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Washington Labor & Employment Wire » Uncategorized

Supreme Court Holds that FLSA’s Anti-Retaliation Provision Covers Oral Complaints


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On March 22, 2011, by a 6-2 vote, the Supreme Court ruled in Kasten v. Saint-Gobain Performance Plastics Corp. that the anti-retaliation provision for employees who file an Fair Labor Standards Act (FLSA) complaint extends to the “filing” of oral complaints. The Court did not address whether such an oral complaint must be “filed” with the government or may simply be made to the private employer because the employer failed to raise the issue until after the Court had selected the case for review.  The Court left resolution of that issue for the lower courts.

Section § 15(a)(3) of the FLSA, 29 U.S.C. § 215(a)(3), forbids employers “to discharge . . . any employee because such employee has filed any complaint.” In Kasten, the employee alleged that he was terminated for oral complaints made to his employer regarding a wage and hour issue. The lower courts granted summary judgment to the employer on the basis that § 15(a)(3) did not protect oral complaints. 

Justice Breyer, writing for the majority, stated that the text alone did not conclusively indicate whether a complaint must be filed in writing. The Court then looked to the act’s “basic objectives” and found that the FLSA relied both on employee reporting and the anti-retaliation provision protecting such reporting to ensure that its objective were met. The Court acknowledged that the statute requires fair notice to employers, and that the phrase “filed any complaint” contemplated some degree of formality. However, the Court found only that “a complaint must be sufficiently clear and detailed for a reasonable employer to understand it, in light of both the content and context, as an assertion of rights protected by the statute and a call for their protection.”

Justice Scalia, in a dissent joined by Justice Thomas, stated that the Court had the discretion to consider the question of whether FLSA covers complaints made to private employers. Justice Scalia concluded that such complaints were not sufficient to trigger the statutory protection and, thus, the Court need not consider the distinction between oral and written complaints.


DOL Announces Semi-Annual Regulatory Agenda for EBSA


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On December 7, 2009, the Department of Labor’s Employee Benefits Security Administration (”EBSA”) published its semi-annual regulatory agenda for regulations selected to be reviewed or developed over the next twelve months. Included in the agenda are the following significant regulatory items in the final rule and proposed rule stages. While EBSA has published a schedule for these items, the published dates are tentative and subject to change.

Regulations in Final Rule Stage

In December 2009, EBSA intends to issue a final rule clarifying the prohibited transaction exemption created by the Pension Protection Act of 2006. EBSA previously sought written comments and suggestions concerning this rule. The exemption would allow investment advice provided under an “eligible investment advice arrangement” to be provided to participants or beneficiaries of certain individual account plans. As defined in section 408(g)(2) of the Employee Retirement Income Security Act (ERISA), an “eligible investment advice arrangement” covers arrangements under which advisor fees do not vary with the selection of differing investment options, or under which investment options are selected on the basis of statutorily-compliant computer models. The final rule would provide additional guidance as to what types of computer models are satisfactory and would require the Secretary of Labor to create a model fee-disclosure form. EBSA also indicated in its semi-annual regulatory agenda that it plans on issuing a notice of proposed rulemaking in February 2010, which would narrow the scope of the prohibited transaction exemption as initially proposed by the Bush Administration.

On January 5, 2010, the comment period for the interim final rule implementing anti-genetic discrimination in covered group premiums under the Genetic Information Nondiscrimination Act (GINA) will end. The interim final rule was adopted in October 2009 and became effective on December 7, 2009. GINA prohibits group health plans and health insurers from denying coverage or charging higher premiums to an individual based on a genetic predisposition towards developing certain diseases and disorders. The rule provides, among other things, guidance regarding the prohibition on plans and issuers from requesting or requiring genetic testing, as well as the prohibition on the collection of genetic information. In addition to the formal prohibition of genetic-based discrimination, the rule establishes civil penalties under ERISA.

In January 2010, EBSA intends to issue final rules establishing a safe harbor period of seven days during which money withheld by employers or paid by participants for contribution to a plan would not be considered “plan assets” under Title I of ERISA or the related provisions of the Internal Revenue Code. Because plan assets are subject to fiduciary duties and other obligations, the amendment seeks to provide greater certainty to plan sponsors and fiduciaries, as well as plan participants, as to whether particular participant contributions held by an employer constitute plan assets. 

