Author: Gillian Flynn

Defamation suits can crop up at any stage of the employment cycle. Performance reviews, investigations, demotions, terminations and references can all seed the ground for a nasty legal battle. Yet these are essential HR functions. Marlene Muraco, an attorney for San Francisco-based employment law firm Littler, Mendelson, Fastiff, Tichy and Mathiason, talks about how to do your job in the most legally defensible manner.

Can you begin with an overview of defamation law?
To have a claim for defamation, plaintiffs have to prove at least three and possibly four things, depending on exactly what the claim is. First, the key to the defamation claim is it has to be an untrue [statement]. Second, it has to be a defamatory statement of fact about the plaintiff. And the third thing is it has to be published to a third party by the defendant—the person being sued for defamation. Publication would be a statement. It could be in writing; it could be orally. I want to emphasize [the importance of the] third party. In other words, if you and I are alone in a room and I say to you, “You’re a thief,” that’s not defamation. I haven’t said anything to a third party. The possible fourth thing [to prove] would be injury to the plaintiff or damages. [Plaintiffs] have to be able to prove damages. They don’t always have to prove [they suffered] monetary damages, because some types of statements are considered to be so bad that plaintiffs are allowed to collect damages [for harm] to the[ir] reputations without proving that they actually suffered monetary loss.

What would be an example of that kind of statement?
Certain kinds of statements are known as defamatory per se. They’re the [three] following kinds of statements: accusing somebody of having committed a criminal offense, accusing somebody of being infected with a “loathsome communicable disease” such as AIDS, or accusing a person of an inability to perform the duties of his or her job. But it has to be something more than “he messed up his project.” It really has to be he’s totally incompetent, and he just can’t do something that’s really an essential function of his job.

Because so many defamation suits stem from the termination process, how should a company conduct a termination to avoid a suit?
To avoid any implication of defamation when you’re doing a termination, there are a couple things to think about. If somebody’s being terminated, he or she is being terminated presumably because the person did something wrong—poor performance or some kind of misconduct. So there are all kinds of things leading up to the termination, [such as] your investigation into whatever it is the employee did or the counseling procedure if somebody had poor performance. All of those [types of] activities have the potential for a defamation claim.

What’s an example?
For instance, if an employer gives an employee an evaluation, and it has statements in it that accuse the employee of criminal conduct, dishonesty or incompetence, there have been situations in which the employer has been found liable if in fact those statements and evaluations were false, and the person who wrote them down knew they were false when he or she wrote them down. Or [the individual] should have known they were false. For instance, I accuse you of theft in your evaluation, and I should have had reason to know that in fact you weren’t the one who stole the computer. So the first thing [managers] want to do when writing employee reviews, obviously, is be very careful that anything that’s in there is objectively verifiable and not somebody’s wild guess about what’s going on. Statements of opinion can’t be defamatory, so anything that’s the supervisor’s opinion, as opposed to something that’s a statement of fact, wouldn’t be actionable as defamation. But to the extent the supervisor says, “You did this and you did that,” you want to make sure that it’s a fact. This is why a lot of times companies have policies that their HR departments review employee reviews before they give them out, to make sure everything in there is OK.

In what other ways do defamation suits arise?
Another way [defamation occurs] is when you fire somebody, and then other people want to know why the person was fired. For instance, there are a couple of cases in California in which somebody was terminated for sexual harassment. And then the employer went back to the workforce and said, “Just to re-emphasize our policy on sexual harassment, we want you to know that we recently terminated somebody for sexual harassment.” So then the person [who was] fired sued for defamation. I think in most jurisdictions the conclusion is that discussions within a corporation are going to be protected, that employers won’t be held liable for them as long as the communications are made in good faith and are essential to the termination. In other words, they’re communicated to people who have a need to know, like the person’s supervisor, or perhaps the other people in the department. But even communications within a corporation that aren’t necessary—in other words, the supervisor is working late one night, and the janitor comes in and asks, “Whatever happened to Jim?” [And the supervisor replies,] “Oh, we fired him because we caught him sleeping on the job.” That kind of thing could be defamatory. Basically the bottom line is the employer wants to make sure that communication about the reasons for the termination, even within the corporation itself, are really limited to the people who have a business need to know.

What should HR keep in mind when conducting an investigation—say on sexual harassment—to ensure the employee being investigated isn’t defamed?
In the event that HR is investigating somebody’s conduct, HR wants to compartmentalize the investigation as much as it can. So only give information out to those people who need to know and who are participating in the investigation. And only tell them what they need to know. If there’s a written report made because of some kind of investigation, they don’t want to circulate the written report beyond the people involved in the discipline process, who have a need to know. The same thing applies if you’re meeting. A lot of times employers will have an extra person in a meeting [who is] with an employee [under investigation]. If the extra person there is an HR person, that’s OK. Obviously though, you wouldn’t want it to be a co-employee whom you just want to have there for a witness. That could create [cause for] a defamatory suit.

What about escorting terminated employees from the building—there have been several defamation lawsuits around that.
I don’t think there’s any problem with escorting somebody out of the building. That’s OK, as long as nothing’s said. If you’re escorting the person out of the building, and other employees stop and say, “What’s going on?” and they’re given a full explanation, that could be defamatory provided it turns out to be false.

What should HR know—and advise managers—about giving performance reviews?
The best protection against defamation is always that it’s the truth. It’s an absolute defense to defamation. So again, the best protection and the safest way to defend a statement is to put down the truth. And the second-best defense is to act in good faith. In [some states] there’s what’s called a qualified privilege for the information that you put down in the performance review. That means that as long as the person who makes the statement is acting in good faith, he or she won’t be able to be held liable for defamation, even if what he or she wrote down ultimately turns out to have been false. It’s a recognition that these people need to do business, and that if they’re at risk for defamation every time you take a business action, they’re going to have a problem—because most people don’t agree with what’s on their performance reviews all the time.

How can an employer safely give references on a former terminated employee?
The safest thing to do is to have a policy that says you’re just going to give name, rank and serial number. One of the reasons that’s advisable is that it protects you against claims of self-compelled defamation.

What’s that?
This is unbelievable. Here’s the theory. You terminate somebody and give him or her a false and defamatory reason for his or her termination, such as that the person you [terminated] harassed somebody or stole [something]. The employee then [interviews with] a prospective employer. The prospective employer’s going to say, “Why’d you leave your last employ?” And [the former employee is] going to feel compelled to say, “Because they accused me of stealing.” Courts in many jurisdictions have found that [this] can be actionable defamation, even though the employer’s not the one making the statement.

So it’s really ridiculous if you think about it. It puts the employee in charge of when the cause of action arises. That’s because there’s a statute of limitations for all claims. But with a self-compelled defamation claim, the person could think, well my statute of limitations is about to run out. I know, I’ll go out and tell somebody—now I have a whole new claim!”

So how does an employer get around that?
Give only name, rank and serial number. Then the employee can’t feel compelled to tell another employer why he or she was let go. If the reference is checked, the new employer will just get name, rank and serial number. So you want to have that kind of policy and publicize that you have that kind of policy. However, if employers do choose to give references, they have to give accurate ones. You don’t have an obligation to speak, but if you do speak, you better speak completely. If you choose to give a reference, and you say something that’s false, clearly that can be defamatory. If you choose to give a reference, and you give a good reference even, you can still get nailed.

How’s that?
There was a case in California recently. What happened in that case was that a school administrator was going to get a new job. He applied to the school, and the school called his previous employer. The previous employer gave a glowing representation, talking about this guy’s good rapport with students. So the guy gets hired and gets caught engaging in sexual misconduct with one of the students. During the course of that lawsuit [the school officials] find out that there was this glowing reference given by his previous employer. They also find out that in fact the previous employer had been fully aware that this guy had problems with female students. At his previous employer he had been engaging in sexual misconduct, and in fact had been forced to resign from a previous school because of complaints lodged against him. [The school officials] knew this. Despite that, they gave a glowing reference. The court said, “Although policy considerations dictate that ordinarily a recommending employer should not be held accountable for failing to disclose negative information regarding a former employee, nevertheless liability may be imposed if the recommendation letter amounts to an affirmative misrepresentation presenting a foreseeable and substantial risk of physical harm to a perspective employer or third person.”

So say you have an employee who was terminated for something that was harmful to a third party—violence or sexual harassment—and someone calls for a reference. The employer gives a positive reference and doesn’t mention what they know about. The employer can be held liable to any third party who subsequently gets injured. The people that just give the name and rank will be OK, because they didn’t make an affirmative misrepresentation.

In 1990, when Matthew W. Barrett became Bank of Montreal’s chairman and Tony Comper became president, they had one major goal: To focus the entire workforce on success. It’s a simple idea, but not so easy in execution. How would they get entry-level tellers to think of their work not just as a means to a paycheck, but as a direct contribution to BMO shareholders? How would they remind corporate executives that their jobs were not just to boost the bottom line, but to charm entire communities?

