Don't Forget to WARN

 

South Florida residents should be familiar with the Plantation mortgage foreclosure law firm Law Offices of David J. Stern.  Stern himself built a fortune in recent years by operating the go-to firm for banks seeking to foreclose on residential mortgages.  (Full disclosure - my wife, who is an attorney, used to work for the Stern firm, but left several years ago.)  According to a litany of recent news articles, the firm is being investigated by the state Attorney General, and has recently lost many of its clients.   The firm and its related loan-servicing business reportedly laid off some 700 employees this fall.

Now, the firm faces a class-action lawsuit brought by four ex-employees. The lawsuit, filed last week, alleges violations of the federal Worker Adjustment and Retraining Notification Act, which is more familiarly known as the WARN Act. The WARN Act applies to businesses with more than 100 employees. Among other things, WARN requires that employers provide at least 60 calendar days notice to “affected employees” before “mass layoffs” that involve at least 50 people, if those people comprise more than 1/3 of the workforce. 

The four plaintiffs here claim they were all laid off this fall. They allege that the Stern firm failed to provide any advance notice to them, and that they had “barely an opportunity to gather their personal items before security badges and telephone extensions were deactivated”. 

The penalties for a WARN violation can include up to 60 days lost wages and lost benefits to the affected employees, plus the employees’ attorneys fees. Clearly, if the Court here were to certify this as a class-action involving hundreds of ex-employees, the stakes for the Stern firm would be quite large.

There are a few limited statutory exceptions to the WARN notice requirement. The one that the Stern firm here may argue applies is the “unforeseeable business circumstances” exception. Under that exception, the employer can give fewer than 60 days notice, if the mass layoff is as a result of a “sudden, dramatic, and unexpected” business circumstance that was not reasonably foreseeable. Loss of a major client can suffice. Even under this exception, the employer must give as much notice as practicable under the circumstances. 

The lawsuit here anticipates that the Stern firm will attempt to argue that exception, and claims that the firm “had plenty of advance opportunity to provide notice”. If this case progresses, the relevant questions will be when the Stern firm became aware of the “unforeseeable business circumstances”, and whether the firm had the opportunity to provide the  60-days notice, or at least some notice. 

It is obviously much too early to determine what will happen in this case. But, in these economic times, WARN Act lawsuits have become more prevalent than before. Any sizeable employer seeking to lay off numerous employees, or to shut down operations at any of its facilities, would be wise to consult labor and employment counsel before doing so. As stated above, the penalties for violating WARN can be severe.

Reductions in Force: Top Considerations

The following article originally appeared in Affluent Magazine.Michael W. Casey, III

by Michael W. Casey, III

Companies across the board are laying off staff. Many reductions-in-force (RIF) result in employees filing lawsuits against the employer, primarily involving class action claims of discrimination based upon age, race and gender. The potential damages in RIF class action litigation can be enormous. Here are the top 10 factors to consider when management is facing substantial declining revenues.

1. Alternatives to RIFs
While short-term savings may make a RIF attractive, employers actually may incur substantial hidden costs, over the long term. Terminations may eliminate a disproportionate number of older, female, and minority employees. This creates the potential for class action and individual wrongful discharge lawsuits. Consider alternatives like furloughs, extended vacations, pay freezes or reductions, shorter work weeks and voluntary leaves of absence.

2. Voluntary Separation / Early Retirement Programs
Voluntary RIFs involve an employer soliciting volunteers for a RIF severance package. An employee who selects himself for termination, in exchange for severance benefits, will be hard pressed to argue that his selection was based on impermissible criteria. The risk of lawsuits can be minimized, through the use of a severance agreement which includes a waiver of claims against the employer in exchange for severance benefits.

The downside of voluntary RIFs is that the employer has limited control over which, employees volunteer. A voluntary RIF may result in an exodus of talented employees while low performers decide to stay.

3. Furloughs
With a furlough, an employer requires employees to work fewer hours or take a certain amount of unpaid time off. An employer may furlough all employees one day a week and pay them for only 32 hours instead of their normal 40 hours each week.

4. Involuntary RIFs
One of the primary goals of a workforce reduction is to cut costs and become more competitive. If done wrong, a RIF can leave the organization vulnerable to litigation and actually make the business less profitable.

5. Problem: Unclear RIF Criteria
A failure to articulate and document the need for a RIF can lead to problems if the RIF is challenged as discriminatory. Merely stating that the economy is bad is insufficient. The employer must be prepared to demonstrate how the economy is affecting the employer and what alternatives to a RIF have been evaluated.

