuntary reduction in force has major implications for the entire workforce. It affects not only

those whose jobs will be terminated, but those who remain and those who must implement the program. Employers must be prepared to address a variety of time-sensitive and interde-pendent legal and practical issues, while continu-ing to manage operations and sustain morale.

For a detailed discussion of workforce reductions, see www.jacksonlewis.com/legalupdates/newsletters/pdf/222.pdf, Preventive Strategies: Managing Through difficult Times, 2nd Quarter 2008.

Compliance with legal obligations Triggered by Restructuring

A workforce reduction may trigger obligations under state laws dealing with payment of wages, insurance benefits continuation, severance benefits, letters of recommendation, personnel record access, plant closings, layoffs, and involuntary ter-mination, among others. These obligations often impose specific notice and time requirements.

In the midst of all the bad economic news, employers considering workforce restructuring must weigh the risk of incurring employee law-suits, agency charges, and other potential liability. “Employers have good reason to be concerned about the risk of lawsuits following a restructur-ing,” cautions Vincent a. Cino, National Director of Litigation. “Historically, age discrimination and other types of employment claims spike during periods of workforce restructuring. We already have seen Equal Employment Opportunity Com-mission charges of age discrimination rise from 16,500 in 2006 to over 19,100 in 2007. Undoubt-edly, the 2008 numbers will continue the upward trend for all types of employment claims.”

“Employee communications during this period are absolutely critical to obtain optimal buy-in,” says Susan McKenna, a partner in the Firm’s Orlando office. “Employees who feel their employer has been fair and respectful are less likely to file lawsuits or charges. Explain the organization’s financial position with a credible message about the need for cost-cutting measures. Communicate truthfully about what employees can expect in the future. Enlist the support and participation of retained employees to maintain morale and productivity. These measures can lower the chances of claims and charges.”

A “Best Practices” Approach

Using a “best practices” approach, employers look beyond strict legal requirements to the overall value of individual respect, fair and consistent treatment, and well-trained management to minimize legal challenges and show “good faith” compliance. In workforce restructuring, “best practices” may make the difference between a successful program and one that spawns costly and potentially devastating litigation. Whether an employer is reducing its workforce, cutting wages, hours, or benefits, or scaling back operations through other means, achieving “best practice” results requires it to:

Assess needs from top to bottom.

Articulate short and long term corporate objectives.

Identify available options.

Gauge the likelihood of legal challenges.

Implement a well-designed program, guided by industry concerns, corporate culture, and legal, ethical, and practical considerations.

■

■

■

■

■

“Historically, age

discrimination and

other types of

employment claims

spike during periods

of workforce

restructuring.”

T

impact on Pension and Benefit Plans

Workforce reduction may trigger vesting rights for certain employees, and may be a reportable event under ERISA. Terminations may consti-tute withdrawal from a multi-employer pension plan and substantial liability may be incurred. Eligibility criteria for severance benefits must be sensitive to age-related factors, which could trig-ger discrimination claims or ERISA obligations.

Of growing concern for some employers is the possibility of an employee lawsuit alleging a violation of ERISA’s fiduciary duty provisions as a result of 401(k) retirement account losses. “If company stock in a failing enterprise was one of the retirement account offerings, employ-ees suffering a resulting loss in account value may have a cause of action against the employ-er, in addition to any other job-related claims,” says ashley abel of the Firm’s Employee Benefits, Benefits litigation, and Privacy Practice Group. “Claims of this type would not be waived by a valid release at termination, and they often come in the form of class actions, making de-fense significantly more difficult and costly.”

WaRN implications and Contractual obligations

The federal Worker Adjustment and Retraining Notification Act and comparable state laws set out specific time limits and notice requirements for certain group termination programs, with costly penalties for noncompliance. Careful planning may avoid triggering these requirements or mini-mize the burden of compliance.

WARN requires covered employers to give at least 60 days’ notice in advance of a plant clos-ing or mass layoff. However, an employer may provide less than 60 days of notice if the closing or mass layoff is caused by business circumstances that were not reasonably foreseeable at the time the notice would have been required. Another more limited exception may be available for a “faltering company,” if the employer is closing down operations. In either case, the employer still must give as much as notice as possible, with specific additional requirements relating to the content of the notices.

