Spring 2009 Stay Connected May 20, 2009

(1)

A Legacy of Integrity and Trust MAKING TOUGH, SMART RIF

MAKING TOUGH, SMART RIF

& ALTERNATIVE DECISIONS

& ALTERNATIVE DECISIONS

Howard E. Cole Lewis and Roca LLP

www.lewisandroca.com

RIFS

–

THE BIG PICTURE

“And part of what I’m hoping to introduce as the next president is a new ethic of responsibility where we say that, if you’re laying off workers, the least you can do, when you’re making $25 million a year, is give some of your compensation and some of your bonuses.

Figure out ways in which workers maybe have to take a haircut, but they can still keep their jobs, they can still keep their health care and they can still stay in their homes. That kind of notion of shared benefits and burdens is something that I think has been lost for too long, and it’s something that I’d like to see restored.” - President Elect Barack Obama on “Meet the Press” December 7,

2008.

Alternatives to Layoffs

• Across the board pay cuts in salary & hourly wage • Work furloughs, shorter hours, reduced workweeks • Forced vacations

• Elimination of overtime

• Reduce paid time off and buy outs of unused time • Travel, training and entertainment restrictions • Hiring freezes

• Freezes on pay increases

• Voluntary retirement and deferment programs • Across the board tougher performance reviews

• Reductions or eliminations of benefits and ER contributions (401K matches)

(2)

www.lewisandroca.com Recent RIP Settlements: Incentives to Recent RIP Settlements: Incentives to

Consider Alternatives to RF Consider Alternatives to RF

• Sprint Nextel Corp. agreed to pay $57 million to settle an age bias collective action brought by 1,697 older workers who lost their jobs during a series of reductions in force. Williams v. Spring/United Mgmt. Co., D. Kan. No. 03-02200, settlement 5/18/07. Attorneys for plaintiffs will receive approximately $21 million in fees and expenses.

• EEOC v. Gulfstream Aerospace Corporation(S.D. Ga. 2003). The EEOC settlement provides for $2.1 million to 61 former employees who lost their jobs during layoffs at the company’s Savannah, Georgia, facility

• EEOC v. Lockheed Martin Global Telecommunications(D. Md. 2008). Settlement of $773,000 for a class of eight older employees let go in a RIF.

More Minefields in RIFS

• EEOC – Business is booming

–Filings at an all time high –15% increase over last year

–All major categories of filings increased Charges based on age and retaliation saw the

largest increases

Allegations based on race, sex and retaliation are the most frequently filed charges

• Age discrimination complaints common after RIFS

Ways to Avoid Claims: RIF GOALS

• Determine a proper number of employees to be RIF’d

• Design a nondiscriminatory review process

• Keep employees vital to the ongoing success of the company

• Surviving employees must believe the RIF was done in a fair, honest and humane manner

• Take into account customer reactions

• Stay within budget and time frame

(3)

RIF CHECKLIST HIGHLIGHTS

• Engage counsel

• Establish a management oversight committee, with diverse membership, to promote objectivity and decision making.

• Establish RIF criteria (design the selection process)

• Understand the strategy and reasoning for the RIF. The committee’s decision should relate to the company’s stated reasons for pursuing reduction.

• Understand the practical details of the RIF (how many eliminations, how many job sites affected, etc.)

• Gather necessary data

• Will the Worker Adjustment and Retraining Notification Act (“WARN”) be implicated?

RIF WARNING SIGNALS

• You are under intense time pressure to complete RIF

• This is your first RIF

• You have no comprehensive RIF policy

• You gave little or no consideration to a voluntary RIF

• You have minimal documentation for merit- based decision making

• You continue to hire

• You only have younger managers making RIF decisions about older employees

• You have made no statistical analysis

www.lewisandroca.com Makes Sense to Consider RIF Alternatives Makes Sense to Consider RIF Alternatives

• CONSIDER COSTS

–These are real costs and should be given a number and weighed when determining whether to institute layoffs –If leadership not considering them, HR may need to advocate

(4)

Brainstorm Alternatives

• May depend on % of expense reduction mandated –5%-10% easier than 20%-50%

• Brainstorm

–All options on table - No sacred cows • Office expenses - consider cuts

–Real estate leases (consolidate or sublease) –Holiday party

–Move lunch meetings to mid-morning or afternoon –Fluff (art, floral arrangements)

–Inefficiencies (Fed Ex “first delivery”) –Energy (office temperatures, lights) –Vendor relationships