The answer was what BMO executives call a balanced scorecard approach. To be competitive, executives decided, the bank had to meet the needs of four stakeholders: BMO shareholders, customers, employees and communities.

Executives translated that idea into four goals: shareholders needed a return on equity, customers needed good service, employees needed to feel loyal and satisfied, and communities needed to feel the bank made a difference in their neighborhoods. Return on investment would determine satisfaction for shareholders; surveys and feedback would determine satisfaction for customers, employees and communities.

So far, so good, but every single department and every employee in every department had to understand how their work contributed to the success of those four goals. So each employee’s and department’s performance ratings now are dependent on their contribution toward each goal. Employees in the customer-service department, for instance, are rated by their return on equity (judged by their cost-effectiveness), their customer satisfaction (judged from customer feedback), and their community involvement (judged by any outreach programs or increase in customers).

Departments may be assigned a specific stakeholder. HR is in charge of the employee piece, ensuring competent, committed workers in a cost-effective way. Harriet Stairs, senior vice president of HR, uses training and education to ensure competency, and work/life and career-development programs to help commitment. Knowing she’s rated on the cost-effectiveness of all this, she also keeps her eye on the price tag. “It encourages everyone to do his or her job with the exact same issues in mind,” Stairs says.

At the end of the year, the scores from everyone’s performance ratings are translated into indexes, ratings from one to 10. The index for the employee stakeholder piece would be determined by ratings for competency, commitment and cost-effectiveness. The four indexes — for BMO shareholders, customers, employees and communities — are then rolled up into one figure of merit. At the end of each year, Barrett presents this to the board of directors, who use it to determine his bonus.

Workforce, December 1997, Vol. 76, No. 12, p. 36.

How many independent contractors work at your company? Fewer than you may think. Companies these days are dallying in the contingent workforce concept a little too carelessly. Yes, it’s tempting to use “independent contractors.” They don’t bring with them all the duties that employees do: payroll tasks, benefits issues, management chores. But they aren’t the HR panacea that many employers seem to think they are. For one thing-and a lot of executives out there seem to be ignorant of this-you can’t just decide to classify a worker as an independent contractor, sign on the dotted line and let that be that. You in fact, don’t make the decision as to who is and isn’t an independent contractor at all. The job and the nature of the employment relationship under IRS regulations make that decision. It’s not something to be taken lightly, as Microsoft Corp., a company facing the possibility of a gruesome financial pounding for misclassifying employees, can tell you.

Howard A. Simon, a partner in the labor, employment and benefits law group of Landels, Ripley & Diamond LLP in San Francisco, explains the must-knows of classifying workers as independent contractors vs. employees.

How common is it for employers to think their classifications are legal when they’re not?
It’s very common, particularly in industries that use a lot of independent contractors, such as the software industry and some sales-support industries like inventory takers or merchandisers in stores. Industries that tend to use them a lot, both large industries and small, make mistakes pretty frequently.

Is the use of independent contractors a new and growing trend?
I wouldn’t say that it’s new, but I’d say that it’s growing. People have been using independent contractors for a long time. The reason it has grown is really twofold. One reason is independent contractors aren’t entitled to benefits, by and large. And as benefits costs skyrocket, particularly medical benefits, employers are trying to save money by putting individual workers in nonbenefits categories like independent contractor, so they’re not eligible.

What’s the other reason for its growth?
The second reason is there’s a business culture of downsizing right now, and a lot of companies are downsizing with smoke and mirrors. What they’ll do is downsize their headcount, because they have some sort of headcount restriction. Then they’ll backfill these positions with folks they’re calling independent consultants or contractors. So on paper it looks like they’ve got a reduced payroll and lower headcount when in fact they’re just backfilling the jobs with people who have a different status. They’re getting the work done so their bosses are happy, but they’re just robbing Peter to pay Paul because it’s coming out of a different budget.

What are the crucial differences between independent contractors and employees?
Let’s say you get blueprints from the architect, and you walk over to Ms. Contractor and say, “Can you build me this house? And how much will it cost, and when will it be done?” She says that you can have it January 1 and it’ll cost $250,000. Now, do you care what kind of labor she uses? If she wants to use ancient, single-celled Martian labor, you don’t care, and you have no control over that. Do you care where she buys her lumber? No. Do you care if she only works on alternate Thursdays between 2 and 4 in the morning? No, you don’t care. You’ve bought a house by a date at a price. If she gets that done, terrific. If it costs her $100,000 to build, then she’s going to make a lot of money. If it costs her $300,000, she’s going to lose a lot of money because she underbid the job. But that’s not your problem, that’s hers. That’s an independent contractor.

So what’s the key to being an independent contractor?
The key concept is what’s called the right to control. When you hire an independent contractor, you’re purchasing a product; you’re purchasing an end. To the extent you retain the right to control the means by which that’s done, then [the worker] looks more and more like an employee. The Internal Revenue Service has developed a 20-factor test to determine whether you have the right to control. It includes who sets the hours of work, where the work is performed, who provides the tools necessary to do the work, who controls any assistants, how much training is given, and how regularly the person has to report the progress of his or her work [as determining factors]. To the extent that you as the hiring person tell the person where to be and when to be there, require weekly reports, provide training, control the assistants-all those things show [whether] you’re exercising control over the means. The more control you have over the means, the more you look like an employer.

So to use the example of building the house, what would that look like with an employee?
You’d say, “Here are the blueprints. Work from 9 to 5 Monday through Friday. I want you to report to me weekly. I want you to buy your lumber here and buy your nails there. I want you to give me a bunch of reports on your progress because I want you to be on budget.” Then the key there would be [whether] there’s any risk of loss. “You go over budget, we’ll fix it in the budget. You go under budget, we’ll all save money.” That would be an employee.

What are the common mistakes employers make?
A written agreement is one of the 20 factors the IRS will look at-what is each party’s own understanding of the relationship? But that by no means is definitive. That’s a big mistake people make: They think if they have an independent-contract agreement, then they’re fine. The IRS can look right past that. They’re going to be looking at what’s really going on-the facts and circumstances.

What are the red flags for the IRS?
There are two really big red flags right now. One is called inconsistent treatment. Say you’ve got somebody in your firm who’s designing software, writing source code for a computer-aided design software program. You need to beef up the ranks because you’re trying to get a product out the door, and you don’t have enough bodies to write the source code. So you bring in a consultant to help with the writing. You call that person an independent contractor because you’re just hiring the person on a short-term basis to help you out. The problem is, you’ve got somebody in-house also doing this function. The IRS will presume that because you’ve got one person on a W-2 basis who’s an employee performing function X, that presumptively everybody performing function X is an employee. You’ve got to prove that the person is not an employee. If you’ve got two people doing the same work functionally but you’re calling them different things, that’s vulnerable.

How can an employer safeguard against this problem?
Hire the person through a temp agency. That way you have an independent-contractor relationship with a temporary-service agency, and there’s no question whether this person is an employee. The bottom line here is that the IRS wants to make sure it gets income tax withholding.

What’s the other big red flag?
The other big red flag is what’s called a centrality analysis. That is: You’re not likely to contract out your fundamental service. If you’re in the business of producing a magazine, are you going to farm out to a contractor the editing function? No, because that’s the most central thing to what you do. Take the software industry-you wouldn’t hire just anyone to write your software, your primary function. On the other hand, does anybody care if you hire a contractor to paint the building you work in? No, because you’re not in the business of painting. The more central the function is to the fundamental business of the company, the higher the scrutiny on whether it’s an independent-contractor type of job.

Why is the IRS so watchful in this employment area?
The IRS cares because the cash flow the federal government runs on is personal income tax withholding and employment tax withholding. Take the 30 percent of our wages we don’t see because it’s withheld and multiply that by every employee in the country. That’s a huge amount of money and that’s the money the federal government runs on. So when the [IRS] doesn’t get it, [its administrators aren’t] happy. So they look very closely at employment structures that don’t provide for the withholding of payroll taxes, and of course, independent contractors don’t pay payroll taxes. That’s why they care. And there are other issues. For example, you don’t pay workers’ compensation premiums for independent contractors, so if they get hurt on the job, the cost [may] fall into Medicaid. It’s those kinds of things as well.

What are other common mistakes employers make in classification?
The most common mistake is assuming a written agreement is all you need, that if you have a contract you can do whatever you want. Another common mistake occurs [when] you’ve had a downsizing or an early-retirement program, and you rehire a person as a consultant after the [employee] left through the downsizing or retirement program. And the employee is doing the same work on Tuesday that he or she was doing on Monday, you’re just calling the person a consultant now. The employer will lose that [argument] 100 times out of 100. It’s a very common [practice] now-and very suspect.

