MMC, INC. E-Newsletter Volume IV, Issue No. 11

December 2008 

Surviving An Economic Downturn: Part II
 
As businesses continue to “ride out” the global financial crisis, we offer encouragement that you are not alone and MMC is here for you and able and willing to lend help and hope for successfully weathering the downturn. This issue of MMC’s Client E-Newsletter is Part Two of a three-part series aimed at helping to arm employers with the necessary guidance to manage the day-to-day challenges inherent to today’s business environment.

For the past 25 years, MMC has enjoyed its role as a leader for innovative management solutions. Our turn-key solutions for Human Resources, Payroll, Employee Benefits, Risk Management and Compliance issues makes us an invaluable partner for your organization.  Always feel free to reach our team of helpful professionals at (800) 899-MMCI (6624).

In this issue

• Staff Reductions: The Last Resort
• PAGA (Private Attorney General Act) and Wage & Hour Law Claims
• Protect Your “Good Faith” Decisions with an Internal Investigation, Part One
• All Employers of California Labor Are Duly Warned
• Wage & Hour Settlements Are Not To Be “Rubber-Stamped”

Staff Reductions: The Last Resort

Written by: Michele O'Donnell, M.S. Human Resources Management

Everywhere you turn, the current state of the economy is a central topic. The economic crisis is not only an issue in the United States, but a matter of global concern. In fact, the United Nations projects that about 20 million jobs will be lost worldwide by the end of 2009.

As many businesses across the country are facing financial challenges, employees naturally are uneasy about their future with employers. The fears of reductions in workforce loom large in employees’ minds. Minds that are also dealing with adjusting mortgages, rising childcare, fuel, food, and generally a higher cost of living.

Jon Gordon, author of “The No Complaining Rule: Positive Ways to Deal with Negativity at Work,” suggests that employer’s ramp up communication during this period of uncertainty to quell employee fears.  By holding weekly meetings, sending out informative newsletters or e-mails, an employer can better manage fears. Gordon says, "Even if things are great, people are still nervous." When there's a void in communication, he says, "Negativity fills the void."

The reality is that as many businesses experience the twinges of financial strain, the first thought often is to turn to staff reductions, as reductions can be a fast and quick cost saving measure.  However, the decision can also result in general fear, increased workers’ compensation and employment law claims, a loss of trust, and non-productivity.

There are options that employers should consider before making the decision to cut staff. Some alternatives are highlighted below.

• Have frank and open discussions with staff about financial challenges.  Staff may willingly agree to a reduction in pay or hours worked in lieu of undergoing a reduction in staff.
• Consider retraining current employees so that they can assume greater responsibilities and limit the need of having to hire additional workers with specific expertise or limited skills sets.
• Consider cutting back on perks such as employer-sponsored meals and snacks. Although many enjoy workplace perks, most would gladly give them up if it meant saving jobs.
• Consider alternative ways to save money, such as banning color copies, canceling company service subscriptions or limiting employer-sponsored memberships.
• Have employees volunteer to leave early on days where business is slow or set up a rotating schedule of who will go home early on slower days.

The bottom line is if this is a challenging time for your business, be open and share with your staff. Employees are much more willing to compromise and contribute solutions when they feel their input and opinions matter.

Our next installment in the Economic Downturn series will discuss HR Best Practices when a staff reduction is determined to be the only course of action.  

PAGA (Private Attorney General Act) and Wage & Hour Law Claims

Written by: Selena Rojhani Dallal, Esq.

Now, more than ever, employer’s wage and hour law practices have exposed them to “Gotcha!” lawsuits.  According to legal commentators, the past years have been marked by an increase of wage and hour cases.  Individual claims have grown by 86%, and multi-plaintiff cases/class actions have increased by 70%.  One of the biggest target areas is worker misclassification (exempt versus non-exempt employee status), followed by unpaid overtime, and missed rest and meal period claims. 