“We are getting many more calls from employers asking about exceptions,” notes Penny ann lieberman, who regularly counsels employers about WARN obligations. “Most are concerned about the ‘unforeseeable business circumstances exception,’ since it applies both to plant closings and mass layoffs. There are WARN cases now moving through the courts

Jackson lewis llp PrEvEntivE stratEgiEs | first Quarter 2009

which are likely to find more employers able to satisfy the exceptions. However, what many employers do not realize is that the exceptions do not excuse an employer’s failure to provide notice.”

Employers also must examine their collec-tive bargaining agreements and other contractual employment obligations. The existence of a CBA or other contract of employment often means the employer cannot take unilateral action, which may complicate or prolong the decision-making, planning, and implementation process.

Selecting Employees for Workforce Reduction

One critical aspect of any layoff is identifying the criteria by which employees will be selected for termination. The selection criteria must be able to pass muster if the reduction program is subject to legal challenge. Therefore, the criteria should be based on explainable, quantifiable and objective factors. Consideration should be given on a non-discriminatory basis to employ-ees able to fulfill post-reduction job needs, or those meeting other predetermined conditions for retention.

Each candidate must be assessed for adverse impact under Title VII and the Age Discrimination in Employment Act of 1967. If there is a dispro-portionate effect on minorities, women, or work-ers 40 or older, those selections must be justified by business necessity or reasonable factors other than age. If unable to do so, alternate selections must be made. It is also important to screen for any candi-dates who may have a basis to claim retaliation.

action item

Since group termination programs carry significant risk of age bias litigation, conduct a statistical analysis of layoff selections prior to taking adverse action. The analysis will help to identify facially neutral criteria that may have a discriminatory impact on older workers.

Jackson Lewis attorneys routinely use statistical analysis to spot adverse impact in workforce reductions when advising employers. For more information about statistical analysis, please see our affirmative action Practice at www.jacksonlewis.com.

3

“Careful planning

may avoid triggering

WARN requirements or

minimize the burden of

compliance.”

4


“A long line of

DOL opinion

letters authorizes

prospective reductions

of exempt employees’

salaries and working

schedules in times

of financial hardship

so long as the purpose

of the changes is

not to evade the

FLSA’s overtime

requirements.”

Using Releases to avoid discrimination Claims

btaining releases and waivers of employ-ment-related claims from employees participating in voluntary and involuntary

group termination programs reduces employer exposure to individual and class-wide claims of discrimination dramatically. To be enforceable, releases must be supported by consideration in addition to any benefits to which employees are entitled as a matter of policy, contract, or past practice, such as severance pay or continuation of employee benefits.

O

Once a group termination program has been developed, it should be executed as quickly as possible. Meet individually with selected employees, follow a prepared outline, know how to answer questions, and provide all necessary documents and notices. Keep written notes of each interview; decide whether references will be provided. Treat employees respectfully and desig-nate a company official to conduct any follow-up. Employees in sensitive positions or who may pose a risk of harm should be handled with special security and safety measures to minimize disruption and misconduct.

Post-reduction job vacancies should be filled by transfers or promotions within the company when possible. Retained employees should be informed of the company’s desired goals and outcomes, and if possible, considered for efficiency incentives, productivity bonuses, additional training, or other assistance.

Administering a Workforce Reduction Program

action item

Releases of age-related claims under the ADEA from employees 40 or older must comply with the procedural and timing requirements of the Older Workers Benefit Protection Act.

Draft release language and execute all ADEA waivers in strict compliance with the OWBPA’s statutory requirements. Courts have found ADEA releases invalid for failing to meet just one of the many statutory requirements.

For a detailed discussion of the OWBPA release requirements, see www.jacksonlewis.com/legalupdates/newsletters/pdf/222.pdf, Preventive

Strategies: Managing Through difficult Times, 2nd Quarter 2008.

Easing the Transition to a leaner Workforce

n involuntary workforce reduction is a last resort for most employers. Alternative cost reduction measures, if available, may avoid

or minimize the need for a layoff. Early Retire-ment Incentive Programs (ERIP) and Voluntary Resignation Incentive Programs (VRIP) offer inducements for employees to leave voluntarily. Incentives may include enhanced pension ben-efits, severance pay, and extended health insur-ance coverage. Participating employees must agree to execute a general release and waiver of potential claims and to refrain from terminating employment prior to an agreed time.