6. Discrimination Issues
Most legal challenges to RIFs are based upon the selection criteria the employer uses to determine who stays and who goes. The paramount consideration is to be careful that the terminations are based on non-discriminatory factors.

7. Severance Benefits
Federal law does not require severance pay for private-sector employees. Severance pay can be beneficial by fostering goodwill among departing employees and lessen the likelihood of them filing employment claims.

8. WARN
Depending on the total number of employees and the number and timing of employment losses, the federal Worker Adjustment and Retraining Notification Act ("WARN") may require employers to provide 60 days written notice of mass lay-offs.

9. Unionized Employers
Many companies that experience economic distress necessitating a RIF are unionized. Unionized employers typically have many hurdles to jump through before implementing a RIF.

10. Communication
RIFs invariably generate feelings of disloyalty and distrust among affected employees. If RIFs are improperly handled, those feelings can cause employees to file lawsuits. Employees value employers who keep them informed of developments that could affect their jobs. Communication fosters loyalty, morale, and, productivity.


 

Preparing for the Worst: Hurricane Guidance for Florida Employers

The following article is adapted from an article aimed at Texas employers authored by EBG lawyer David Barron.  With hurricane season approaching, it should be of interest to all Florida employers

 

Introduction

Hurricanes pose unique human resources challenges for employers with operations in Florida and other states in the Southeastern U.S. According to the Congressional Budget Office, Hurricane Katrina alone wiped out as many as 400,000 jobs. The economic effects of hurricanes have long term consequences on businesses in the region. While many employers are working around the clock on recovery efforts, other employers find themselves unable to function for extended periods because of damage or loss of utilities. 

Although one can never be fully prepared for such natural disasters, it is important to be aware of the employment laws that may be implicated in such situations. The information contained below may be applicable to other disasters, such as fires, flu epidemics and workplace violence.

 

Hurricane FAQs

 

1.      Is there any law that protects employees who are absent from work during or after a hurricane?

 

Unlike some states, such as Texas, Florida does not have a law which prohibits employers from taking action against employees who refuse to work because of an impending hurricane. An analogous situation was presented in Gillyard v. Delta Health Group, Inc., 757 So. 2d 601, 603 (Fla. 5th DCA 2000). There, the employee of a nursing home alleged that she was terminated in violation of the Florida Whistleblower’s Act because of her refusal to report to work; she claimed that reporting to work would have violated the Governor’s mandatory order to evacuate the county due to severe fires. The court held that the governor's executive order was not a law, rule or regulation as defined by the FWA.

 

2.      If a work site is closed because of weather, or unable to reopen because of damage and/or loss of utilities, am I required to pay affected employees?


The FLSA requires employers to pay non-exempt employees only for hours that the employees have actually worked. Therefore, an employer is not required to pay non-exempt employees if the employer is unable to provide work to those employees due to a natural disaster. An exception to this general rule exists where there are employees who receive fixed salaries for fluctuating workweeks. These are non-exempt employees who have agreed to work an unspecified number of hours for a specified salary. An employer must pay these employees their full weekly salary for any week in which any work was performed.


For exempt employees, an employer will be required to pay the employee’s full salary if the worksite is closed or unable to reopen due to inclement weather or other disasters for less than a full workweek. However, an employer may require exempt employees to use allowed leave for this time.

 

3.      Is it lawful to dock the salaries of exempt employees who do not return to work when needed after an emergency or disaster?


The DOL considers an absence caused by transportation difficulties experienced during weather emergencies, if the employer is open for business, as an absence for personal reasons. Under this circumstance, an employer may place an exempt employee on leave without pay (or require the employee to use accrued vacation time) for the full day that he or she fails to report to work. If an employee is absent for one or more full days for personal reasons, the employee’s salaried status will not be affected if deductions are made from a salary for such absences. However, a deduction from salary for less than a full-day’s absence is not permitted. 

 

We recommend caution, however, in docking salaried employees’ pay, and suggest you first consult with legal counsel. Moreover, many employers instead require employees to “make up” lost time after they return to work, which is permissible for exempt employees. This practice is not allowed for non-exempt employees, who must be paid overtime for all hours worked over 40 in a work week.

 

4.      What are other wage and hour pitfalls that employers should be aware of following a hurricane or other natural disaster?


On Call Time: An employee who is required to remain on call at the employer’s premises or close by may be working while “on call” and the employer may be required to pay that employee for all of his time. For example, maintenance workers who remain on premises during a storm to deal with emergency repairs must be compensated, even if they perform no work, if they are not free to leave at any time.