How should an employer handle such a situation?
The solution is to make sure that functionally, the nature of the task is really different. If somebody has been a software designer, don’t give that person a design function, maybe give him or her a coaching function. If he or she had been managing a process, then give the person some business consulting on process management that isn’t directly related. Giving [employees-turned-consultants] a different function is the key. And don’t violate any of the 20 IRS factors. Let them work from home, set their hours of work and pay them by the job not the hour.

So it’s also how the job is paid and performed that matters?
Ideally, independent contractors should be paid by the job, not by the hour. A lot of software folks just get paid by the hour. If you have to do that because there’s no other way to manage it, bill against a contract maximum. In the written contract put: “This is a contract of $40,000, payable at the rate of $30 for each hour incurred.” Then if you reach the contract maximum, you renegotiate.

What about providing the contractor with the necessary equipment?
If you really want to establish an independent contractor relationship, you’d charge rent; you’d rent out the equipment, and you’d rent out the office space. There are all kinds of accounting tricks you can do to fix that-you just jack up the contract price and imbed the rent in it. So it’s form over substance, but it’s the kind of thing the taxing authorities look for. If you’re providing the place and the equipment, then charge the person rent. And if that means you, with a wink and a nod, increase the contract price, you still lower your risk.

So should you never hire former employees to do their former jobs on a contract basis?
That’s correct, because of the inconsistent treatment argument. What I’d do in that case: Under your benefits plans, you can define who’s eligible and who’s not essentially in any way you want, as long as you pass nondiscrimination tests. So the better solution is to hire the person on as a W-2 employee and do payroll-tax withholding but define eligibility for benefits as full-time employees who aren’t, for instance, recently downsized employees hired back. You can do that. There’s nothing illegal about defining benefits eligibility around classes of employees. The better way to deal with the downsizing or retirement rehire is to bring that person back as a part-time employee and define your benefits plan such that the person in that classification isn’t eligible.

What are some other problems employers have?
Another common mistake is hiring somebody 40 hours a week and expecting him or her to be an independent contractor. Independent contractors are independent businesspeople who have multiple clients, who make their living at this. If you occupy their entire working life, you’re hiring them full time. The IRS is going to assume you’re an employer because this person couldn’t really be an independent business person out there hustling for business. So you really want people to have more than one client. Now, in a situation in which you have a very short but very intense need, you can get around that. If you hire somebody full time for a few months to make a deadline, that’s different.

What’s key for employers to know?
The key notion is the right to control. It’s not the exercise of it; it’s the retention of it. So even if you retain the right to control but don’t exercise it, you still have it. These are independent professionals-provide limited instructions. These are supposedly highly skilled professionals-provide no training. Generally speaking, in most circumstances, the services don’t have to be rendered personally. Do you care if it’s actually Ms. Contractor holding the hammer in her hand or someone who works for her? It’s built according to the plans; you don’t care, so don’t require that a specific individual do the work unless it’s very highly skilled. If the work is essential to your hiring firm, to what you do, then it’s not a contract function.

What else?
It shouldn’t be a continuing relationship. If somebody’s with you for six months or more, you’re very vulnerable. One project shouldn’t lead right into another. Long-term relationships are better handled by temporary-service relationships. The person has the right to control his or her own assistants. If he or she wants to hire somebody to help do the work out of whatever contract fee you’re paying, you shouldn’t have a problem with that. Unless it’s not practical, the contractor should decide where the work gets done. If the work can be done just as well at the contractor’s terminal as your terminal, the person should do it at home. Where it’s practical, the contractor should decide the order in which to do the work-you shouldn’t be dictating, “Do A, then B, then C,” unless it’s absolutely necessary. The contractor shouldn’t be providing interim reports to you. The more regular the reporting, the more it looks like employment.

What about the financial aspects?
In terms of financial control, contractors generally should be paid by the job, not the time. Charge rent for services you provide, as I said. Generally speaking, you shouldn’t be paying business expenses for contractors. Let them imbed them in the contract. If they have to travel, they should charge $40 instead of $30. Don’t provide tools, or charge rent for them if you do. But the contractor should have most of his or her own equipment. The idea is this is a person trying to make a living as an independent businessperson. If the person hasn’t invested anything in the business, what kind of business does he or she have?
The contractor should be offering services to the general public. Have the contractor print up his or her own business cards. Encourage the person to put an ad for his or her services in the paper. The contractor should have the risk of profit and loss. You shouldn’t be the guarantor that the contractor is going to make money no matter what.
Contractors generally shouldn’t be considered at-will employees. Employees are people you can fire. Contractors are people you fire when they breach the contract; you fire them for nonperformance. But you can’t say, “We don’t need you anymore, bye.” You’ve got a contract.

Can you explain the Vizcaino v. Microsoft case?
This is really important. It’s a 9th Circuit case that came down in October 1996. The case was: Microsoft hired a bunch of independent contractor software engineers. The company had a lot of these people-there are many folks out there who are software engineers who don’t want to be anybody’s employee. So they were very happy to be independent contractors. They signed independent contract agreements stating they weren’t entitled to employee benefits, and they got more money per hour than an equivalent employee would get, because they weren’t getting any benefits. Microsoft called them independent contractors, and they had written agreements and everyone was fine with it. Well, the IRS audited and determined-rightly probably-that these weren’t truly independent contractors, these were employees. It assessed Microsoft lots of these back taxes. That’s well and good. That happens all the time. Microsoft then ran some of them through temporary service agencies, let some go and put some on the payroll as employees.

So what makes this case stand out?
Some enterprising woman said, “Wait a minute. If I was an employee, I should’ve been eligible for stock options and eligible to participate in a 401(k) plan.” So she sued under ERISA for inclusion in Microsoft’s benefits plans. Microsoft defended by saying [the employees] knew what they were getting into. They got more money because they weren’t eligible for these things. The trial court agreed but the 9th Circuit reversed the decision, [because] the definition of employee for eligibility for the 401(k) plan was anybody who had common-law employee status and is paid on U.S. payroll. Microsoft lost that. As for being paid on U.S. payroll, Microsoft said, “These people submit invoices that get paid out of accounts payable, so they’re not on payroll.” The judge [ruled] that “payroll” means being paid out of U.S. funds, not out of the payroll department. So they’re being paid out of payroll and they’re common-law employees. Therefore, they’re eligible to participate in benefits plans, including receiving stock options.

What does this mean to employers?
The implication of the case is really serious because Microsoft now has to go back from the time these folks started and allow them to participate in the 401(k) plan. So if they want to put a bunch of money in the plan, and if Microsoft has a matching [fund program], Microsoft has to do all that.

There’s more to it, isn’t there?
Here’s where it gets really creepy, at least in theory. We don’t know how this will play out yet. These folks are all highly compensated. When you set up a benefits plan, the rules are that you’re not allowed to give an unfair advantage to people who are highly compensated by letting them contribute proportionally more than people who aren’t highly compensated. So you have discrimination tests to make sure you’re not being unfair. You base discrimination testing on who your eligible employees are in any given year. Well, now Microsoft has got a whole bunch of people who, it has just found out, have been employees for purposes of the plan, and who the company never included in its discrimination testing.

What will Microsoft have to do?
In theory, the company has got to go back and redo all its discrimination testing. Because Microsoft has to add all these highly compensated people into the plan, it may no longer pass the discrimination test. Which means for the plan years when these people get added, the plan theoretically could be disqualified. That means the IRS says it’s not a tax-exempt plan so all the money Microsoft puts into the plan gets taxed, and every employee who contributed in the 401(k) has that money treated as taxable income. It’s sort of a nightmare scenario. Now, it probably isn’t going to happen that way because the IRS isn’t going to let tens of thousands of Microsoft employees take the hit for Microsoft’s screwing up. The IRS probably will let Microsoft participate in a correction program that will cost the company a lot of money. This is a new wrinkle on the independent contractor thing. I think this is the class-action lawsuit of the ’90s, with every major company that uses a lot of contractors tremendously vulnerable. There’s this nuclear scenario of disqualification of your plan, which is like a nuclear bomb in your office. So Vizcaino is a sleeping giant.
The 9th Circuit will rehear the case, and the opinion might be changed. Certainly if Microsoft loses at the 9th Circuit, it will take this to the Supreme Court. It has no choice; this case is a big deal.

Any final advice?
Do a self-audit. Bring in someone who knows this area. Bring someone in under the attorney-client privilege and do an internal audit of your independent-contractor practices so you can fix [any problem] before you get audited. The IRS will look very favorably on a company that, without an IRS audit or a complaint, looks at itself and says, “We screwed up, we’re going to fix it.”

Workforce, September 1997, Vol. 76, No. 9, pp. 125-130.

Thanks to a recent Court of Appeals ruling, someday HR may not have to worry as much about how to handle lawsuits. The District of Columbia U.S. Court of Appeals has ruled that employers may require new hires, as a condition of employment, to waive all rights to a trial by jury with respect to any dispute relating to recruitment, employment or discrimination-including claims involving discrimination. Such waivers would require employees to go through arbitration, the tab for which the employer would pick up.