–Return of office supplies

–Delay software and furniture upgrades

Hiring Freezes

–Pros

Popular with most existing workers

Provides breathing space for turnaround

Low litigation risk

–Cons

Unpopular with those needing immediate help

Challenges of retooling existing workforce

No immediate bottom line impact

Voluntary Exit Programs

–Pros

Gives employees some control over the process

Minimizes litigation risk

–Cons Expense

(5)

Reduced Work Schedules

–Pros

Allows employees to maintain benefits

May be welcomed by more employees

–Cons

Focus is on lower cost non- exempt employees

Impact on high performers

Global Considerations

Sharper Performance Reviews

–Pros

Get tough - - No more sugar- coated reviews

Can be “stealth” RIF without attracting negative PR

–Cons

Increased litigation risk

Is company ready for potential culture change?

Outplacement: A Crown Jewel

–Quality consultation pre- termination.

–On-site presence at termination creates comfort and

communicates the right message.

–Proactive counseling support alleviates financial and

psychological concerns.

–Good hire on outplacement services:

Do clients find new jobs in less time as the national average (3.2 months vs. 5 months)?

Do clients high percentage find equivalent or better jobs?

(6)

Impact of Alternatives

• Breach of contract (express)

– Individual contracts and offer letters over the years

– Executive contracts

– CBAs

• Breach of contract (implied)

– Handbook promises

Many states (including AZ) recognize handbook CAN BE implied contract depending on circumstances

Disclaimers ¾At will employment

¾Right to make unilateral changes to policies and benefits without additional consideration

¾Handbook does not create a contract

Avoid the “I didn’t take vacation for 20 years b/c you promised it would be paid out 100%” argument

• Oral and Quasi contract (detrimental reliance)

Wage & Hour Considerations

–Minimum wage – cannot dip below statutory minimum

U.S. = $7.25 Nevada (2 Tier) = $6.55/$7.55

Some states require even exempt workers make the minimum wage (in considering hours worked)

–Elimination of overtime

Counsel managers not to cook the books or ask EEs to work off the clock

FLSA covers all time permitted or suffered

–Hourly vs. Salaried workers Very different FLSA rules

Changes must be implemented separately

Wage & Hour Issues

–Salaried workers

Minimum $455 a week

Cannot be reduced for quantity or quality of work

¾Exception – CAN make long-term prospective

changes (ex: $1000/week to $850/week)

Furloughs should be “by the week”

¾NO WORK ALLOWED

»no BBs, no emails, no conference calls –Salary freezes

Duration. Easy if increases are annual across the company but consider duration if increases are staggered by department or occur on individual anniversary dates

(7)

Work Furloughs, Reduced Workweek

• Moonlighting and Conflicts of Interest

–Review current policies –Create new policies if necessary

–Remind employees of obligations and duty of loyalty

Pay Attention to Benefits

–COBRA

Reduction in hours could result in loss of health benefits and trigger COBRA rights

New COBRA subsidy only applies to involuntary terminations

¾Some state laws may interpret dramatic reduction in pay or work to be a discharge so could apply in theory –HEALTH

Reduction of benefits

Work with plan administrators – may lack flexibility

Company could end up liable for uncovered medical expenses

–UNEMPLOYMENT COMPENSATION

Rates and reporting requirements

Manage the Alternatives

–Seek relevant input without opening floodgates or making

subordinates falsely believe they are somehow “in charge”

Put spending cut onus on spenders

¾Maybe they’d rather keep their 401K match and skip the elaborate holiday party

–Wherever possible, give people as much time as possible to plan

Very few Americans have sufficient savings

People have to pay their mortgages

More likely to get resistance (and allegations) if drastic cuts are made overnight without warning

(8)

Trying to Bullet Proof Your RIF

• Biggest Mistakes

– Use of old releases and waivers

– Purporting to base RIF on performance but appraisals do not support selections

– Quickly “replacing” employee after position was “eliminated”

– Not aggregating layoffs under WARN

– Not doing a disparate impact analysis

– Not “listening to” your disparate impact analysis

– Using “performance based” criteria w/o honest evaluations

– Defamation or loose lips: mentioning retirement/age issues “Getting rid of bad eggs”

“Bringing in fresh blood” Manager to EE: “This is so unfair”

– Forgetting to check contracts and handbooks

– Ignoring morale and making false promises

Minimize Age Claims

• Releases under OWBPA:

–Knowing and voluntary waiver of rights

21 days (for individual layoffs)

45 days (for group layoffs)