Waiting Time: If an employee is required to wait, that time is compensable. For example, if employees are required to be at work to wait for the power to restart, that is considered time worked.


Volunteer Time: Employees of private not-for-profit organizations are not volunteers if they perform the same services they are regularly employed to perform. They must be compensated for those services. Employers should generally be cautious about having employees “volunteer” to assist the employer during an emergency, if those duties benefit the company and are duties regularly performed by employees.

 

5.      Can employees affected by a hurricane seek protected leave under the Family and Medical Leave Act (“FMLA”)?


Yes, employees affected by a natural disaster are entitled to leave under the FMLA for a serious health condition caused by the disaster. Additionally, employees affected by a natural disaster who must care for a child, spouse, or parent with a serious health condition may also be entitled to leave under the FMLA. Some examples of storm related issues might include absences caused by an employee’s need to care for a family member who requires refrigerated medicine or medical equipment not operating because of a power outage. 

 

 

6.      If a work site or business is damaged and will not reopen, what notice must be provided to affected employees?


The WARN Act, a federal law, imposes notice requirements on employers with 100+ employees for certain plant closings and/or mass layoffs. However, an exception does exist where the closing or layoff is a direct result of a natural disaster. Nonetheless, the employer is required to give as much notice as is practicable. If an employer gives less than 60 days notice, the employer must prove that the conditions for the exception have been met. If such a decision is contemplated, it is advisable to consult with legal counsel about the possible notice requirements to ensure compliance with the WARN Act.

 

7.      Our human resources department has been disrupted, and it may be weeks before things are back to normal—will the government extend any of the customary deadlines governing employer payment for benefits, pension contributions, and other subjects during this recovery effort?


During previous natural disasters, many governmental agencies and entities did extend the deadlines for certain reports and paperwork. Therefore, it is expected that with future natural disasters, the government will provide some deadline extensions, but as with every natural disaster, the government’s response will vary. 

8.      Employees from other states want to donate leave to affected employees in Florida, is this lawful?


Yes. Employers can allow employees to donate leave to a leave bank and then award the donated leave to the affected employees. 

 

 

 

Hurricane and Disaster Preparation Checklist

 

  •  Identify and notify those employees you believe should be deemed “emergency services personnel” who will be required to work during a storm or evacuation order. Make arrangements for providing these employees with food and shelter. Make sure to have procedures in place for evacuation of these employees in the event the hurricane or other disaster causes the workplace to become unsafe.
  • Identify your “essential employees.” These are employees that you cannot require to be at work during a hurricane or evacuation but you believe are vital to the continued operations of your company. Determine what incentives you can provide these employees to entice them to work during a disaster or to return to work as soon as possible. These incentives can include shelter, hot meals, fuel, as well as arrangements for family members.
  • Establish a contingency plan to address the needs of those employees who may be temporarily living in company facilities during a storm or disaster. Ensure you can provide such necessities as gas, food, and shelter to these employees.
  •  Establish a contingency plan to ensure security of payroll data and the ability to continue payment of wages to your employees if offices are damaged or power is lost. 
  • Review your existing policies to determine how to distribute paychecks to employees who cannot come to work because of weather or lack of power. 
  •  Establish a communication plan. This will include identifying ways to keep the lines of communication open with your employees even if power is out in the local community. Collect primary and secondary contact sources from your employees. Consider establishing a toll-free phone line where employees can obtain updated information regarding the company’s status during an emergency.
  •  Review applicable leave policies and procedures to address and allow for disaster-related leave requests, including how such leave will be treated (i.e. paid or unpaid). 
  •  Formulate a team of decision makers who will have authority to make crucial decisions in the midst of the hurricane or other disaster related to other human resources matters. This team should establish a method of communicating with each other during the hurricane. 
  • Review any existing Employee Assistance Programs and ensure employees know how to utilize these programs during the aftermath. A successful Employee Assistance Program can promote the fast and efficient return of your employees. 
  • Remember to be sensitive to the needs of your employees who have experienced extensive property damage or personal devastation. Always keep in mind that human life and safety trumps all other business necessities.

 

 

 

Saving Your Workforce Seminar -- An Invitation

Please see the invitation below.  Feel free to sign up if you're interested in attending, or contact me for additional details. 