The Employee Retirement Income Security Act regulates severance pay, health plan, and other documents used in connection with such programs, as it does employer commu-nications on changes to existing benefit plans. The Jackson Lewis Employee Benefits, Benefits litigation, and Privacy Practice Group is available to assist employers with ERISA compliance and other issues involved with restructuring. For more information, go to www.jacksonlewis.com.

Reducing Wages and Benefits May Provide Needed Flexibility and Savings

While many organizations have found it necessary to conduct voluntary and invol-untary group termination programs, a study reported in the Academy of Management Journal, April/May 2008, found average

A


action item

Although challenging, workforce restructuring can be accomplished with reduced legal risk and the potential for renewed profitability.

The assistance of experienced employment counsel will help an organi-zation become a stronger, more efficient, and more profitable business while avoiding liability for unlawful employment practices. Jackson Lewis attorneys provide counsel to unionized and non-union employers on employment law, benefits, and labor relations issues arising before, during, and after a reduction in force or restructuring. For more information, please visit www.jacksonlewis.com.

5

“The extended

election period does

not change the fact

that the individual’s

termination from

employment remains

the qualifying

event for purposes

of COBRA.”

turnover rates 2.5% higher at companies that downsize, with five times more employees leaving those companies of their own accord after the layoff. Such indirect effects may add to the attractiveness of less onerous measures, such as wage freezes, reduced working hours, and lowered pay and benefits. Nonetheless, employee backlash still may result. Reduc-tions in current levels of pay, hours of work, or benefits must pass muster under the Fair Labor Standards Act and applicable state or local wage/hour laws, ERISA and pension and welfare plan documents, and fair employment practices laws.

The Department of Labor generally recog-nizes that an employee’s exempt status under the FLSA will not be destroyed by a reduction in hours or compensation due to an “economic downturn.” Paul deCamp of the Wage and Hour Practice Group and former Administrator of the U.S. Department of Labor’s Wage and Hour Division, notes, “A long line of DOL opinion letters authorizes prospective reductions of exempt employees’ salaries and working schedules in times of financial hardship so long as the purpose of the changes is not to evade the FLSA’s overtime requirements. A one-time change, perhaps followed months later by a move back to the original salary level and work schedule, would probably not raise a significant risk of converting exempt employees into non-exempts. The real danger arises when changes back and forth from short weeks to long suggest that pay is based on the hours employees work, rather than the jobs they perform. Employers should proceed with caution.”

Employees on Family and Medical Leave Act leave may be subject to downsizing or reductions in hours, pay, or benefits, as long as the reduction would have been applied regard-less of the individual’s leave status. “Neither the FMLA nor ADA grants employees on leave any greater protection against RIF’s or reductions in pay, benefits, or hours of work than they would have had if they were actively working,” explains Frank alvarez of the disability, leave and Health Management Practice Group. “However, when asked to do more with less, managers may fall inadvertently into a trap if they retain employees based on attendance records. To avoid mistakes, employers should be prepared to articulate legitimate and non-discriminatory selection criteria and show that an employee’s use of protected leave did not influence decision-making.”

Economic Stimulus and Executive orders Sweep in New Requirements for Employers

he American Recovery and Reinvestment Act of 2009, signed into law by President Barack Obama on February 17, 2009, af-

fects employers in ways other than by creating the opportunity for new federal contracts. It also amends the Consolidated Omnibus Budget Reconciliation Act of 1985 to provide a tem-porary federal subsidy for COBRA premium payments. These amendments create additional COBRA notice requirements and affect pay-roll tax administration for every employer that sponsors an employee group health plan and has terminated or laid off an employee on or after September 1, 2008. Joseph lazzarotti of the Employee Benefits, Benefits litigation, and Privacy Practice Group, cautions that employers must act quickly to implement the new requirements. “Employers will need to locate certain former employees and coordinate payroll and COBRA administration to comply with the temporary subsidy requirements.”

For COBRA coverage periods beginning on or after February 17, “assistance eligible individuals” will be required to pay only 35% of the applicable COBRA premium. Employ-ers that provide group health coverage through insurance will need to cover the remaining 65% of the premiums until reimbursement can be requested from the federal government. Employers that provide coverage through insurance or self-insurance will be able to obtain reimbursement of the 65% premium subsidy as a credit against their quarterly

T

6


federal employment tax filings. Generally, the subsidy is available for up

to nine months but could end sooner (the statute does not extend the maximum COBRA con-tinuation coverage periods). Additionally, the subsidy will cease to be available for COBRA coverage following the date a covered individual becomes eligible for:

1) coverage under any other group health plan (other than one consisting only of dental, vision, counseling or referral services);

2) coverage under a health flexible spending account plan;

3) coverage of treatment at certain employer on-site facilities; or

4) Medicare or Medicaid.