Wage and hour claims are not generally covered by employment practices liability insurance policies, are easy to file, and can require significant dollars to resolve.  Therefore employers beware.  Your reasoning as to why an employee has been classified as exempt, and therefore not entitled to meal and rest periods, or overtime, must be well established and documented.  A failure to do so could bring into question any employee’s work status--- even those who maintain what is traditionally considered “exempt” positions.  Additionally, an employer’s business practices can also be called into question with regards to how time cards are maintained and more.

The consequences of violating wage and hour laws in California can result in additional civil sanctions under Private Attorney General Act of 2004 (PAGA) theories.  And recent case law (see e.g., Sullivan v. Oracle Corp, Inc. below) indicates that employers operating in any state in the nation with employees performing work in California, can also be subject to PAGA. 

PAGA is a catch-all penalty act which provides “aggrieved employees” with additional monies for business practices resulting in wage and hour violations, along with attorneys’ fees and costs.  In order to bring claims under PAGA, any worker “injured” by an employer’s wage and hour practices can attach penalties against an employer by first bringing administrative claims and can then filing subsequent claims under the Public Attorney General theory.  In practice, the theory enables an employee to act as a “deputy” on behalf of the public and to prosecute offending employers for violating fair labor laws and practices.  Civil penalties under PAGA can result in an employer being subject to $100 fines for initial violations and $200 for subsequent violations on a per-employee, per- pay-period basis.  A PAGA recovery is to be shared with the state such that 25% goes to aggrieved employees and 75% goes to the California Labor and Workforce Development Agency.

So what can employers do to best protect themselves?  Create clear and concise labor law policies--- that work in conjunction with those posted in the workplace ---to assure against any perception that employees are treated unfairly. Also, those responsible for approving overtime and rest and meal period schedules must understand the importance of enforcement and maintaining accurate time card records.   Finally, employers should regularly audit workplace practices and records to assure compliance.  Labor law professionals at MMC are always happy to assist with PAGA questions and compliance audits.  Feel free to call us at (800) 899-MMCI (6624).

Protect Your “Good Faith” Decisions with an Internal Investigation, Part One

Written by: Selena Rojhani Dallal, Esq.

When you suspect employee bad acts or theft in the workplace, quickly terminating the suspected employee might feel like the best solution to the problem, but not so fast! Making a hasty termination decision can sometimes backfire into an employment law claim for discrimination or harassment against the employer.

Even when you believe there is no question of wrongdoing, conducting an internal workplace investigation is critical for avoiding the pitfalls of terminating an employee without fail-proof evidence. Generally, an employer’s reasonable, good faith decisions will support a termination that is based on suspected employee misconduct.   The hinge pin question that courts will generally consider is whether, at the time the decision to terminate employment was made, was the employer acting in good faith and following an investigation that was appropriate under the circumstances, that supported a termination.  In other words, an employer need not have absolute proof that an employee has engaged in theft, embezzlement, or other forms of misconduct, a “reasonable, good faith belief” is the standard for review.

Below are a few tips to keep in mind should your workplace be dealing with suspected misconduct.

Step One: Before conducting a formal investigation, make careful and alert observations of your workplace environment.  Employee rumors may reveal more than you know. Also, is there an employee who never takes time off, or whose work area is extremely guarded, and is one employee especially territorial?  Sometimes these work traits can belie a greater problem than just idiosyncrasies.

Step Two: Ensure the immediate health and safety of each employee without compromising the business or its assets.  Address suspected misconduct at the right time and under the proper circumstances. If an employee has served as an “informant” of sorts, thank the employee for their concern and advise him or her that you will attempt to maintain their confidentiality but it may be necessary to divulge the source for your information at some point.  Lastly, encourage the employee to maintain the information as privately as possible and assure “informants” that you will take all steps to protect them from reprisal from others.

Step Three: Gather all evidence of wrongdoing including: facts, documents, names of witnesses, and written statements, etc.  Objectively identify who may help you with managing the investigation as privately as possible to avoid false accusations.