Saving Your Workforce:
 Avoiding Layoffs Through Furloughs and Other Solutions  

  

WHEN
Wednesday, May 6, 2009 
8:00 AM  - 9:30 AM
 

WHERE

The Miami City Club
200 South Biscayne Blvd.
Suite 5500
Miami,  FL 33131
  

For many employers, these are desperate economic times. Every entity facing diminished revenue must consider cost cuts to survive. As news reports show, layoffs or reductions in force (RIFs) are being used daily to achieve cost savings, and for some employers they may be the best solution. In some cases, however, the savings are not immediate as a result of statutorily required or voluntary notice periods, as well as costs of severance pay.

A different approach may be a furlough strategy, customized to fit each employer’s needs, which may also achieve a significant cost-savings benefit. Implementing a furlough can help retain the employer’s experienced workforce at a reduced cost, to help the enterprise weather the economic crisis. Most employees faced with, for example, the choice of a 20 percent annual pay reduction or the loss of their job would not hesitate to choose a reduction in pay. Further, both employers and employees taking advantage of a furlough program are well-positioned to take advantage of any increase in business activity in the inevitable economic recovery, whether it be this year or next. Furloughs are often viewed by the workforce more favorably than layoffs, thus preserving morale in the organization as well. But, implementing a furlough plan is not without its pitfalls. This seminar will provide guidence regarding the correct way to implement a furlough plan, and will also discuss other potential ways to avoid RIFs.

  

   
Presented by:

 
Mark J. Beutler, Esq. EpsteinBeckerGreen
                     Kevin E. Vance, Esq. EpsteinBeckerGreen

  

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agarcia@ebglaw.com with any questions.
 

 

About EpsteinBeckerGreen Founded in 1973, EpsteinBeckerGreen is a law firm with nearly 400 lawyers practicing in offices in Atlanta, Chicago, Houston, Los Angeles, Miami, New York, Newark, San Francisco, Stamford and Washington D.C. The Firm’s size, diversity, and global affiliations allow its attorneys to address the needs of both small entrepreneurial ventures and large multinational corporations on a worldwide basis. EpsteinBeckerGreen continues to build and expand its capabilities as a law firm focused on five core practices: Business Law, Health Care and Life Sciences, Labor and Employment, Litigation and Real Estate. For more information on EpsteinBeckerGreen, please visit www.ebglaw.com.
 
 
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Unemployment Woes Continue While Reduction-in-Force Risks Increase

Florida's latest unemployment figures show a jobless rate of 5.5%, representing 512,000 unemployeed out of a labor force of 9,261,000. The unemployment rate is up up 1.6 percentage points over the year. Florida's unemployment rate is the highest since January 2003. Although the state has long been immune to job losses seen in other states, the state’s unemployment rate is now equal to the national unemployment rate of 5.5 percent.

To add insult to injury, in the recent case of Meacham et al. v. Knolls Atomic Power Laboratory, No. 06-1505, 553 U.S. ___ (June 19, 2008),  the United States Supreme Court increased employers' risks of being found liable for age discrimination in a reduction-in-force.  That case and its legal ramifications are summarized in this client alert authored by my partner Frank Morris, which I am reprinting below.

Reductions in Force: The Supreme Court Escalates The Legal Risks

While economists debate whether the United States is in a recession, there is no doubt that business conditions have greatly deteriorated as a result of the subprime crisis, high oil prices, and increasing inflation. There also can be no doubt that as employers consider possible reductions in force ("RIFs") in response, the Supreme Court’s decision in Meacham et al. v. Knolls Atomic Power Laboratory, No. 06-1505, 553 U.S. ___ (June 19, 2008), has greatly increased the legal risk from RIF decisions. In Knolls, the Court held in a 7-1 decision that employers bear the burden of proving a legitimate non-discriminatory reasonable factor other than age when a RIF has an adverse or disparate impact on employees 40 years of age or older.

Case Overview

Knolls is a federal contractor working on naval nuclear reactors and training. Knolls was ordered by the federal government to reduce its workforce. To determine which employees should be laid off, Knolls directed its managers to rate employees on three factors: performance, flexibility and critical skills. The scores on these three factors, along with a fourth factor, years of service, were then used to select those to be laid off. According to the Court, 30 of the 31 employees to be laid off were at least 40 years old, the initial threshold for coverage under the Age Discrimination in Employment Act, 29 U.S.C. 621 et seq. ("ADEA"). The employees filed an ADEA charge with the Equal Employment Opportunity Commission ("EEOC") and ultimately a law suit based on both disparate treatment and disparate impact claims. A disparate impact claim alleges that the ADEA is violated if an employment policy that is neutral on its face (here, the four-factor selection criteria) has a statistically significant adverse or disparate impact when applied to over-40-year-old employees versus younger employees. Plaintiffs relied on a statistical expert who argued that managers had the greatest discretion in evaluating the flexibility and criticality factors and that the results for these two factors showed the strongest statistical ties to selection of the older employees. After trial, a jury ruled for Knolls on the treatment claim and for the plaintiffs on the disparate impact claim. The U.S. Court of Appeals for the Second Circuit first affirmed on appeal.