In Clinton Cole v. Burns International Security Services, the plaintiff had signed an employment agreement waiving his right to a jury trial and permitting Burns Security to opt for arbitration in the event Cole filed a lawsuit relating to his employment. In October 1993, Burns Security fired Cole, who filed a complaint in the U.S. District Court for the District of Columbia alleging, among other issues, racial discrimination and harassment. His complaint was dismissed and the trial court granted Burns Securities’ motion to compel arbitration.

The decision will “have a dramatic impact on the number of cases that reach the courts,” says William F. Kershner, a partner with Philadelphia-based law firm Pepper, Hamilton & Scheetz. “For businesses facing a growing number of lawsuits, many of which are frivolous but all of which are expensive to defend, the arbitration process offers a practical and cost-effective alternative.”

But, with the 12 U.S. circuit courts at disagreement on the issue, will the decision stick? Kershner says the Supreme Court is likely at some point to make a final decision. When it does, the current ruling has several things going for it. First of all, the District of Columbia Circuit Court of Appeals is quite auspicious: three of the 9 current Supreme Court justices were recruited from that circuit.

In addition, the judge who wrote the decision, Harry Edwards, is well-known and respected in labor-and-employment law circles. “It’s a dynamite combination for that decision to become the one ultimately adopted by the Supreme Court,” says Kershner.


Workforce, July 1997, Vol. 76, No. 7, pp. 66-71.

HR professionals arguably wear the most hats at any given company. They’re strategic partners, business advisers, guidance counselors, father confessors and employee liaisons, to name just a few roles a good HR person plays.

And when an employee files a civil-rights complaint or an employment-related lawsuit, an HR professional has another role to play, one that can save or cost a company millions of dollars: HR as legal guardian.

Like any job, this one can be performed well or performed poorly. HR professionals who learn how to help their companies build a solid legal case-from knowing what to do when a lawsuit hits to how to act on a witness stand-are the ones who can truly make a case.

With ever-rising employment complaints, human resources becomes ever more important. “I’d say there are a lot more HR-type lawsuits today,” says Brent Longnecker, national practice director for Deloitte & Touche LLP in Houston. “There’s absolutely a trend, and it’s most definitely going to continue.”

Being a good legal guardian is a skill that can be learned-and should be, soon. Because the only company safe from a complaint is one that never fires employees, that promotes everyone and that has an entirely satisfied, sensible workforce. In other words, no company is exempt.

Civil-rights complaints vs. lawsuits-the differences you need to know.
When employees file complaints with the Equal Employment Opportunity Commission (EEOC), which handles issues involving the Americans with Disabilities Act, the Equal Pay Act, the Age Discrimination in Employment Act and Title VII of the Civil Rights Act, they’re filing with a federal administrative agency. When employees file a lawsuit, they’re filing with a federal or state court.

Each of these forums has its own rules of procedure, and those rules make all the difference in the world.

Dealing with the EEOC has several advantages. First of all, the EEOC offers specialists in the areas of the law under which the complaint is filed. For instance, if an employee reports he was fired because of age discrimination, the case will be heard by a specialist in the area of age discrimination law. This means the case is more likely to be decided by its legal facts rather than its emotional weight.

In addition, many EEOC offices are experimenting with claims categorization, in which claims are placed in A, B or C categories. Claims in the C category are considered discards, while claims in the A category are viewed as potentially serious, with the possibility of further litigation after the EEOC finishes its administrative investigation. At many offices, claims in the B category funnel into an alternative dispute resolution mechanism.

This categorization ensures that if a complaint is unsupported or frivolous, it will be dismissed much more quickly and inexpensively.

Lawsuits are another story. Unlike the EEOC, which maintains a limited scope, federal or state courts allow all types of suits. So a company may face not just employment-discrimination claims but a host of tort claims, which are common-law claims such as defamation or assault and battery that plaintiffs’ lawyers increasingly are using.

Because of its wider target scope, a lawsuit ensures a more protracted and expensive proceeding. Lawsuits bring with them, for instance, depositions-witness statements taken under oath by the opposing counsel-which may open up additional claims. Then there are the juries, who are the ultimate, and nonexpert, decision makers.

“The risk to a company with a lawsuit is 100 times greater than with being involved with the EEOC in an administrative proceeding,” says Joseph C. Marshall III, director of the employment and labor law group of Dickinson, Wright, Moon, Van Dusen and Freeman in Detroit. “A jury is likely to be more sympathetic to the plaintiff because in [that] situation the plaintiff is an individual, and the company is viewed as being just part of the system. Most people are employees as opposed to being employers, so they have a natural identification with the individual. And most people have had problems in their employment.”

Make sure the right people are-or aren’t-talking.
The first step to take when HR gets wind of a problem is to contact a lawyer. If the case is a lawsuit, or an EEOC claim that could become a lawsuit, contact a trial lawyer so that person can be in on the game plan from the beginning.

Once a lawyer is on board, HR must establish two basic privileges with that counsel: attorney-client privilege and the attorney work-product privilege. The attorney-client privilege covers communications between the attorney and the client and protects any legal advice the lawyer gives from disclosure in either a lawsuit or an EEOC proceeding.

Work-product privilege protects information gathered to assist a lawyer in offering legal advice. “The importance of having that is if an HR director starts gathering information without that privilege, that information will become subject to disclosure [to the opposing side],” says Marshall. “There will be no way to protect it.” (More information on legal privileges affecting HR in a lawsuit will be discussed in the August 1997 “Legal Insight.”)

Once the legal logistics are settled-and they should be settled quickly-the next task for HR is to limit internal communications about the issue. This may sound a bit Gestapo-esque in this age of open-door policies and information-sharing, but it’s crucial. That’s because-and this should be explained to the workforce so employees don’t think HR is just being secretive-at a certain level, managers can create what’s known as admissions. That means their statements, writings or conduct will be admitted into evidence. Managers could be hauled in front of the EEOC or forced to give court depositions in which they would have to recount their conversations or conduct.

Say a group of managers gets together to speculate over what could have triggered an employee to file a race-discrimination claim. If that’s considered an admission, suddenly these managers must recall an after-the-fact casual conversation-“I bet it must be hard to be a black person in this company”-which could become extremely damaging.

Finally, although a competent HR person would’ve investigated a problem as soon as an employee presented it, HR should investigate again (or for the first time if the complaint was a surprise).

HR should first determine if the company has a policy applicable to the situation that triggered the complaint (a sexual-harassment policy, race-discrimination policy or so forth). If there’s an applicable policy, HR must decide if that policy was followed. For instance, if an employee reported a sexual-harassment complaint to a manager, and the manager didn’t follow the usual procedure of investigation, HR better find out why.

“Everyone assumes there’s a good reason that an employer has a particular kind of policy,” explains Marshall. “If the employer didn’t follow the policy, then it raises suspicion in everyone’s mind, including the EEOC or judge and jury, that the reason is that there was a need to cover up. The plaintiff’s lawyer is going to consider that a gold mine.”

If the manager didn’t follow the policy and doesn’t have a good reason, there’s not much HR can do, but the sooner the company’s lawyer knows about the problem, the sooner he or she can start working strategy around it.

Lori Taylor, director of HR in the Detroit office of Deloitte & Touche, considers employee interviews one of her most important contributions in a legal case. By talking to everyone involved in a particular incident, she can ensure not just that she has fulfilled her role as a supportive, neutral member of management out to get the facts, but also that she has obtained all those facts.

“There’s no magic to it, but I spend a significant amount of time talking to people and asking a lot of probing follow-up questions,” she says. “If someone says she or he has been harassed, I ask what that person means by that word. You need to ask the right questions so you’re not surprised when you get in front of the magistrate or plaintiff’s attorney.”

Know what and whom you’re dealing with.
After reviewing the case, HR should review the employee who filed it. Pull the person’s personnel file and see what kind of employee he or she was. If the employee never got in trouble, received consistently good evaluations, earned promotions and contributed to the company, the organization has a difficult case ahead.

“If that happens, you’re caught on your own evaluation of the employee historically,” says Marshall. “You’re going to have to explain why someone the company considered a significant contributor to the business over the years has now become, according to you, just the opposite.”

Of course, conversely, an employee with a checkered history is good news for the company in such a case.

If there are documents in an employee’s file that shouldn’t be there, by no means should they be destroyed, warns Marshall. In a lawsuit, if the court determines that the company destroyed a relevant document, the court can legally instruct the jury to presume the worst. If there’s a question about a particular document, inform the company’s lawyer. He or she may know the legal basis for not turning it over.

Next comes the determination of “similarly situated employees.” The EEOC or a jury will look at similarly situated employees to see if they were subject to the same problems the plaintiff employee claims. The plaintiff’s lawyer will, of course, try to make this category as broad as possible. The defense lawyer will try to narrow the scope to employees who have the same job, education, length of employment and promotional opportunities.