In April 2010, EBSA plans on issuing an interim final rule concerning the implementation of the Mental Health Parity and Addiction Act of 2008. That act requires that annual or lifetime dollar limits on mental health benefits be no lower than medical or surgical benefits offered under a group health plan. In response to an April 2008 Request for Information, EBSA received over 400 comments raising concerns over compliance with these parity provisions. Accordingly, EBSA anticipates issuing an interim final rule that will provide regulatory guidance regarding these provisions. 

In April 2010, EBSA plans to issue a final rule requiring that multiemployer plan administrators provide plan participants, beneficiaries, representatives, or contributing employers copies of written documents relating to the plan’s funding and financial condition within 30 days of receiving a written request. This final rule implements the new plan disclosure requirements set forth in the Pension Protection Act of 2006. EBSA intends to publish a separate regulation at a later date establishing civil penalties under section 502(c)(4) of ERISA for noncompliance with this provision.

In September 2010, EBSA plans to issue final rules implementing portions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and subsequent related legislation, including the Children’s Health Insurance Program Reauthorization Act of 2009.

In September 2010, EBSA plans to issue a final rule clarifying what information must be provided to plan participants and beneficiaries to allow them to make informed investment decisions. The rule may amend regulations governing ERISA section 404(c) plans. According to EBSA, the rule will specifically cover the disclosure of information concerning plan fees and expenses.

Regulations in Proposed Rule Stage

In June 2010, EBSA plans to issue a notice of proposed rulemaking intended to bring the definition of “fiduciary” in line with the current practices of plan managers, individual plan participants, and investment advisors. Under ERISA’s regulatory definition, a “fiduciary” administers plans by controlling plan operations, selecting service providers and managing plan assets. The rule would amend the definition of “fiduciary” at 29 C.F.R. § 2510.3-21(c) to include individuals rendering investment advice for a fee, as set forth under section 3(21) of ERISA. EBSA is issuing this rule in response to concerns that the current definition of “fiduciary” may inappropriately limit the types of investment advice that trigger fiduciary duties on the part of investment advisors.

In August 2010, EBSA intends to issue a notice of proposed rulemaking that would satisfy requirements of the Pension Protection Act of 2006 by requiring administrators of defined benefit plans to provide annual funding notices to pension plan beneficiaries and participants. Further, in September 2010, EBSA intends to issue a notice of proposed rulemaking that would satisfy requirements of the Pension Protection Act of 2006 by requiring ERISA-covered plans to provide individual pension benefit statements to plan participants and beneficiaries at designated intervals. Under the proposed rule, the designated intervals would differ with the type of account plan.  Individual account plans providing for individual direction would be required to provide quarterly statements, individual account plans not permitting individual direction would be required to provide annual statements, and defined benefits plans would be required to provide statements every three years.


Third Circuit Requires Determination of Whether ADA Plaintiffs are “Qualified” Before Class Certification


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On July 23, 2009, in Hohider v. United Parcel Serv., Inc., No. 07-4588 (3d Cir. July 23, 2009), the Third Circuit reversed a district court order certifying a nationwide Americans with Disabilities Act (”ADA”) class action.  In this seminal decision, the Third Circuit made it more difficult for plaintiffs to certify ADA class actions.

In Hohider, the Third Circuit held that the district court erred by concluding that it could certify the class by deferring its analysis of whether the members of the class had proved that they are both disabled and otherwise qualified to perform the essential functions of the job in order to prove discrimination under the ADA until the second “remedial” stage of the two-stage framework described in International Brotherhood of Teamsters v. United States, 431 U.S. 324 (1977). The Third Circuit reiterated the requirement that district courts engage in rigorous analysis of the elements of the claim in analyzing Rule 23 class certification issues, including conducting a preliminary inquiry into the merits as necessary to make the determination. The Third Circuit also emphasized the importance of trial courts evaluating how a certified class would manageably be tried before granting certification. 

Plaintiffs alleged that UPS had company-wide policies that violated the ADA, including a “100% healed” policy prohibiting employees from returning to work unless they could return to their last position without any medical restrictions. In certifying the ADA class, the district court relied on the Teamsters framework as it has been applied in the Title VII context, where plaintiffs’ burden at the “liability” stage is to establish a prima facie case that the employer engaged in an unlawfully discriminatory pattern or practice, and particular plaintiffs’ entitlement to individual relief is not examined unless the case reaches the second “remedial” stage. The district court therefore removed from the proposed class definition the requirement that class members be “disabled” under the ADA because this determination might “entail individualized inquiries.”