That was not the end of the case because the Supreme Court vacated that judgment in light of its decision in Smith v. City of Jackson, 544 U.S. 228 (2005). Smith held that employees pursuing age discrimination claims could rely on the disparate impact theory like employees alleging race, sex, or other claims of discrimination. The Court had earlier cast some doubt on whether the different situations of individuals covered by the ADEA would permit use of the disparate impact theory (see Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993). In Smith, the Supreme Court cited the Reasonable Factor Other Than Age ("RFOA") ADEA affirmative defense as protecting employers from liability for many regular employment practices. Under the RFOA analysis, an employer need not choose the employment practice with the least disparate impact of available alternatives, as is true in a business necessity defense to, e.g., a race or sex adverse impact claim. The Smith Court held only that the employer must select an alternative which is "not unreasonable." Because the Court found the practice in Smith was "unquestionably reasonable," it had not addressed how the RFOA defense interacts with the usual business necessity defense requirement in other disparate impact discrimination claims where the burden of proving the business necessity defense is on the employer (see Griggs v. Duke Power Co., 401 U.S. 424 (1971).

The Supreme Court’s decision in Smith thus caused the Second Circuit to reverse its first decision in Knolls because it had applied a "business necessity" standard rather than a "reasonable" test in assessing Knolls’ reliance on the four selection factors.

The Supreme Court reversed the Second Circuit’s second decision in favor of Knolls and held that an employer raising a RFOA affirmative defense to an ADEA disparate impact claim must both introduce evidence of its RFOA (i.e., bear the burden of production) and persuade the trier of fact of the reasonableness of the RFOA factor(s) (i.e., bear the burden of persuasion).

What This Means For Employers Contemplating Right Sizing Activities

The Court’s decision unequivocally requires employers to be able to prove the reasonableness of the factors it uses to reach employment decisions that have an adverse impact on older workers. As Knolls shows, litigation results in some cases can turn on whether the employees suing the employer, or the employer, bear the burden of persuasion.

While prudent employers have always exercised care in reaching decisions on RIFs, the Knolls decision unequivocally places an even higher premium on doing so. Key employer actions to prevent ADEA liability for implementing a layoff should include the following, among others:

  • Select factors to be used for layoff decisions with great care and review their potential defensibility with experienced counsel.
  • To the maximum extent feasible, make such factors turn as much as possible on more objective or measurable indicia.
  • Thoroughly train managers who will apply RIF factors to employees to make their decisions as objective as possible and to note specific facts supporting their rankings.
  • Remind all involved to avoid any inadvertent comments that might be cited as evidence of age animus.
  • Have a committee composed of individuals who represent various protected groups, obviously including those protected under the ADEA, make or review proposed RIF decisions.
  • Working with experienced counsel to maximize attorney client privilege claims, assess the potential statistical impact of proposed RIF decisions to see if they would produce adverse impact on the basis of age, race, sex or other protected status.
  • If the proposed RIFs would produce adverse impact, work with counsel to assess the defensibility of the decisions and the process of reaching them or whether further consideration would be appropriate.
  • Preserve all information supporting the decisions made so that the process can be defended if necessary and to prevent any issues concerning preservation and production of electronically stored evidence (ESI) in the event of litigation concerning the RIF.

Precisely at a time when the economy may force employers to make more RIF decisions, the Supreme Court has made defending such decisions decidedly harder for employers. Proper planning, processes, legal review and execution are absolutely essential for any employer contemplating a RIF and are critical to avoid liability under the ADEA in light of Court’s Knolls decision.

WARN Act Refresher

As an economic recession looms (or are we there already?), employers that are considering a reduction in force would do well to review their potential obligations under the federal Worker Adjustment and Retraining Act ("WARN").  Several of my partners in New York who contribute to the New York Employment Law Letter have written a primer on the WARN Act, available here.  By the way, several states have "mini-WARN Acts" that apply to employers with fewer employees than those covered by the federal law.  But Florida is not among them.