Step Four: Review all evidence to formulate an unbiased, good faith conclusion, and action plan. It will behoove you to work with white-collar crime specialists such as the police or human resources consultants and employment lawyers at MMC. How swiftly you move will make the difference between locating assets, minimizing economic harm to your business, and prosecuting employees for wrongdoing. Most importantly, your careful and methodical reaction to suspicions of wrongdoing will send a clear message to others in your workplace that employee misconduct will not be tolerated. 

All Employers of California Labor Are Duly Warned

Written by: Crystal M. O'Brien, Esq.

On November 6th, in Sullivan v. Oracle Corp., Inc., the Ninth Circuit decided a matter that is certain to long implications on employers nationwide.

Oracle, the software giant, hired hundreds of employees it classified as “teachers” to train customers in the use of its products.  Apparently, in classifying the employees as “teachers” Oracle also treated the employees as “exempt” from overtime/meal/rest period laws. But in 2003, prompted by a court decision, Oracle reclassified the “teachers” as “non-exempt” and duly began paying employees overtime wages on a going-forward basis.  Oracle, however, did not address past unpaid overtime.

Enter: three non-California resident employees who performed work occasionally in California with unpaid overtime claims.  All three sued Oracle as a class and pursuant to California’s stringent labor code protections.  While Oracle responded to the action by removing it to federal court and arguing that the employees were not subject to the protections of California labor law, the Ninth Circuit disagreed. 

In reversing the lower court’s decision in favor of Oracle granting it a summary judgment against the employees, the federal appellate court held California has a substantial interest in assuring employers in the state comply with labor laws and not benefit from side-stepping labor laws by hiring out-of-state employees. Thus because Oracle gained the benefit of performing labor in California from its out-of-state employees, these employees were also entitled to the protections of California law prohibiting overtime violations.

The lesson to employers is ageless.  Classify employees fairly and correctly as “exempt” or “non-exempt” and comply with labor laws regularly and when any question of non-compliance arises address the same promptly and as fairly as possible.

Wage & Hour Settlements Are Not To Be “Rubber-Stamped”

Written by: Crystal M. O'Brien, Esq.

In Kullar v. Foot Locker Retail, Inc., a November 7, 2008 decision, a California Court of Appeal reversed a lower court’s decision approving a $2 million dollar settlement of claims for diverse wage and hour claims.  In Foot Locker, a former retail store employee brought a lawsuit against the retail giant alleging, in part, that as a condition of employment, the store required employees to purchase expensive clothing and shoes as “uniforms” without reimbursement pursuant to California labor laws.  Additionally, the store required employees to undergo regular security checks while “off the clock” thereby violating other wage and hour laws. 

Shortly after Kullar filed his lawsuit, Foot Locker filed an answer denying all claims.  The parties thereafter entered private mediation, without engaging in extensive discovery and successfully reached a proposed settlement agreement for all wage and hour claims of putative class members. 

An employee/objector, however, alleged that judicial approval of the settlement would exclude certain members from bringing claims against Foot Locker for other violative practices which failed to observe rest and meal period requirements and led to an unlawful practice of issuing final payroll checks late.  Thus the objector sought the court’s intervention in requiring Kullar and Foot Locker’s counsel to disclose evidence of how they reached the terms of the settlement in order for the court before approving the same as “fair”.  The trial court ruled in favor of the parties and their counsel holding that counsel and the mediator were experienced and the settlement should be approved, without the detailed disclosure of what had been exchanged during mediation to reach a settlement.

Under appellate review, however, the trial court’s decision was reversed.  The appellate court concluded that courts are empowered with the ability to question fairness (even in a protected mediation context) and encouraged not to “rubber stamp” settlement agreements.  Thus scrutiny of settlements was framed as a judicial duty that assures the interests of justice and equity are protected.

The Foot Locker decision has vast implications for all employers.  Most interesting, perhaps, is that while private mediation can expeditiously and cost-effectively resolve matters, assuring the integrity of how and why settlements are reached through documentation is necessary and without the same can subject a settlement to judicial disapproval. 

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