The Third Circuit noted that the ADA’s prohibitions are narrower than Title VII’s because “[i]n contrast to Title VII, it does not prohibit discrimination against any individual on the basis of disability, but, as a general rule, only protects from discrimination those disabled individuals who are able to perform, with or without reasonable accommodation, the essential functions of the job they hold or desire.” Thus, the appeals court reasoned that the district court must ask if the person was qualified to perform the job held or desired, with or without reasonable accommodation, even if the decision was based on disability.  Absent such qualification, no liability accrues. Thus, the potential first stage liability finding contemplated by Teamsters cannot be made without determining if the class members are qualified under the ADA. The Third Circuit criticized the district court for losing sight of the requirement that the statutory elements of the claim, not the Teamsters evidentiary framework, “controls the substantive assessment of what elements must be determined to prove a pattern or practice of unlawful discrimination.”

The Hohider decision also addressed several aspects of Rule 23(b)(2) certification. The appeals court confirmed that compensatory and punitive damages are incompatible with claims for class treatment under Rule 23(b)(2). Although the Third Circuit did not decide whether monetary relief could be separated from injunctive relief for class certification under Rule 23(b)(2), it made clear that district courts cannot rely on Rule 23(c)’s provisions allowing modification of class certification orders as a way to avoid the rigorous analysis required under Rule 23 at the class certification stage. Similarly, the appeals court ruled that the district court’s conditional certification of plaintiffs’ request for back pay was not supported by the required analysis, and constituted an abuse of discretion.

The Hohider decision is important for employers not only because of the reinforcement of the rigorous analysis requirement under Rule 23, but because of the requirements it imposes for private plaintiffs seeking to bring ADA class actions, even under the broader definitions of disability in the ADA Amendments Act (ADAAA). Although the court declined to decide whether the ADAAA should be retroactively applied to the claims, it noted that even if the ADAAA applied, its finding that the class was improperly certified would not change because the ADAAA retains the requirement that a plaintiff be “qualified” in order to state a claim of discrimination. 


Health Insurance Restrictions and Limitations Clarification Act of 2009 (H.R. 1253)

Core Provisions: This legislation would amend the provisions of the Employee Retirement Income Security Act, Public Health Service Act, and Internal Revenue Code that permit group health plans to establish limitations or restrictions on the amount, level, extent, or nature of the benefits or coverage for participants and beneficiaries of the plan. The new language would clarify that such limitations must be explicit and clear and must be disclosed to the plan sponsor before the point of sale to the plan. The plan sponsor and issuer of the coverage would be required to make available to participants and beneficiaries prior to their enrollment and upon their enrollment, a description of such limitations and restrictions in an easily understandable form.

Status: H.R. 1253 was introduced by Rep. Burgess (R-TX) on March 3, 2009 and it passed the House on March 31, 2009.  The bill now moves to the Senate for consideration. The House passed identical legislation in the 110th Congress. 


Navigating Employee Terminations in Turbulent Times


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This is the second installment in our two-part series on navigating employee terminations in turbulent economic times.  The first part, which covers reductions in force, may be accessed by clicking here.

Individual Terminations

When the employer decides to terminate an individual employee, as opposed to implementing a reduction in force (RIF), it is still equally important that the employer methodically document and implement the termination in a manner that minimizes any legal liability.  Outlined below are several key issues that employers should consider in individual termination situations. 

Maintaining a Proper Evidentiary Record

An employee who feels blindsided by his or her termination is more likely to pursue litigation.  Giving the employee advance written notice of problems (preferably in writing), providing measurable performance goals, and allowing him or her the opportunity to meet those goals or correct deficiencies by a certain deadline (without altering his or her at-will status) can go a long way toward minimizing negative feelings.  Further, advance notice of deficiencies, whether in written warnings or formal performance reviews, plays an important part in documenting the employer’s legitimate business reasons for the termination to courts and administrative agencies.  If the employer places the employee on a performance improvement plan, the employee’s supervisor should diligently record any progress and document any shortcomings. 

The employer should also retain all relevant documentation and information related to a potential termination.  Where the employee’s written work product is involved, the supervisor should save draft writings in order to document substandard performance.  Other relevant documentation may include expense reports, timesheets, video recordings, building entry/exit records, voicemail recordings, e-mails, BlackBerry messages, computer and internet usage records, and other computer data. 

