Spring 2009 Stay Connected May 20, 2009 WEB HANDOUT.pdfThat kind of notion of shared benefits and burdens is something that I think has been lost for too long, and it’s something

Spring 2009 Stay Connected May 20, 2009

© 2009 Lewis and Roca LLP 1

A Legacy of Integrity and Trust

MAKING TOUGH, SMART RIF MAKING TOUGH, SMART RIF & ALTERNATIVE DECISIONS& ALTERNATIVE DECISIONS

Howard E. ColeLewis and Roca LLP

www.lewisandroca.com

RIFS RIFS –– THE BIG PICTURETHE 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 LayoffsAlternatives 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)• Paying closer attention to performance reviews




Recent RIP Settlements: Incentives to Recent RIP Settlements: Incentives to Consider Alternatives to RFConsider 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 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 increasesAllegations based on race, sex and retaliation are the most frequently filed charges

• Age discrimination complaints common after RIFS


Ways to Avoid Claims: RIF GOALSWays 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• Avoid legal consequences




RIF CHECKLIST HIGHLIGHTSRIF 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 SIGNALSRIF 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 AlternativesMakes 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

• CONSIDER ALTERNATIVES TO RIFS




Brainstorm AlternativesBrainstorm 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 FreezesHiring Freezes

– ProsPopular with most existing workersProvides breathing space for turnaroundLow litigation risk

– ConsUnpopular with those needing immediate helpChallenges of retooling existing workforceNo immediate bottom line impact


Voluntary Exit ProgramsVoluntary Exit Programs

– ProsGives employees some control over the processMinimizes litigation risk

– ConsExpenseRisk of losing good performers




Reduced Work SchedulesReduced Work Schedules

– ProsAllows employees to maintain benefitsMay be welcomed by more employees

– ConsFocus is on lower cost non- exempt employeesImpact on high performersGlobal Considerations


Sharper Performance ReviewsSharper Performance Reviews

– ProsGet tough - - No more sugar- coated reviewsCan be “stealth” RIF without attracting negative PR

– ConsIncreased litigation riskIs company ready for potential culture change?


Outplacement: A Crown JewelOutplacement: 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?Do small percentage of clients file lawsuits?




Impact of Alternatives 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 circumstancesDisclaimers

At will employmentRight to make unilateral changes to policies and benefits without additional considerationHandbook 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 ConsiderationsWage & Hour Considerations

– Minimum wage – cannot dip below statutory minimumU.S. = $7.25 Nevada (2 Tier) = $6.55/$7.55Some states require even exempt workers make the minimum wage (in considering hours worked)

– Elimination of overtimeCounsel managers not to cook the books or ask EEs to work off the clockFLSA covers all time permitted or suffered

– Hourly vs. Salaried workersVery different FLSA rulesChanges must be implemented separately


Wage & Hour IssuesWage & Hour Issues

– Salaried workers Minimum $455 a week Cannot be reduced for quantity or quality of work

Exception – CAN make long-term prospectivechanges (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




Work Furloughs, Reduced WorkweekWork 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 BenefitsPay Attention to Benefits

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

– HEALTHReduction of benefits Work with plan administrators – may lack flexibilityCompany could end up liable for uncovered medical expenses

– UNEMPLOYMENT COMPENSATIONRates and reporting requirements


Manage the AlternativesManage the Alternatives

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

Put spending cut onus on spendersMaybe 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 savingsPeople have to pay their mortgagesMore likely to get resistance (and allegations) if drastic cuts are made overnight without warning

– Give yourself time and don’t panic




Trying to Bullet Proof Your RIFTrying 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 ClaimsMinimize 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 ProblemsReleases: 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




RIFS RIFS –– Protecting the EmployerProtecting 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 EffortsExamples 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 RIFSAlternatives to RIFS

THANK YOU!******

QUESTIONS?

Stay Connected May 27, 2009


A Legacy of Integrity and Trust

MAKING TOUGH, SMART RIF MAKING TOUGH, SMART RIF

& ALTERNATIVE DECISIONS& ALTERNATIVE DECISIONS

Christy Hubbard

Lewis and Roca LLP


RIFS RIFS –– THE BIG PICTURETHE 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 LayoffsAlternatives 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)

• Paying closer attention to performance reviews




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

Consider Alternatives to RFConsider 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 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 GOALSWays 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

• Avoid legal consequences




RIF CHECKLIST HIGHLIGHTSRIF 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 SIGNALSRIF 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 AlternativesMakes 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

• CONSIDER ALTERNATIVES TO RIFS




Brainstorm AlternativesBrainstorm 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 FreezesHiring 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 ProgramsVoluntary Exit Programs

– Pros

�Gives employees some control over the process

�Minimizes litigation risk

– Cons

� Expense

� Risk of losing good performers




Reduced Work SchedulesReduced 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 ReviewsSharper 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 JewelOutplacement: 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?

� Do small percentage of clients file lawsuits?




Impact of Alternatives 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 ConsiderationsWage & 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 IssuesWage & Hour Issues

– Salaried workers � Minimum $455 a week � Cannot be reduced for quantity or quality of work

�Exception – CAN make long-term prospectivechanges (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




Work Furloughs, Reduced WorkweekWork 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 BenefitsPay 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 AlternativesManage 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

– Give yourself time and don’t panic




Trying to Bullet Proof Your RIFTrying 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 ClaimsMinimize 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 ProblemsReleases: 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




RIFS RIFS –– Protecting the EmployerProtecting 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 EffortsExamples 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 RIFSAlternatives to RIFS

THANK YOU!

******

QUESTIONS?

Spring 2009 Stay Connected May 20, 2009 WEB HANDOUT.pdfThat kind of notion of shared benefits and burdens is something that I think has been lost for too long, and it’s something

Documents