Wise to give same time frame to those under 40

7-day revocation period –Plain & understandable English

–Release unenforceable if company doesn’t identify right pool of employees laid off and retained

–If not sure, often better to over-identify but explain discrepancies

–Advise in writing (via release) to consult an attorney

www.lewisandroca.com Releases: Avoid Common Problems Releases: Avoid Common Problems

• RELEASES

–Severance is rarely required so the money is almost always sufficient consideration for release

–Plain English

–Can’t release future claims

–Can’t make employee waive right to file an agency charge or cooperate with EEOC investigation

–EE can waive “personal relief” to reinstatement, damages, remedies or other relief

–Severability clause may not hold up so be careful about overreaching

(9)

RIFS

–

Protecting the Employer

• Restrictive covenants to protect company’s interests

–Reasonableness in duration and scope is key especially in bad economy

–Some judges very sympathetic to employees’ plight

limited job options

–Egregious actions (trade secret theft, etc.) more likely covenant will be enforced

–Tie covenant to severance

clawbacks & forfeitures for breach

¾(once $$ paid, very hard to get back) –Remember …

Unemployed workers with no money and time on their hands are more likely to sue former ER for real or imagined discrimination

Examples of Company Efforts

Increased Telecommuting •Cisco Systems cut its travel expenses by 65 percent by investing in new video and teleconferencing technologies that allow its engineers to meet with clients remotely. In addition to reducing travel costs, the move increases productivity by eliminating travel time and will likely lead to improved morale among workers who no longer have to be away from friends and family. Salary Reductions

•Pay cuts were announced for top executives at Advanced Micro Devices (AMD). Thousands of executives at Seagate Technology also face pay cuts ranging from 15 percent to 25 percent, while professionals at the technology firm will see their salaries decline by 10 percent.

Unpaid Vacations

•The State of Maryland announced it is instituting unpaid temporary furloughs to 6y7,000 of its 80,000 employees. Other companies forcing employees to take unpaid leave include chemical manufacturer 3M Co. and RV manufacturer Winnebago Industries. Salary Freezes

•Pay freezes have also been announced by Starbucks, Avis, the Tropicana Resort and engine-maker Cummins Inc in Atlantic City and Cummins Inc. •Yahoo Inc. announced that its employees would not be receiving annual salary increases this year

Alternatives to RIFS

THANK YOU!

******

QUESTIONS?

(10)

A Legacy of Integrity and Trust MAKING TOUGH, SMART RIF

MAKING TOUGH, SMART RIF

& ALTERNATIVE DECISIONS

Christy Hubbard Lewis and Roca LLP

RIFS

–

THE BIG PICTURE

“And part of what I’m hoping to introduce as the next president is a new ethic of responsibility where we say that, if you’re laying off workers, the least you can do, when you’re making $25 million a year, is give some of your compensation and some of your bonuses.

Figure out ways in which workers maybe have to take a haircut, but they can still keep their jobs, they can still keep their health care and they can still stay in their homes. That kind of notion of shared benefits and burdens is something that I think has been lost for too long, and it’s something that I’d like to see restored.” - President Elect Barack Obama on “Meet the Press” December 7,

2008.

Alternatives to Layoffs

• Across the board pay cuts in salary & hourly wage • Work furloughs, shorter hours, reduced workweeks • Forced vacations

• Elimination of overtime

• Reduce paid time off and buy outs of unused time • Travel, training and entertainment restrictions • Hiring freezes

• Freezes on pay increases

• Voluntary retirement and deferment programs • Across the board tougher performance reviews

• Reductions or eliminations of benefits and ER contributions (401K matches)

(11)

Recent RIP Settlements: Incentives to Recent RIP Settlements: Incentives to

Consider Alternatives to RF Consider Alternatives to RF • Sprint Nextel Corp. agreed to pay $57 million to settle an age

bias collective action brought by 1,697 older workers who lost their jobs during a series of reductions in force. Williams v. Spring/United Mgmt. Co., D. Kan. No. 03-02200, settlement 5/18/07. Attorneys for plaintiffs will receive approximately $21 million in fees and expenses.

• EEOC v. Gulfstream Aerospace Corporation(S.D. Ga. 2003). The EEOC settlement provides for $2.1 million to 61 former employees who lost their jobs during layoffs at the company’s Savannah, Georgia, facility

• EEOC v. Lockheed Martin Global Telecommunications(D. Md. 2008). Settlement of $773,000 for a class of eight older employees let go in a RIF.