Consider Other Potential Legal Issues

As we explained in Part I, the employer should consider the employee’s status before terminating him or her to make sure there are no potential claims lurking.  For example, terminating an employee who is on a protected leave of absence under the Family and Medical Leave Act or the Uniformed Services Employment and Reemployment Rights Act may lead to a retaliation claim or a claim for failure to reinstate.  Discharging an employee who is on other protected leaves of absence or who is considered a protected “whistleblower” or an employee engaged in protected, concerted, union activity may also lead to retaliation claims.  The employer should carefully consider both the likelihood of such possible claims and the potential consequences before deciding to implement the termination. 

Communicating the Termination

The employer should inform the employee of his or her termination in person and in a private location.  The termination meeting is one of the most difficult tasks an employer faces.  As such, there is a strong temptation to “sugarcoat” or give false reasons for the termination.  However, doing so is risky and may lead to a finding that the employer’s reasons for the termination were pretexts for an unlawful motive.  For this reason, a prepared “script” may be helpful.    

During the meeting, the employer should allow the employee to “vent” for a reasonable time but should not engage in a debate with the employee about the underlying reasons for the termination decision.  Having a witness present and making contemporaneous notes may help rebut any future accusations and resolve factual disputes between the employee and supervisor or human resources representative.  A written letter of termination should be presented at this meeting or immediately afterwards.   

Removal from the Workplace

Consider in advance whether the employer will ask the employee to leave immediately or within a certain amount of time.  In some instances, there may be concerns that the employee will become physically violent, steal confidential information, or otherwise disrupt the workplace.  In such cases, the employer should take appropriate precautions to protect the safety of its employees and others and to protect the integrity of its property and information. 

For example, it may be prudent for the employer to escort the employee off the premises immediately after the termination meeting and have a company representative inventory, pack up and send the employee his or her personal belongings.  In other instances, it may be appropriate to have a company representative assist the employee in boxing up any personal belongings to ensure that he or she does not take any company property, perhaps at the end of the workday when there are fewer employees present.  However the departure is implemented, the employer should handle it in a way that avoids unnecessarily humiliating the employee and triggering the hard feelings that may lead to litigation. 

Access to Confidential Information

Another important consideration is the discharged employee’s continued access to confidential information.  Upon notice of termination or after the employee’s last day of work, whichever is appropriate, the employer should immediately terminate the employee’s access to the company’s offices, computers, and computer system (including external access and BlackBerry service), voicemail, e-mail, and client and company documents.  Such termination will minimize the opportunities for the employee to misappropriate client or company information, destroy information or property, or send the notorious “parting shot” e-mail.  If the employee requests computer access to retrieve personal contact information and other electronically stored material, the employer should either have a company representative do it or closely monitor the employee to ensure that he or she does not take or destroy any company material. 

In some cases, particularly where wrongdoing is suspected or there is a high risk of litigation, employers should preserve the employee’s hard drive, network files, e-mails, and BlackBerry.  This is also useful in the event there are later suspicions regarding the misuse of confidential information and trade secrets.  Where litigation is likely, the employer should consider performing some basic review of the preserved materials shortly after termination.  Such a review may reveal that the employee misused company information or property or engaged in other misconduct during employment and, in some instances, may provide “after acquired” evidence of misconduct sufficient independently to justify the termination. 

Return of Company Property

The employer should also require that terminated employees return all company property, whether at the office, at home, or otherwise, including the following:  keys, badges/passcards, computers and related equipment, disks/thumb drives, company credit cards, cellular phones, Blackberries or other PDAs, pagers, client/customer files and contact information, company cars, manuals, handbooks and any other company information.

In certain situations, the employer may consider obtaining written confirmation from the employee that he or she has returned all company property or a “certification of destruction” confirming that the terminated employee has removed all company information from his or her home computers and personal electronic devices. 

If an employee fails to retain company property, however, it is important that the employer not respond by withholding payment of any wages owed.  Such action may expose the employer to liability and significant penalties under certain state termination or wage payment statutes.  However, the employer may condition severance payments on the full return of company property. 

In addition, the employer should remove the employee from any accounts that may list the employee as an authorized company representative.  Other individuals or entities, such as the employer’s credit card companies, vendors, travel agencies, insurance companies, leasing agents, cellular telephone companies, and internal committees, may also need to be notified. 

Communications with Third Parties

To avoid any possible defamation or retaliation actions, the employer should consider setting up a protocol for responding to any background or reference check inquiries.  Such a protocol should address who will respond to any inquiries and what he or she will say. 