Courts usually rule somewhere in between, so HR should work with the lawyer to estimate which employees will be ruled similarly situated. If for instance, a black employee similarly situated to a white employee was treated quite differently, that will raise eyebrows. Again, if this was the case, there’s no changing the problem, but the company’s trial lawyer needs to know.

“Even though it doesn’t mean that the company did what the claimant or plaintiff is saying it did, it will allow the plaintiff’s lawyer to shift the focus from the specific facts of the lawsuit to whether the employer is good or bad,” says Marshall. “Once the [opposing side’s attorney] has done that, he or she has gone a long way toward prevailing.”

Learn the tricks of the trade for pretrial maneuvers and depositions.
Taylor, who in her career previous to Deloitte & Touche testified a dozen times in civil-rights complaints, is an old hand at depositions and such. The first move, she says, will be the requests for related materials. If the EEOC or plaintiff’s attorney asks for a lot of backup materials, she says, “you can assume he or she’s fishing.”

She advises companies to pick and choose exactly what they’ll provide. If the EEOC asks for all people discharged within the last three years, with their race indicated, the company should also include a list of promotions in the past three years with race indicated, if that will help the case. Always have the attorney review materials the company is providing, however. He or she may find some dangerous legal subtleties the untrained eye wouldn’t catch.

If the opposing counsel asks for a broad range of data that likely will hurt the case, work with the company’s lawyer to try to narrow the scope, says Taylor. If the opposition asks for the entire company roster, for instance, see if counsel will accept only the roster for the subsidiary at which the plaintiff worked.

When dealing with the EEOC or Civil Rights Department, HR may be requested to come for a meeting. If statements are going to be taken, Taylor brings with her the people who were directly involved in the disputed situation. That way, if the former employee starts leveling slanted or untrue charges, Taylor doesn’t have to say, “But the manager told me…” Instead, she can let the manager speak, which gives much more credibility.

Taylor also brings with her a log of the dates, times and subjects of every conversation she had with every employee during her investigation, as well as any supporting documents she’d like to admit-organized and tabbed. “I go in there looking comprehensive and thorough, which has been helpful,” she says. “You can have your act together and not look like you have your act together. This makes sure you look it.”

Longnecker warns HR professionals that depositions can at times get pretty down and dirty. “If it’s not being videotaped, don’t be surprised at anything, because the opposing attorney can scream at you, and there’s no way to see that in the [written] deposition. I’ve had people throw stuff at me. When you walk into a courtroom, it’s usually much more civilized-juries don’t like bully attorneys. But they get away with an awful lot of things inside a deposition.”

If a lawyer starts in on you, keep cool, don’t burst out with excuses or explanations-that’s just what opposing attorneys want. “The purpose of the deposition taken by the opposing party’s attorney is to find out as much information as he or she can about your case,” says John Myers, chairman of the labor department at Pittsburgh-based Eckert, Seamans, Cherin and Mellott. “Therefore, make that person earn the information by asking specific questions. Also don’t speculate or guess on areas in which you don’t have personal knowledge of the answer, and don’t get impatient with the attorney who’s questioning you.”

A few tips can make you an expert trial witness.
Before heading for that witness stand, know two things: what you’re going to say and what your attorney’s strategy is. If your attorney hasn’t told you, ask him or her to clarify the objective of your testimony, as well as the information that’s crucial to get across. “HR’s client becomes its company’s attorney,” says Longnecker. “You always have to work for that attorney, because he or she has your company’s best interests at heart.”

If the attorney gives you an objective that you can’t accomplish, tell him or her. The last thing you want is to feel pressured into lying or misshaping the truth. “If an attorney ever tells you to lie, walk away,” says Longnecker. “That attorney doesn’t care if you’re put away because you perjure yourself. Let your lawyer know what you can and can’t say. If the attorney feels you won’t be able to do what he or she’d like you to do, the attorney will just take you off the list.”

Not only is lying on the stand illegal, but Marshall points out that by this point, all people involved with the trial have already made depositions that record their testimony. “I haven’t seen too many people try to change their testimony,” he says. “In fact, what lawyers do once they get in trial is try to get someone to commit to something different than what he or she has testified to, because they know they’ll just crucify the person.”

As a final prewitness stand step, HR professionals should go through a mock trial. This will help them get accustomed to saying their testimony, acquaint them with the opposing attorney’s likely questions, and let them predict if their testimony will have any weaknesses. This is particularly important if HR has been called to testify by the plaintiff’s attorney, because that means the opposing side has something it wants to expose to the jury.

During the actual testimony, don’t get rattled-and don’t give the opposing side any more information than necessary. “It’s almost like a political campaign,” says Marshall. “The lawyer’s [strategy] in the trial will be to stay on message, stay on theme. Insofar as an HR director is going to testify, the most important thing he or she can do is listen to the lawyer and stay on message.”

No matter which side is asking the questions, answer only as much as you need to, preferably just yes or no answers. Don’t elaborate-particularly when the opposing side is doing the questioning. “Make them work for it,” says Longnecker. “Build your own sandpit, which is your area of expertise. Never go outside the sandpit. If an attorney asks you to opine on some outside subject, [decline].”

HR has one of its most important roles to play at this stage: Being a credible witness. “Unfortunately, the factual resolution of the lawsuit sometimes isn’t as important as the emotional reaction of the jury to the situation,” says Marshall. “Some [allegations] are horrific. Whether they’re true or not, just to have them recounted can cause an emotional response on anyone’s part. So jury cases are extremely difficult cases to win from the employer’s perspective. Not that it can’t be done, but it’s not easy. You have to put a great deal of thought to how you’re going to counter the natural sympathy that plaintiffs will always receive.”

The way to do that is to establish that human resources isn’t just a management puppet, that HR professionals exercise a measure of independence and objectivity. If juries suspect that an HR manager was just doing what the top executives ordered, his or her testimony will be fairly worthless.

If on the other hand, the HR professional convinces the jury that he or she is competent and independent minded, that testimony can make the case. This is particularly true in tricky “he said-she said” situations in which no one is outright lying, but rather those involved have different takes on a situation. If the jury sees HR as the neutral party, the resolution HR followed more likely will be the resolution the jury will accept.

Finally, there are the little gestures, actions and impressions that can simply help a jury accept a witness better. As for clothes, Longnecker warns against looking too slick-no suspenders, fancy ties or flashy jewelry. Of course, don’t go the other route with dressing too casually either. A witness wants to look like a regular person who’s in a responsible job.

While waiting to give testimony, it’s OK to do some discreet paperwork, but don’t look too high-tech: Leave the mobile phone, laptop and beeper at home. “It’s a real turnoff to the people in the jury box.”

Limit movement in and out of the courtroom also, Longnecker advises. “You really want to have a sense of humility while you’re in there,” he says. “It’s a pretty big responsibility being there. Those juries are making decisions usually for millions of dollars and affecting lives. They don’t need to be disturbed.”

While on the stand, try to play to the jury. Make eye contact with jurors. Talk to them like colleagues, but without company- and industry-specific jargon. “The only people in that courtroom that matter when you’re testifying are the jurors,” says Myers. “Remember that the whole purpose for being on the witness stand is to convince the jurors that they should believe you.”

With a little preparation, this is yet another role HR should be able to tackle.

Thankfully, most employers have eradicated outright racism, sexism, ageism and such in the workplace. They’ve made clear that certain language and actions won’t be tolerated. They’ve instituted diversity programs, rid themselves of the few bad apples.

They’re not done. That’s because some employees haven’t changed their attitudes; they’ve just gotten smarter about voicing their prejudices. Instead of blatant derogatory remarks about certain groups of people, they use “code words”: seemingly neutral phrases that carry negative connotations, but aren’t as likely to come to managers’ attention.

This type of language better start coming to management’s attention. The U.S. Court of Appeals for the Third Circuit has ruled in a recent case that these code words can create a hostile environment. The result: Just because employers have eliminated blatant Title VII violations doesn’t make them safe. It’s the subtle, quiet discrimination—the kind managers don’t always hear about—that can send companies to court.

James B. Brown, director of Pittsburgh-based law firm Cohen & Grigsby, P.C., explains the case and offers advice on preventing such claims.

Can you explain the basics of Aman v. Cort Furniture Rental Corp., the case that set this precedent?
Basically what happened is two [African-American] employees of the Cort Furniture Co. filed a lawsuit in the federal district court claiming they were being racially harassed and discriminated against in the workplace. They were unable in their complaint to produce any direct evidence of racial discrimination, harassment or of a hostile environment. What I mean by direct evidence is people using well-known, overt, racially derogatory remarks.

What was their case based on then?
There had been other words and phrases [allegedly] used in such a context that really did indicate racial animus or discrimination. These were terms such as “those kind,” the “poor people,” “one of them,” “another one.” Phrases were used such as, “Don’t touch anything in customers’ homes,” “Don’t steal,” when talking to these folks. Finally the straw that broke the camel’s back: The controller of the company [allegedly] told one of the two plaintiffs, “If this continues, we’re going to have to come up there and get rid of all of you.” When he was asked what “all of you” means, the controller didn’t answer. The federal district court dismissed the plaintiffs’ case. The court said there was no direct evidence of harassment or discrimination.