Individuals who are or were otherwise eligible for COBRA continuation coverage, but who lost coverage under their employer-sponsored group health plan due to an involuntary termina-tion of employment between September 1, 2008, and December 31, 2009, and who elect COBRA continuation coverage are “assistance eligible individuals” under the Act. The Act includes a special extended election period for individuals who may have declined to elect COBRA con-tinuation coverage because of its cost when they were terminated. Employers must locate former employees, who previously declined COBRA, and provide notice of the right to COBRA coverage with the government subsidy. Cautions Mr. Laz-zarotti, “It is important to note that this extended election period does not change the fact that the individual’s termination from employment remains the qualifying event for purposes of COBRA.”

Stimulus Package and TaRP Funds Trigger More Than Hoped-for Economic Recovery

overnment funds under the American Recovery and Reinvestment Act of 2009 and the Troubled Assets Relief Program

may come with initial or increased obligations for employers on the receiving end, if the em-ployer receives $50,000 or more in exchange for goods or services it provides to the federal government. In that case, the affirmative action requirements of Executive Order 11246 would

be triggered, as enforced by the Office of Federal Contract Compliance Programs. Under current law, TARP funds recipients probably would not incur these obligations without an exchange of goods or services, but most already are government contractors with the resulting obligations.

“While there are no new requirements, employers becoming first time federal govern-ment contractors or subcontractors in any aspect of their businesses should take notice,” cautions Mickey Silberman, affirmative action / oFCCP practice area coordinator. “Additional affirmative action obligations may arise from the many state and local governments with their own coverage thresh-olds and requirements, as they award contracts funded with the federal stimulus dollars.”

New “labor Friendly” Executive orders Will apply to Federal Contractors

n January and February 2009, President Obama signed four new Executive Orders, which together will impact labor relations

for federal contractors.

n Notification of Employee Rights under Federal labor law requires qualifying federal contractors to post a notice advising employees of their rights to bargain collectively and to protection in the exercise of their right to association, self-organization, and designation of representatives for purposes of nego-tiating terms and conditions of employment. Prime contractors must include the new contract clauses in every subcontract and must enforce the require-ments on their subcontractors.

n Nondisplacement of Qualified Workers under Service Contracts imposes new obligations for successor service contract employers to hire their predecessors’ employees. Employers assuming government service contracts must offer their predecessor employers’ employees a 10-day right of first refusal in positions for which they are qualified, after which the successor contrac-tor may announce openings to a wider audience.

n Economy in Government Contracting prohib-its contractors from seeking reimbursement for expenses related to persuading employees not to join a union. Covered expenses include the cost of pre-paring materials, hiring legal counsel or consultants,

G

I

The recent federal subsidy of CoBRa premiums provided for in the american Recovery and Reinvestment act of 2009 will affect every employer that spon-sors a group health plan for employees and has terminated or laid off an employee on or after September 1, 2008. Please join Jackson Lewis Partner Joseph lazzarotti for a FREE 60-minute webinar to learn what you can do now to prepare for the new notice requirements and to properly coordinate payroll tax and COBRA administration.

Topics include:

> Overview of COBRA Amendments, including who is eligible for the subsidy

> How Does the Subsidy Work?

> Increased Employer Notice Obligations

> Payroll Tax Reporting

> Applying for Reimbursement

This webinar is accessible 24/7 until april 24.

HoW To PaRT iC i PaTE

Web: https://e-meetings. verizonbusiness.com/nc/join/

Conf. number: Pa5404934audience Passcode: 9580148

If you need assistance, please call the Jackson Lewis Helpdesk at 1.877.554.3571.

SPECIAL REPORT ON

NEW COBRA AMENDMENTS

holding meetings (including the cost of salaries for attendees), and planning or conducting such activity.

n Use of Project labor agreements for Federal Construction Projects authorizes executive agencies of the federal government to require every contractor or subcontractor on a large-scale construction proj-ect to negotiate or become a party to a Project Labor Agreement with one or more labor organizations. A PLA is a pre-hire collective bargaining agreement between contractors and one or more unions that establishes the terms and conditions of employment for a specific construction project.