We recommend that employers identify a single point of contact for outside employment inquiries and provide a neutral reference that includes only the dates of employment, position, and job description.  With a written release from the terminated employee, the employer may also provide final salary information.  The employer may also agree to provide a written letter of reference for any future prospective employers.  However, an employee may use a positive reference against the employer in litigation to show that his or her performance was more than adequate.  A negative reference, on the other hand, might be used as the basis for a retaliation or defamation claim.

Payment and Benefit Obligations

As described in Part I, employers should ensure that it pays any accrued but unpaid wages, bonuses, vacation, pre-negotiated severance, or other compensation owed in a timely manner, with appropriate withholdings, and in accordance with state and local law and any applicable collective bargaining agreement.  Employers should also comply with their obligations under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) to provide the employee with the opportunity to purchase continuation coverage and should comply with the terms of any applicable employee retirement or welfare benefit plans, including any requirements governing the withdrawal from such benefit plans.  The failure to do so may result in substantial liability under ERISA. 

Release or Waiver of Claims

Given the threat of potential lawsuits, employers should seriously consider obtaining a waiver or release of all claims against the company in exchange for additional severance pay or other benefits beyond what an employer is already obligated to give the employee.  Employees will often waive or release claims against the company for an insubstantial amount of money. 

The law governing releases is constantly changing.  Therefore, it is important that employers consult employment counsel to develop and finalize such agreements in order to maximize the likelihood that courts will enforce them. 

One important consideration in drafting valid releases is the Older Workers Benefit Protection Act (OWBPA), which sets forth several rigid requirements necessary for a release or waiver of any age discrimination claim to be valid.  These requirements include, among other things, that the release: (1) be written in a clear and understandable manner; (2) specifically refer to rights or claims arising under the Age Discrimination in Employment Act (ADEA); (3) apply only to ADEA rights or claims that arose before the execution date of the release; and (4) advise the employee to consult with an attorney prior to executing the severance agreement.  In addition, the employer must give the employee consideration over and above that to which the employee is already entitled and provide the employee with a period of at least 21 days (45 days in the case of a RIF) to consider the agreement and seven days to revoke it.  Employers must also give employees involved in RIFs 45 days to consider certain statistical data associated with the layoff that employees are required to provide.

An employer should request that the employee release all claims stemming from past events relating to his or her employment, whether those claims are known or unknown to the employee at the time he or she signs the release.  However, a request that an employee release any future claims arising from events that occur after the execution of the release is generally invalid and unenforceable.  Because state law may impose additional requirements, employment counsel should be consulted in drafting releases. 

Conclusion

With the current economic downturn, more employers are forced to resort to layoffs and individual terminations to help boost the bottom line.  Although such actions create the risk of litigation, careful advance planning can assist in preventing lawsuits and minimizing or eliminating corporate liability. 


Handling Employee Terminations in Turbulent Times


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This is the first installment in our two-part series on handling employee terminations in turbulent economic times. 

As the current economic crisis continues to escalate, many companies are being forced to reevaluate their operations and are considering drastic and immediate workforce reorganizations, including layoffs.

In making plans for the future, however, employers must tread cautiously.  There are numerous federal and state employment law issues that employers should consider before implementing a reduction in force (RIF) or terminating individual employees.  The failure to comply with the applicable statutes, which may require as much as two to three months’ advance notice of any covered layoffs, can eliminate any anticipated savings and result in costly and protracted litigation.  Moreover, although employers can limit exposure to lawsuits through the use of releases obtained in exchange for benefits or severance packages, strict requirements must be met in order for such releases to be valid.

In this two-part series, we outline the key considerations when dealing with RIFs and individual employee terminations.  Today, we focus on RIFs.

Reductions in Force

Laying off employees is a delicate matter fraught with legal and emotional implications.  However, advance planning can help minimize your company’s legal exposure for RIFs.  Such planning should include the following steps:

Select a Restructuring Team

The first step involves establishing a confidential restructuring team to determine whether layoffs are needed or whether other cost-cutting measures, such as wage, hiring, or overtime freezes, or reduction through normal attrition or early retirement, will suffice.  A restructuring team should include a senior member of the human resources department, other high-level managers, operational representatives and counsel.  The team also should consist of representatives who are familiar with the employer’s layoff history and have experience with layoffs.  In step five, these and/or other decisionmakers will make final decisions on how to implement the RIF.

