Friday, May 15, 2009
Layoffs, furloughs, pay cuts can result in lawsuits
Phoenix Business Journal – by Mike Sunnucks
The recession has many people feeling like they’re living the life of characters in the anticorporate movie “Office Space,” with consultants and managers looking to cut costs everywhere possible and workers fretting over furloughs, pay cuts and layoffs.
For employers, these cost-cutting measures involve plenty of potential legal pitfalls, including companies getting sued for targeting a specific group or type of worker with layoffs, and businesses being forced to shift all of their workers to an hourly pay basis because salaried workers were checking their business e-mail or voice mail while on mandated furloughs.
A number of Valley employers — including Arizona State University and The Arizona Republic — have put workers on forced unpaid leave to save money. The biggest legal problem related to furloughs is that employers might get in trouble with the U.S. Department of Labor if salaried workers do any kind of work during that forced off-time, said Christy Hubbard, an employment attorney with Phoenix-based law firm Lewis and Roca LLP.
Hubbard said salaried workers who do a glimmer of work during their unpaid furloughs — including checking e-mail or voice mail — can spark complaints to the DOL or lawsuits. Those actions can lead to businesses losing their ability to employ salaried workers and force them to pay hourly wages, even to professional staff. Such a circumstance could be a big hit to businesses, as it would require them to pay overtime and track hourly work.
“You have to be doing it right, or you are violating the law,” Hubbard said.
Many businesses — including those in the troubled construction and financial sectors — have cut workers’ pay across the board by 5 percent or 10 percent. Others are encouraging employees to take surplus vacation time to reduce payout costs. Still others are laying people off.
When it comes to layoffs or pay cuts, employers need to make sure those actions don’t target classes of workers protected by federal discrimination laws, such as older workers, women or minorities.
Dona Nutini, an employment attorney with the Phoenix law office of Polsinelli Shughart PC, said employers’ biggest mistakes when it comes to layoffs, pay cuts and furloughs is that they fail to communicate with employees. Frustrations are exacerbated by dictums from headquarters rather than direct communication from local managers.
“The biggest problem is that (companies) don’t communicate with their employees,” Nutini said. “They don’t keep them in the loop.”
She said things like Friday layoffs and short notices lead to staff frustrations that can lead to discrimination claims, other lawsuits or unionization efforts.
Nutini, former staff counsel with the National Labor Relations Board, said businesses need to be able to prove their cuts are not discriminatory.
Mike Tope, CEO of Creative Business Resources, a Phoenix-based consulting and human resources firm, said that’s the biggest legal challenge for employers facing staff cutbacks.
“Layoffs usually cause the most legal problems if the terminated employees feel they were discriminated against,” Tope said.
Both Tope and Nutini said employers need to document and quantify their actions to protect against costly lawsuits.
John Egbert, an attorney and head of the labor practice at the Phoenix law office of Jennings Strouss & Salmon PLC, said employers need to be especially aware of disclosure rules and worker protections under the Older Worker Benefit Protection Act, the federal law related to employees who are 40 or older.