The plaintiffs appealed the decision?
The case was then appealed to the Circuit Court of Appeals, the level between the trial court and the Supreme Court of the United States. The Third Circuit revisited the situation and basically described these words and phrases used as code words. The court said the remarks were inherently racist and part of a pervasive racial discrimination at the furniture company. The court said that even though Title VII of the Civil Rights Act doesn’t prohibit racist thought, the law does require the employer to prevent such views from affecting the work environment. Title VII doesn’t tolerate racial discrimination, be it subtle or otherwise.

Should employers have a policy regarding code words?
Every company in America today should have a policy against sexual harassment, race discrimination and racial harassment. Within those very policies should be language that makes it quite clear that not only does the company prohibit overt racial, sexual and age discrimination and harassment, but it also [forbids] subtle harassment and discrimination.

So this ruling goes beyond race?
It goes beyond race discrimination and harassment. It also goes to sexual harassment and a hostile sexual environment. If an employer has, as many industries do, certain departments filled by all women, words like, for example, “our little mothers,” “the girls’ club.” Those kinds of words can and will, it’s my opinion, be seen by the courts as the kind of terms that are subtle discrimination.

Can just one person using such words jeopardize a company?
It only takes one person. But employers are certainly not without protection. If an employer has a good grievance procedure whereby employees can go to the HR department and complain without fear of retaliation, then the employer is [better] protected, because the employer can investigate, determine whether this is happening and react. It’s employers without mechanisms by which employees can complain and voice their problems that are in trouble, because then there’s no excuse.

So let’s say an employer has a good grievance procedure and someone is found to be using this language. What should the employer do?
The employer reacts. That’s the key, because when I get one of these cases in court and need to defend it, the first thing the plaintiff always says is nobody reacted. It’s always wonderful as defense counsel to be able to say, “Well, you didn’t tell anybody.” [But] if the plaintiff says, “How could I? There was nobody to tell,” then the employer is in a very awkward and very bad situation as it relates to liability.

Does the ruling open the door for more discrimination suits?
I don’t believe this will in and of itself create more litigation. Basically what this whole code-word case does is enable plaintiffs to bring in evidence that they were heretofore unable to bring in. Previously most courts wouldn’t permit testimony as to the kinds of words we have been talking about, because the courts said those are stray remarks; they’re racially neutral—”those people”—what does that mean? Here, the Third Circuit Court of Appeals said employers can’t look at this thing in a vacuum; this is just not a vacuum. Employers need to look at this within the confines of the entire situation.

So these cases may be easier to prove now?
I think what [the ruling] will do is make it harder to defend existing and future litigation. It makes the job easier for plaintiffs now. One would be foolish to limit this just to racial discrimination and harassment. This will cover the entire [range] of discrimination and harassment cases. Employers shouldn’t be fooled by thinking there isn’t as much racial discrimination as there was before. On the contrary. This case came down because there’s just as much race discrimination in the workplace. People have just gotten smarter about it. Nobody uses those highly repulsive, derogatory remarks anymore. What they use is code words. People have just become better discriminators.

Workforce, May 1997, Vol. 76, No. 5, pp. 101-104.

It’s no longer a trend: Incentive compensation is now a business fact. In an era that reveres productivity over seniority and results over hours clocked, the use of incentive compensation is crucial to many companies’ success. Unfortunately, it’s also the cause of many employees’ disappointments, gripes—and grievances. That’s right, incentive compensation brings with it higher risks for lawsuits, as employees realize what they hope to see in their paychecks isn’t always what they get.

Alan L. Sklover maintains his own New York City-based legal practice, concentrating on representing executives in employment, compensation and severance issues. Here, Sklover covers the four primary ways employees become entitled to incentive compensation-which in turn entitles employees to take errant companies to court. He also offers insight into the risks employers face in executing the three most common forms of incentive compensation: discretionary, fixed figure and formula-based.

To begin with, can you explain the law relevant to incentive compensation?
People aren’t entitled to a bonus by any certain magic—there has to be a basis for it. Sometimes people say, “But [the company] always gave out bonuses.” Well that doesn’t mean it always has to. There has to be a reason someone is entitled to something. The primary ways in which a person becomes entitled to incentive compensation are: express agreements, agreements implied by circumstances, discriminatory treatment or gross disparity.

Let’s start with express agreements-can you explain their basis?
Express agreements mean: “That’s what I was promised. [My boss] expressly said to me this is what I’d get.” In almost all areas of life, oral agreements are just as good as written agreements. An oral agreement is an expressed agreement. The only problem with oral agreements is proof—the reason [lawyers] always say “get it in writing” is to have proof. [But] either oral or written, if someone was promised something, the person should get it.

What’s the law concerning implied agreements?
Implied agreements are like this: Consider going to a restaurant or getting into a cab. You never say, “Oh, I promise you I’ll pay,” after eating in a restaurant. But if you don’t pay, you’ll get arrested because from the circumstances there’s an implied promise. Example: The employer says, “We never told you we’d give you the $400,000. We only said you could reasonably expect it.” Well that doesn’t pass the laugh test. Very few people would go from a job paying $300,000 to one paying $100,000 [unless the employee truly believed he or she would receive a bonus making up the difference].

What’s the legal basis for a suit based on discriminatory treatment?

[That] there’s treatment based on motivations that are illegal. [Lawyers] tend to see a lot of situations in which all the men got twice the bonuses of all the women, without any other reason to explain it. I’ve had people say to me, “But men have families to feed.” It’s the notion that men are breadwinners, and women work for extra clothes money. Or [discrimination is seen in the attitude that] older folks don’t seem to need the money as much as younger folks do—as much as this person with two kids in college. [Companies] can’t do that. They have to have some acceptable motivation for differences in treatment. That’s sometimes the basis for disputing or making a claim on an incentive compensation bonus payment that an [employee] finds to be unacceptable.

And finally—can you explain gross disparity?
Sometimes there are tremendous differences between what was expected [by the employee] and what was given [by the employer]. It’s just so out of line when a senior vice president gets a bonus of $1.5 million and everyone else gets $200,000. It just shocks the conscience—there’s something wrong.

Let’s move into the actual types of plans: discretionary, fixed figure and formula-based. Can you describe what a discretionary incentive plan looks like?
Example: [An employer says,] “We can’t tell you what to expect with this particular bonus. Depending on what you do in the company and how happy we are with you, you may get zero bonus or you may get a tremendous amount. It’s in our total discretion.”

And what’s fixed figure?
A fixed figure is [a plan] in which, for example, someone is hired on and told the base salary is $50,000 and they [employee] can rest assured the bonus will either be $10,000 or $15,000. Frequently, depending on the industry, the bonus is far in excess of the salary.

How about formula-based plans, how do they work?
Formula-based plans are increasingly common. Example: If an employee’s sales amounts for the year are a certain figure, he or she will get, say 2 percent of that. If [the employee’s sales] exceed a certain figure over that previous figure, he or she will get 3 percent of that. There are a variety of formulas. Sometimes they’re tied to the stock price; sometimes they’re tied to the individual’s performance. But they’re basically something mathematical.

Let’s take discretionary: Why do companies use it, and what are its legal disadvantages?
If I had to give my idea of the motivations involved, I believe that most companies think discretionary carries the biggest carrot—that if people don’t know what they’re going to get, they’ll try real hard all year to make their managers happy. Paradoxically, I think it causes the most anger. People tend to believe what they want to believe. They look around, and the company seems to be doing well, so they think it’s going to be a great bonus year.

Do the risks of using a discretionary plan outweigh the benefits?
Employers think it’s a big motivator. From my point of view, it’s the worst way to go, in that it very much tends to cause disputes and to hurt morale.

I teach courses in employment relations, and there’s something I call the Three Cs, which is the [fact that] the healthiest employment relations tend to have three things: clarity, commitment and sense of community. Discretionary incentive compensation programs don’t have any of those. They don’t have clarity—who knows what anyone is going to get? They don’t have a commitment—[employers can change their minds about bonuses up to the last minute]. And they don’t always have a sense of shared community—[some employees could unfairly receive better bonuses than others]. I look for those three ingredients in any of these plans. They often show you which ones are the best.

So discretionary plans are troublesome for employers who play games with bonuses—or for all employers?
I truly believe they’re an overall negative in employment relations. Unquestionably, they bring up the most lawsuits. [An employee] goes to an employer and says, “You think I could get as much as $70,000 this year?” The employer says sure—and that number gets locked in there. [Employees] pick up sometimes even unintended messages—a positive memo about how well the company is doing, for example. Or if they work for a public company, they see the stock price is doing well. All those things tend to encourage employees’ beliefs that they’re going to be getting what they believe they were told they were going to be getting. If the employees don’t, they feel a big breach of trust. I think [discretionary plans] are a big negative in the workplace.