Establish the Business Objectives and Rationale for the RIF

The second step involves identifying and documenting the employer’s business objectives for the RIF.  Only then will the employer be able to assess properly whether it needs to implement a layoff.  Once it is determined that layoffs are necessary, the employer should work with counsel to document the linkage between the proposed layoffs and the stated business objectives.

Get the Numbers Right

The third step requires determining which employees to lay off.  Will it be certain job titles or entire locations, facilities, or departments?  These are questions for the restructuring team.  The answers should be consistent with the stated goals of the RIF and can help focus and shape the layoff plan.  The employer also should consider whether there will be a single round of layoffs or multiple RIFs and the influence of various options on:  client, market, and public perceptions; employee morale; the ability to retain essential employees; and operational requirements. 

Develop Selection Criteria

As a fourth step, the employer should develop selection criteria for the layoff.  Ideally, the employer should be able to give objective reasons for selecting each employee.  Objective reasons are easier to prove to a judge or jury than subjective reasons, and they give rise to fewer claims of unlawful disparate treatment (i.e., intentional discrimination). 

In most cases, however, it is necessary for layoff selections to have a subjective component.  Nevertheless, the employer should consider ways to maximize the objective components of the decision.  For example, rather than relying solely on a supervisor’s evaluation, the employer might give some weight to employee seniority. 

In situations where the employer will use employees’ performance as a selection criterion, the employer will need to rely on prior performance evaluations, a ranking system developed specifically for the layoff, or some combination of the two.  Unfortunately, evaluations written prior to the time that layoffs were contemplated may “flatter” employees.  However, they still represent the most persuasive evidence of how the employer regarded a given employee’s performance; as such, they cannot be ignored.  If rankings prepared in conjunction with the layoff are facially inconsistent with prior evaluations, the employer must be prepared to explain the discrepancy.  This can be done, for example, if certain supervisors can be shown to have “inflated” their assessments.

During this stage of the layoff process, it is important to work with counsel to document the criteria the employer will use, the reasons why each criterion was selected, and its link to the rationale for the layoff.  Documenting the criteria to be used also will defuse potential arguments that the employer manipulated the criteria to target certain employees for layoff.

Select the Decisionmakers

At step five, after the employer decides which criteria to use, it should focus on selecting the appropriate decisionmakers.  In general, senior management and human resources personnel should make the general overarching decisions, such as those concerning the scope of the layoff, the locations or facilities to close, the product lines to discontinue, and the services to outsource.

On the other hand, decisions concerning which employees to retain should be based on the input of persons who have personal knowledge of the employees’ performance, unless the selections are based on purely objective criteria.  Under no circumstances should a single individual make the decision.  The individual may be a poor witness, may later be terminated or laid off, or may harbor or be perceived as harboring personal animus toward certain employees.  If possible, we recommend that the employer form a diverse RIF committee.  Doing so creates the appearance of a more equitable selection process. 

Identify any Contractual Requirements

In general, individuals work for companies “at-will,” which means they can be laid off or otherwise terminated at any time, with or without cause or notice, subject only to statutory restrictions.  However, because an employee’s at-will status may be contractually altered, it is important to identify any such constraints when planning for a RIF.  For example, an employee with an offer letter or employment agreement may have contractual protection from layoff.  These letters and agreements are frequently found at the executive level and may specify, among other things, procedures that the employer must follow before terminating the employee and/or require the payment of severance compensation.  Contractual restrictions on layoffs may also be found in other sources, such as employee handbooks, general employee policies, or, in rare cases, verbal promises by management. 

In unionized workforces, contractual restrictions are almost always contained in collective bargaining agreements.  These restrictions may impose certain criteria, obligations or procedures on a RIF.  In addition, the decision to implement the RIF and/or its effects on the employer’s workforce may be subject to mandatory bargaining. 

Analyze for Disparate Treatment and Disparate Impact

RIFs often result in litigation.  That is why employers should conduct a privileged review of any RIF plan to identify possible disparate treatment or disparate impact issues.  The review should focus on whether there is statistical evidence of unequal treatment.   

“Disparate treatment” occurs when employers intentionally select certain employees for layoff based on a protected characteristic, such as race, color, national origin, sex and pregnancy, age, disability, or religion.  Unlawful disparate treatment also can occur under Section 510 of the Employee Retirement Income Security Act (ERISA), if the employer selects employees for layoff to avoid or reduce the costs associated with providing ERISA-covered benefits or to prevent employees from attaining any ERISA-covered benefit, such as pensions.  Employers must also consider other protected characteristics under state and local laws. 