Philip Rosen, who heads the labor Relations Practice Group, comments that the executive orders may be subject to legal challenge. “While Presidents have broad power to implement policy through executive orders in many areas, the bal-ance of power between unions and employers created by the National Labor Relations Act and overseen by the National Labor Relations Board may present preemption or other legal issues impeding the executive authority,” he notes. In the meantime, and as a threshold matter, employers should determine whether they are “government contractors,” which, given the various statutory definitions, may not be as easy as it seems.

For detailed information on the four Executive Orders, go to “legal Updates” at www.jacksonlewis.com.


Stimulus includes Broad Whistleblower Protection

he economic stimulus package includes new whistleblower protections for employees of private contractors and

state and local governments. Employees who disclose information reasonably believed to evidence waste, fraud, gross mismanagement, or a violation of law related to the stimulus funds are covered. The law prohibits a broad range of retaliatory employment actions, including termination, demotion, or any action to dissuade a reasonable person from exercising his or her rights.

To invoke protection, the individual need only show that the disclosure was a “contributing factor” in any prohibited employment action. To avoid liability, the employer must prove by “clear and convinc-ing evidence” that it would have taken the same action regardless of the whistleblow-ing activity. The law provides administrative remedies, which must be exhausted prior to filing an action in federal court for a jury trial; it expressly states that pre-dispute arbitration agreements do not apply. Remedies include reinstatement, back pay, compensatory dam-ages, and attorneys’ fees and litigation costs.

In what could be a big boost for the hardest hit sectors of the economy, the stimulus package provides funds for a number of infrastructure rebuilding and energy efficiency programs. Billions of dollars earmarked for energy programs to modernize the electricity grid, expand renewable energy applications (e.g., solar, wind, and hydro), and upgrade energy efficiency in homes and public buildings (e.g., insulation, windows, frames, and “smart meters”) are estimated to create as many as 500,000 new jobs in construction and manufacturing.

Additional funds will be used for road and bridge construction and modernization, public transit and high-speed rail projects, public school modernization, water systems, and environmen-tal cleanup projects. Much talk has focused on “shovel ready” projects as a metaphor for the speed with which the stimulus funds are expected to be applied. However, the Department of Energy and other government agencies responsible for actually distributing the funds may not be quite as “shovel ready” as the Administration would like (see http://online.wsj.com/article/SB123448815417580333.html, Next Challenge on Stimulus: Spending all That Money, The Wall STreeT Journal, p. A1, Feb. 13, 2009).

Hard Hit Construction and Manufacturing Sectors to Receive Big Portions of Stimulus Money

7

To invoke whistleblower

protection, the

individual need

only show that the

disclosure was a

“contributing factor”

in any prohibited

employment action.

TPlease Note

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another Consequence for New Federal Contractors: The drug Free Workplace act

any federal contractors are subject to the Drug Free Workplace Act of 1988. Those employers with a federal contract of

$100,000 or more, that is not for the acquisition of commercial goods and which is to be per-formed in whole or in part in the United States, must comply. Requirements include: publishing and distributing a policy statement banning certain unlawful drug activity and specifying ac-tions to be taken against violators; establishing a drug-free awareness program; notifying employ-ees that compliance is a condition of employ-ment, and that they must report workplace drug

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How to Stay Union Free: Spring Program Series

n Get the facts about the four new Executive Orders signed by President Obama assuring unions a greater stake in new and existing federal contracts and subcontracts.

n Learn how unions stand to benefit from the

Programs & Announcements

Government’s “bailout” and stimulus packages.

n Find out about the future of the Employee Free Choice act.

CHiCaGo March 24 – 25PHiladElPHia april 22 – 23laS VEGaS May 19 – 20

Go to www.jacksonlewis.com for details and to register.

convictions; notifying the contracting agency of such convictions; the imposition of penalties for violations (or satisfactory participation in an assistance program); and making a good faith effort to maintain a drug-free workplace.

The DFWA does not require drug testing. However, as Roger Kaplan of the Firm’s drug Testing and Substance abuse Management Practice Group notes, “Many employers subject to the DFWA do implement substance abuse testing policies, along with the Act’s other requirements.” Penalties for violation of the DFWA may include suspension of payments, contract suspension or termination, and possibly, debarment.

Jackson Lewis attorneys are available to assist employers in their DFWA compliance and in formulating substance abuse testing policies. For more information, go to www.jacksonlewis.com.

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