When an employee does bring suit because of a discretionary bonus, what’s usually the complaint?
It’s usually tried as a breach-of-contract or broken-agreement case. [The employee says:] “I was led to believe… ” “I relied on the promises.” Employers say, “We never guaranteed it.” So what we have is a case of, “You told me … ” “No, I didn’t.”

What about fixed-figure plans—any legal problems there?
Fixed-figure plans are historically the most common. [The employer tells the employee:] “You can expect a salary of $35,000 and a bonus of between $10,000 and $15,000 come [year-end].” The only real concern with these plans is if there are any conditions associated with them, or if they’re not given out as promised. Sometimes companies don’t truly make the commitment. They say this job “should” get or things like that. But the fixed figure is the simplest.

What spurs suits in fixed-figure plans?
They tend to yield the smallest number of disputes because they’re relatively simple in their approach… If disputes arise, it’s because of unknown or unanticipated conditions—like an employee has to be employed on the [bonus] day. When people take jobs, they’re like tourists. New people are walking around in a cloud. They may have been told bonuses are given January 15 for all people working that day, but they may not realize that’s a big condition.

So what would be your recommendation to employers choosing a fixed-figure plan?
I believe that in the whole [incentive-compensation] area—especially fixed-figure plans—the fairest thing would be pro rata. If an employee was there for 95 percent of the year, the employee should get 95 percent of the bonus. That would show commitment.

Finally, what are the issues surrounding formula-based plans?
The formula-based plans, if they’re relatively clear and if they’re based on objective criteria, shouldn’t have problems… I love formula-based plans. They’re intuitively my favorite kind because formulas can be set up that are very much win-win. For example, a very simple one: For every dollar rise in the stock price, employees will receive a $10,000 bonus. That’s very easy—employees look at the stock price on January 1. They look at it December 31. Everybody hopes the stock does well, and if the stock goes up, the shareholders are happy, the senior managers are happy and the employees are happy. Everybody’s happy.

Are there any pitfalls?
There are some formulas that are so obtuse that I’ve had arbitrators or judges throw up their hands and say, “I have no idea what [the company] meant by this, maybe we should hire a mathematician.” They make you very skeptical. The formulas make [employees] doubt there was ever really an intention to pay a bonus.

What kinds of lawsuits can these plans bring?
In formula-based plans, the disputes tend to come up primarily in miscalculations or miscommunications depending on the formula—when it appears either the data is incorrect or has been incorrectly applied. [Formulas requiring] data in control of the employer that may be confidential or may be subjective will always hurt a formula-based plan.

Is there anything else employers should keep in mind concerning formula-based plans?
There are some negatives. One thing that’s sometimes a problem: Even though the formula is applied exactly as it’s supposed to be, an unusual circumstance can arise. The formula when applied may give an employee either a far greater bonus than implied or far less, like 3 cents or a million dollars, in which case one side or the other is extremely unhappy. Every once in awhile, a formula will give someone more than the CEO. That’s one reason I like to set minimums and maximums on all this so no one’s shocked. I encourage that.

But for the most part, formula-based plans are positive plans?
When I see something set up [to reward] a division that shows better profits—and the profits are readily discernible and clearly identifiable—it can be a real team motivator. Everyone there can be encouraged to cut down costs together. People in HR can set these up so they really make a great team. They encourage both good results and good working relationships, and that’s the best thing in the world.

Workforce, July 1997, Vol. 76, No. 7, pp. 89-92.

We’re fast approaching the four-year anniversary of the Family and Medical Leave Act (FMLA). Employers seem to have the basics down: Any company with more than 50 employees is required to offer up to 12 weeks’ leave for nonkey employees to care for their own or a family member’s serious health condition or to care for newborns or recently adopted children. Upon returning, the employee is guaranteed a return to either the same or an equivalent position. That’s not too tricky.

Unfortunately, we all know the devil is in the details. Employers are stumbling over everything from the definition of a serious health condition to events triggering leave. David Deromedi, a partner at Dickinson, Wright, Moon, Van Dusen & Freeman in Detroit, offers a review—and an update.

What are the FMLA issues at the forefront now?
The first issue that comes up is how much notice employees have to provide to the employer to trigger their rights for leave under the law, and how an employer specifically needs to respond to an employee’s notice that he or she might be out or might have a serious health condition that would qualify the person for leave under the act. What we’re seeing so far in the law is that the courts and the Department of Labor (DOL) seem to be saying that employers have to be extra careful in determining whether an employee qualifies for leave.

What do you mean by “extra careful”?
Employers have to kind of bend over backward to determine whether an employee is eligible for leave based on the employee’s specific situation. I think [the law is] saying that if an employee has a particular health condition and you know that, you have to do everything you can to make further inquiries as to the reason why the employee needs the time off, how long he or she is going to be off, if he or she has a doctor’s note to substantiate the time off, and then make an independent determination as to whether that leave qualifies for FMLA leave. Then make sure you walk the employee through the idea that the leave qualifies for FMLA leave and may be treated as such.

So the major thrust is determining if an employee qualifies for leave?
The act itself and the regulations that have been issued by the U.S. Department of Labor have focused on the employer doing everything within its power to make an ultimate determination as to whether the employee qualifies for leave. I think for some employers it’s in the forefront of their minds because this is such a new piece of legislation. For others, sometimes they tend to overlook it. It may be worthwhile just asking a few extra questions to determine employee status or health condition whenever an employee will be out for a while to see if he or she may qualify for a leave.

So how careful does an employer have to be about employees’ triggering FMLA leave?
[Employers don’t need to worry about] an employee who just says, “I’m going to be missing this day or that day,” when it’s just a one-time situation that doesn’t necessarily trigger an employer’s need to gather further information about the employee’s condition. But we’re seeing that once an employee says, “I’ve got some sort of condition that will keep me out of work for more than just a day or two,” then a lot of courts are saying that’s adequate notice for an employer to make a further investigation.

Anything else employers should note?
The other thing for employers [to be aware of], especially if they have personnel handbooks or policy manuals: It looks like the courts are going to say that you should have contained within those handbooks and manuals a fairly detailed statement of what employees’ FMLA leave rights are and what they can do to get leave under the FMLA. You absolutely shouldn’t have anything in there—and I know this is a hard standard to define—that will confuse the employee or make the employee think there are some rights they might have beyond what they’re allowed under the FMLA.

Is there legal precedent for such a scenario?
I’m thinking of a recent court decision from a federal court in Pennsylvania. Basically the court ruled that even though the employer had a provision that identified what type of leave it provided under the FMLA, and the employees had that, the court also found the provision a little misleading. It held the employer to a standard that it has to make sure it clearly identifies what the leave is all about to its employees.

Can you go over the basics of the case?
Under the act, if you take time off you’re supposed to, upon your return, be provided with the same job you had before or a job of equivalent duty and pay and conditions and things like that. So the idea behind the act was to provide employees with some significant job protections so they’d be able to take this time off without any fear of repercussion. [In the case mentioned above,] Fry v. First Fidelity Bank Corp., the employee had taken some FMLA time off. She had taken 12 weeks and then an additional four weeks because it appeared from the employer’s written policy that [employees] could take up to 16 weeks off, with all that time being protected under the FMLA’s provisions. Well the FMLA only requires employers to provide 12 weeks of unpaid leave within any 12-month period. So when this employee came back, the employer put her in a completely different position, not an equivalent position. The employee decided to quit because it wasn’t the same thing as she’d been doing before. She wound up bringing a lawsuit [that the employer] didn’t really honor her FMLA rights because it didn’t provide her with proper reinstatement.

What did the court rule?
The court decided that yes, an employer under the statute has an obligation to reinstate an employee after leave if it’s within that 12-week period. In this instance, it’s possible the employer may not have had to reinstate the employee if she took leave beyond that 12-week period. But unfortunately, the employer’s leave policy wasn’t clear enough. Therefore the employee was confused about whether she’d get reinstatement rights if she took the longer 16-week leave. The employer didn’t give the employee all the information she would’ve needed to make an effective choice on her use of the leave. Therefore, because she was misled, she has a possible claim of violation of her FMLA rights. So ultimately what the case means is the courts at this point in time are probably going to do all they can to protect an employee’s effective use of rights under the act. It’s an interesting decision in the way [the court] arrived at that conclusion, but it’s basically one that I think a lot of other courts will adopt: Do the employees have effective use of their leave rights? If they don’t, the employer might be in trouble.

What else should employers be aware of?
The one thing I think employers should keep in mind is the act provides for protection for employees who have what’s known as a “serious health condition.” The DOL has tried to define serious health condition and has come up with an extremely broad definition compared to what most people would normally believe would qualify for a serious health condition. So employers shouldn’t just come up with assumptions about what constitutes a serious health condition. Spend some time in getting doctor’s certifications specifying what the condition is that the employee has. Then decide whether that might qualify for FMLA leave.