“Disparate impact” occurs when the selection criteria unintentionally cause the layoff to fall most heavily on a protected group.  For example, disparate impact against older workers is likely when employers use employee salaries as a criterion.  Because older workers tend to earn higher salaries, a layoff may disproportionately impact older workers, giving rise to an age discrimination claim based on disparate impact.  Where disparate impact exists and cannot be eliminated, employment counsel should be consulted to evaluate whether the company has a defensible business justification for its selection criteria.

Frequently, employers use outside experts or consultants to conduct disparate treatment and disparate impact statistical analyses.  Such outside analyses can be particularly helpful in preventing disparate treatment or impact and in defending against a claim if litigation does result.  However, regardless of who conducts the actual analysis, it is important to remember that the plaintiffs will certainly request the analysis in any ensuing litigation.  Thus, bringing in outside employment counsel from the outset may help shield such statistical evaluations from disclosure under the attorney-client privilege.

Where evidence of disparate impact or disparate treatment exists and cannot be eliminated, the appropriate decisionmakers should be notified, and the matter should be revisited before the employer finalizes any decisions. 

Consider Other Potential Legal Issues

After the employer has identified the employees selected for layoff, it should consider the status of each one to ensure that there are no potential claims lurking.  For example, employees who are on protected maternity, family, medical or military leave may have certain reinstatement rights under the Family and Medical Leave Act (FMLA) or the Uniformed Services Employment and Reemployment Rights Act (USERRA).  Unless the employer can invoke certain defenses, discharging such employees while they are on leave can expose an employer to liability. 

Terminating employees on these or other types of protected leaves of absence, such as disability or workers’ compensation leave, may also create the appearance of retaliation.  Similarly, terminating an employee who is considered a protected “whistleblower” under federal, state or local law or an employee known to have engaged in protected, concerted union activity could subject an employer to retaliation claims.  Individuals who participated in internal investigations or as witnesses for other employees may also have a basis for a retaliation claim. 

Retaliation claims can be quite difficult to defend when the protected activity occurs in close temporal proximity to the RIF.  In situations where the employer is eliminating entire jobs or departments, it should not be difficult to demonstrate a legitimate non-discriminatory reason for the decision.  In other cases, however, the timing of the RIF decision can create a genuine issue of material fact that will preclude early disposal of a lawsuit.  Employers should consult with employment counsel in dealing with such potentially thorny issues. 

Review Restrictive Covenant Obligations

Another relevant consideration is whether the employees are under any restrictive covenant obligations that the employer may wish to enforce after implementing a RIF.  Such obligations include not soliciting clients or employees and not joining a competitor.  State law may impact the employer’s ability to enforce such obligations, because many courts will not enforce restrictive covenants when an employee is terminated through no fault of his or her own.  In such cases, the employer may wish to include the restrictive covenants in any separation agreement that includes the appropriate consideration. 

Document Carefully

It is imperative that the employer carefully document the reasons for the RIF, the criteria used, and the reasons the employer selected or did not select each employee in the affected area(s).  Such documentation assists in refuting any claim that the employer manipulated the layoff criteria for unlawful reasons or had any illicit motive for the layoffs.  In that comprehensive documentation, the employer should use consistent explanations as to why it selected certain employees for layoff or retention.  It also may be appropriate to maintain notes and minutes from any RIF committee meetings.  Again, including employment counsel in this stage can help put the employer’s best foot forward and shield drafts from disclosure in litigation. 

Identify When Notice Should Be Given

Failure to provide adequate notice is a significant potential pitfall for employers implementing RIFs.  Thus, employers should carefully review applicable federal, state, and local law pertaining to this question before proceeding. 

The federal Worker Adjustment and Retraining Notification Act (WARN Act) and various state equivalents known as “baby WARNs” or “mini-WARNs” require that covered employers give up to 60 to 90 days’ advance notice before implementing a “plant closing” or “mass layoff.”  These statutes compel back pay and benefits, civil penalties, and attorneys’ fees in litigation where the employer did not give proper notice to affected employees or their union representatives, and/or certain government officials.  Such penalties are designed to inflict a steep price and can significantly reduce any savings produced by a RIF. 