More Minefields in RIFS

• EEOC – Business is booming

–Filings at an all time high

–15% increase over last year

–All major categories of filings increased

Charges based on age and retaliation saw the largest increases

Allegations based on race, sex and retaliation are the most frequently filed charges

• Age discrimination complaints common after RIFS

Ways to Avoid Claims: RIF GOALS

• Determine a proper number of employees to be RIF’d

• Design a nondiscriminatory review process

• Keep employees vital to the ongoing success of the company

• Surviving employees must believe the RIF was done in a fair, honest and humane manner

• Take into account customer reactions

• Stay within budget and time frame

(12)

RIF CHECKLIST HIGHLIGHTS

• Engage counsel

• Establish a management oversight committee, with diverse membership, to promote objectivity and decision making. • Establish RIF criteria (design the selection process) • Understand the strategy and reasoning for the RIF. The

committee’s decision should relate to the company’s stated reasons for pursuing reduction.

• Understand the practical details of the RIF (how many eliminations, how many job sites affected, etc.) • Gather necessary data

• Will the Worker Adjustment and Retraining Notification Act (“WARN”) be implicated?

RIF WARNING SIGNALS

• You are under intense time pressure to complete RIF

• This is your first RIF

• You have no comprehensive RIF policy

• You gave little or no consideration to a voluntary RIF

• You have minimal documentation for merit-based decision making

• You continue to hire

• You only have younger managers making RIF decisions about older employees

• You have made no statistical analysis

Makes Sense to Consider RIF Alternatives Makes Sense to Consider RIF Alternatives

• CONSIDER COSTS

–These are real costs and should be given a number and weighed when determining whether to institute layoffs –If leadership not considering them, HR may need to advocate

(13)

Brainstorm Alternatives

• May depend on % of expense reduction mandated –5%-10% easier than 20%-50%

• Brainstorm

–All options on table - No sacred cows • Office expenses - consider cuts

–Real estate leases (consolidate or sublease) –Holiday party

–Move lunch meetings to mid-morning or afternoon –Fluff (art, floral arrangements)

–Inefficiencies (Fed Ex “first delivery”) –Energy (office temperatures, lights) –Vendor relationships

–Return of office supplies

–Delay software and furniture upgrades

Hiring Freezes

–Pros

Popular with most existing workers

Provides breathing space for turnaround

Low litigation risk

–Cons

Unpopular with those needing immediate help

Challenges of retooling existing workforce

No immediate bottom line impact

Voluntary Exit Programs

–Pros

Gives employees some control over the process

Minimizes litigation risk

–Cons

Expense

(14)

Reduced Work Schedules

–Pros

Allows employees to maintain benefits

May be welcomed by more employees

–Cons

Focus is on lower cost non-exempt employees

Impact on high performers

Global Considerations

Sharper Performance Reviews

–Pros

Get tough -- No more sugar-coated reviews

Can be “stealth” RIF without attracting negative PR

–Cons

Increased litigation risk

Is company ready for potential culture change?

Outplacement: A Crown Jewel

–Quality consultation pre-termination.

–On-site presence at termination creates comfort and communicates the right message.

–Proactive counseling support alleviates financial and psychological concerns.

–Good hire on outplacement services:

Do clients find new jobs in less time as the national average (3.2 months vs. 5 months)?

Do clients high percentage find equivalent or better jobs?

(15)

Impact of Alternatives

• Breach of contract (express)

–Individual contracts and offer letters over the years –Executive contracts

–CBAs

• Breach of contract (implied) –Handbook promises

Many states (including AZ) recognize handbook CAN BE implied contract depending on circumstances

Disclaimers At will employment

Right to make unilateral changes to policies and benefits without additional consideration

Handbook does not create a contract

Avoid the “I didn’t take vacation for 20 years b/c you promised it would be paid out 100%” argument

• Oral and Quasi contract (detrimental reliance)

Wage & Hour Considerations

–Minimum wage – cannot dip below statutory minimum

U.S. = $7.25 Nevada (2 Tier) = $6.55/$7.55

Some states require even exempt workers make the minimum wage (in considering hours worked)

–Elimination of overtime

Counsel managers not to cook the books or ask EEs to work off the clock

FLSA covers all time permitted or suffered

–Hourly vs. Salaried workers

Very different FLSA rules

Changes must be implemented separately

Wage & Hour Issues

–Salaried workers

Minimum $455 a week

Cannot be reduced for quantity or quality of work

Exception – CAN make long-term prospective changes (ex: $1000/week to $850/week)

Furloughs should be “by the week”

NO WORK ALLOWED

»no BBs, no emails, no conference calls –Salary freezes

Duration. Easy if increases are annual across the company but consider duration if increases are staggered by department or occur on individual anniversary dates

(16)

Work Furloughs, Reduced Workweek

• Moonlighting and Conflicts of Interest

–Review current policies

–Create new policies if necessary

–Remind employees of obligations and duty of loyalty

Pay Attention to Benefits

–COBRA

Reduction in hours could result in loss of health benefits and trigger COBRA rights

New COBRA subsidy only applies to involuntary terminations

Some state laws may interpret dramatic reduction in pay or work to be a discharge so could apply in theory –HEALTH

Reduction of benefits

Work with plan administrators – may lack flexibility

Company could end up liable for uncovered medical expenses

–UNEMPLOYMENT COMPENSATION

Rates and reporting requirements

Manage the Alternatives

–Seek relevant input without opening floodgates or making subordinates falsely believe they are somehow “in charge”

Put spending cut onus on spenders

Maybe they’d rather keep their 401K match and skip the elaborate holiday party

–Wherever possible, give people as much time as possible to plan

Very few Americans have sufficient savings

People have to pay their mortgages

More likely to get resistance (and allegations) if drastic cuts are made overnight without warning

(17)

Trying to Bullet Proof Your RIF

• Biggest Mistakes

–Use of old releases and waivers

–Purporting to base RIF on performance but appraisals do not support selections

–Quickly “replacing” employee after position was “eliminated” –Not aggregating layoffs under WARN

–Not doing a disparate impact analysis –Not “listening to” your disparate impact analysis –Using “performance based” criteria w/o honest evaluations –Defamation or loose lips: mentioning retirement/age issues

“Getting rid of bad eggs” “Bringing in fresh blood” Manager to EE: “This is so unfair” –Forgetting to check contracts and handbooks –Ignoring morale and making false promises

Minimize Age Claims

• Releases under OWBPA:

–Knowing and voluntary waiver of rights

21 days (for individual layoffs)

45 days (for group layoffs)

Wise to give same time frame to those under 40

7-day revocation period –Plain & understandable English

–Release unenforceable if company doesn’t identify right pool of employees laid off and retained

–If not sure, often better to over-identify but explain discrepancies

–Advise in writing (via release) to consult an attorney

Releases: Avoid Common Problems Releases: Avoid Common Problems

• RELEASES

–Severance is rarely required so the money is almost always sufficient consideration for release

–Plain English

–Can’t release future claims

–Can’t make employee waive right to file an agency charge or cooperate with EEOC investigation

–EE can waive “personal relief” to reinstatement, damages, remedies or other relief

–Severability clause may not hold up so be careful about overreaching

(18)

RIFS

–

Protecting the Employer

• Restrictive covenants to protect company’s interests

–Reasonableness in duration and scope is key especially in bad economy

–Some judges very sympathetic to employees’ plight

limited job options

–Egregious actions (trade secret theft, etc.) more likely covenant will be enforced

–Tie covenant to severance

clawbacks & forfeitures for breach

(once $$ paid, very hard to get back) –Remember …

Unemployed workers with no money and time on their hands are more likely to sue former ER for real or imagined discrimination

Examples of Company Efforts

Increased Telecommuting •Cisco Systems cut its travel expenses by 65 percent by investing in new video and teleconferencing technologies that allow its engineers to meet with clients remotely. In addition to reducing travel costs, the move increases productivity by eliminating travel time and will likely lead to improved morale among workers who no longer have to be away from friends and family. Salary Reductions

•Pay cuts were announced for top executives at Advanced Micro Devices (AMD). Thousands of executives at Seagate Technology also face pay cuts ranging from 15 percent to 25 percent, while professionals at the technology firm will see their salaries decline by 10 percent.

Unpaid Vacations

•The State of Maryland announced it is instituting unpaid temporary furloughs to 6y7,000 of its 80,000 employees. Other companies forcing employees to take unpaid leave include chemical manufacturer 3M Co. and RV manufacturer Winnebago Industries. Salary Freezes

•Pay freezes have also been announced by Starbucks, Avis, the Tropicana Resort and engine-maker Cummins Inc in Atlantic City and Cummins Inc. •Yahoo Inc. announced that its employees would not be receiving annual salary increases this year

Alternatives to RIFS

THANK YOU!

******

QUESTIONS?

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