The federal WARN Act is highly technical and complex, and a detailed analysis of its provisions is beyond the scope of this client alert.  In general, however, the WARN Act applies to private employers with a total of 100 or more full-time employees and mandates 60 days’ advance notice of any plant closings or mass layoffs.  A “plant closing” occurs if 50 or more employees suffer an “employment loss” within a 30-day period if an employer temporarily or permanently closes down an entire site or certain facilities or operating units within a “single employment site.”  A “mass layoff” is any other RIF where either: (1) 500 or more employees at a single site suffer an employment loss within a 30-day period; or (2) one-third or more of an employment site’s active employees (but at least 50 or more employees) suffer an employment loss within a 30-day period. 

In determining whether the employer satisfies these threshold requirements, it is important to check applicable state and local laws.  Many jurisdictions have enacted baby WARNs that dramatically lower the initial threshold numbers and increase the amount of advance notice that employers must give.  For example, New York’s baby WARN Act, which becomes effective on February 1, 2009, requires employers with 50 or more employees to give at least 90 days’ advance notice of any mass layoffs, plant closings, or “relocation” of operations.  For more information on this topic, click here.

There may be exceptions that excuse the employer from providing the full amount of notice required under applicable law.  For example, under the federal WARN Act, the “faltering company exception” may excuse notice in situations where the employer is closing an entire employment site.  The “unforeseeable business circumstances exception,” which generally applies to unexpected events beyond the employer’s control, may also relieve some or all of the employer’s obligation to give notice.  There is an argument that the recent precipitous drop in the economy is enough to trigger this exception.

Implementing the RIF

Once the employer has completed the steps outlined above and compiled its final list of employees selected for layoff, it should make final preparations for implementing the RIF.  These preparations include, among other things: 

(1) identifying the corporate representatives who will advise the employees individually of the decisions, coaching them in advance on the employer’s consistent explanation for the RIF, preparing a “script” to be followed with pre-prepared responses to anticipated questions; and familiarizing them with information on benefits and any outplacement services for terminated employees;

(2) ensuring that the employer pays all accrued but unpaid wages, bonuses, vacation, pre-negotiated severance, and other compensation in a timely manner, with appropriate withholdings, and in accordance with state and local law;

(3) compiling information packets for terminated employees regarding final compensation payments, outplacement assistance, insurance continuation and procedures for reapplying for other positions within the company; and

(4) preparing a handout outlining answers to frequently asked questions about the RIF for distribution to all employees, regardless of whether or not they were included in the RIF.  This will help control the spread of rumors and gossip and ensure dissemination of consistent explanations for the RIF. 

Finally, employers should consider offering additional benefits or severance packages to selected employees in exchange for a release of all potential claims against the employer.  As we describe in Part II of this client alert, there are several strict legal requirements that employers must follow to obtain a valid release, particularly with workers age 40 or older.  However, obtaining a valid release is the best method of limiting potential liability against the employer. 

A release also provides an opportunity for the employer to mandate binding arbitration to resolve any disputes that may arise between the employer and the discharged employees and to bind the employees to covenants of confidentiality, cooperation in future proceedings, and the like.  Employment counsel can advise employers on how to craft releases that will best withstand legal challenge and keep them abreast of any potential changes in the law, including the possible passage of the Arbitration Fairness Act (for an overview of this proposed legislation, click here), that could alter the validity of certain provisions or the entire release.

NEXT: In our next installment, we will discuss ways to minimize corporate liability for individual terminations.


Senate Democrats Unable to End Filibuster on ERISA Amendments Regarding Mental Health Parity


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Falling nine votes short of the 60 needed to overcome a Republican-backed filibuster on July 30, the Senate was unable to advance a House and Senate compromise over mental health parity language which was attached to pending energy and tax legislation (S. 3335).

The mental health parity provisions would amend ERISA to require group health plans to administer treatment limitations, beneficiary financial requirements and out-of-network coverage so that mental health benefits are no more restrictive than “substantially all medical and surgical benefits.” The legislation would exempt group health plans of employers with fewer than 50 employees.

Senate Democrats, with a handful of Republicans, mustered only 51 votes for cloture. Previous stand-alone mental health parity legislation has passed both the House and Senate, with the House approving mental health parity legislation (H.R. 1424) on March 5 by a vote of 268-148, and the Senate approving similar but distinct legislation (S. 558) by unanimous consent in September 2007.

Congress will likely continue consideration of the mental health parity compromise legislation upon return from its August recess.