Are courts generally swaying pro-employee?
I think they are, but of course I’m coming from the perspective of a lawyer who does work exclusively for employers. What I mean by pro-employee is they’re making sure the act has an expansive interpretation on whom it covers and what types of conditions it covers. I think at the individual federal district court level, that’s where everything’s headed right now. There’s a lot of room for the courts to work within the statute because this covers a lot of types of situations. Another thing that certainly employers should be aware of—and it goes more to what their managers should be aware of—is that there have been some instances in which supervisors have been found to be individually liable for violating an employee’s FMLA rights. There was one case in which a jury verdict was approximately $58,000. Other courts in other locations have determined that basically individual supervisors may be on the hook under the FMLA as well.

The FMLA is near its fourth anniversary. What are employers still doing wrong?
I think employers have done a good job of at least familiarizing themselves with the law and [communicating] their FMLA statements in their handbooks and policy manuals, and putting up the posters. [The area in which] I see them going astray is not so much in terms of applying the FMLA itself. Especially for larger employers, the [problem is] not having [supervisors] sufficiently apprised in the FMLA and what they should be looking for in order to avoid a problem down the road. Sometimes supervisors, if they’ve got an employee who might be out or missing work intermittently, instead of considering it a potential FMLA case, just apply the company’s normal attendance policies. That can get them into trouble. I think that’s [a situation in which] some people are falling down.

Are there any FMLA amendments down the road in 1997?
I know that’s one of the many themes President Clinton was talking about during his re-election campaign—ways to fine-tune or expand the FMLA. As far as I know, nothing specific has been sent out of committee for a vote or anything like that. There’s an agenda to expand it to allow [parents 24 hours of unpaid leave in a 12-month period] to attend things like their children’s school activities and community functions. [The bill also proposes expanding the FMLA to employers of 25 or more people.] There’s talk, too, of trying to provide FMLA leave on a paid basis as well. But that hasn’t stepped up to the point at which a bill’s actually been drafted or reported on as far as I know. It’s just a proposed amendment. I’m not sure if in this Congress the climate is good for [such an amendment] to be passed.

Is there anything else on FMLA that employers should be aware of?
I like to caution employers that there’s overlap between the FMLA, disabilities discrimination and workers’ comp coverage under the various state laws. So whenever an issue arises in which the employee has a serious health condition or potentially disabling condition, that beyond the FMLA issue, there are additional issues. It makes sense to sit down and figure out, either with a lawyer or your own in-house staff, what the employee’s individual situation is, what impact these various laws might have on the situation and what you want to do with the employee in terms of managing them for the future.

Final word: the good news and bad news for employers?
One thing I think it’s helpful for employers to know is they can certainly designate leave as FMLA leave for an employee even if the employee hasn’t requested it by name. If the employee says, “No, I don’t think that should be the case,” the only way it would not be the case would be if the employee [decided] to show up for work. The employer still has the ability to do that. The other thing—and this won’t be a comfort to employers—but certainly on a state-by-state basis, there can be talk about expanding family leave rights well beyond what’s already provided by the federal government. That’s something employers might want to have in the back of their minds—that this may expand at some time in the future depending on where they do business.

It’s called the Illegal Immigration Reform and Immigrant Responsibility Act of 1996. Enacted last September, a few of its provisions are already in effect. More will come into play this year.

Larry Stringer, partner and head of immigration practice for Dickinson, Wright, Moon, Van Dusen & Freeman in Detroit, hits the highlights of the new law.

What kind of impact does immigration law have on all employers?
One major area that has a direct impact on U.S. employers is known as employer sanctions, stipulating that every U.S. employer must verify every worker’s U.S. employment eligibility when the employee begins work. This verification is commonly referred to as the Form I-9 procedures.

So what does the new law say about employer sanctions?
Lawyers many times will recommend to employer clients that they undergo some kind of Form I-9 audit to see if they are in compliance with all I-9 regulations and to make sure the systems they have in place are working. One of the [new law’s] provisions provides, in essence, that if the INS finds the employer has made a good-faith attempt to comply with the employer-verification requirements [and] had a technical violation rather than a substantive, ignoring-the-law type violation, the [INS] can issue a warning, which in the past really wasn’t [common].

What used to happen?
Many times the employer would end up with a notice of intent to fine. Then the company would have to try to negotiate the fine away to a warning. But now the [INS] has a statutory authority to [issue just a warning], which lends credibility to the recommendation that employers go through an audit.

What’s involved in an effective, employer-sponsored I-9 audit?
Typically what I do is have a preliminary meeting with the head of HR and maybe the president to discuss the basic steps of the I-9 and the detail that must be maintained so there’s an understanding of the concept. I literally try to enlist the HR staff in going through and examining the I-9s from several different perspectives. Are all of the I-9s properly completed? Are they all signed and dated in the right place? Is the information full and complete and accurate? If not, we identify what forms aren’t complete, then try to get the information needed to revise and correct the forms and give them a current date. This helps show a voluntary good-faith attempt to comply with the law.

Then what do you do?
I also cross-check between payroll and I-9s to make sure everyone on payroll has an I-9. I then look at retention requirements for I-9s, which are to retain an I-9 on an employee for at least one year after termination or three years from employment, whichever is the longer. But there’s no need to maintain an I-9 after that expiration date. We want to make sure an employer isn’t exposed to a sanction because of an I-9 that could have been thrown away and wasn’t—and was evidence of not having been properly completed. That’s silly to maintain a liability when you can otherwise destroy it.

Is anything else done in an audit?
We examine the employer’s procedures. Does the [employer] have a senior-level written policy statement saying, “We will comply with the I-9 requirements, and here’s who’s responsible for it and here’s how he or she’s going to do it”? We sit down with an employer and literally trace the paper flow, and then we have training for the person responsible. When we leave, the employer has an I-9 policy statement in place that properly articulates responsibilities and paper flow, and the people have been trained. We hope they’re able to self-monitor in such a way that maintains the company’s compliance in good faith with the laws. Many times we’ll prepare a form and let the HR people go through each of the I-9s, and we’ll go through a checklist with them to make sure everything’s right.

What other important changes occurred with the new law?
There will be some changes in the documents that an employer can rely on for employment-eligibility verification. The certificate of naturalization and certificate of citizenship are being taken away. And in some cases, foreign passports will no longer be considered valid documents for verifying employment eligibility [beginning September 30, 1997]. The attorney general has authority to specify some other documents that meet the criteria for verifying eligibility. [At press time these hadn’t been specified.]

It still seems employers have to walk a fine line between avoiding hiring illegal immigrants and avoiding discriminating against legal immigrants. Will this change?
One of the things that came out in the new legislation, as part of the employer-sanction revisions is: There now has to be a finding of intent on the part of the employer to discriminate against a specific ethnic group or national origin. Whereas in the past, sometimes a case could be made just because somebody didn’t get an offer or didn’t get hired, or were fired. Then it was, “Well, that’s discrimination because I’m of a particular nationality.” There will now be a requirement that to prevail on such a claim, there’s going to have to be proof on the part of the party claiming discrimination that there was true intent on behalf of the employer to discriminate against that nationality. So that’s going to make it more difficult to prove discrimination and to prevail on a claim, which gives some protection to employers.

What would you recommend to employers who must toe the line between illegal hiring and discrimination?
I counsel my clients that they not only have to look at the qualifications of the person irrespective of nationality, but also should have someone looking down over the HR director’s shoulders [to judge] what [an action] looks like with respect to the company’s recruitment and hiring of all nationalities, all people.

Can you give an example?
Many foreign nationals come to the United States to get a master’s degree, and they can get an F-1 visa to study. Many of them hope a U.S. employer will sponsor them for a green card so they can stay in the United States and pursue their careers. [But] an employer doesn’t have to hire a nonimmigrant, a person in F-1 status. An employer can say, “I don’t hire F-1 students,” and it’s OK. But [say] it turns out that you as an employer hire many different foreign nationals in the F-1 status, and get visas for them—but there’s one nationality that never gets hired. Then, in effect, the employer has become guilty of national-origin discrimination, even though the employer has exercised the right to not hire a person with a temporary F-1.

Any other potential pitfalls employers should know about?
Visas. Any foreign national coming here to work must have a nonimmigrant classification if they’re coming here temporarily for a temporary position that has employment authorization as a part of that classification. One of the things that happens is foreign nationals come in, and maybe they’re admitted for two or three years depending on the type of nonimmigrant visa. Many times the employers will want to extend these workers’ stays for another few years. The new law provides that if any of these foreign nationals should overstay his or her visa expiration date even by one day, the visa becomes void as a matter of law. [Those with expired visas] aren’t entitled to be readmitted. They’re, in essence, excludable aliens until such time as they return to their home country and obtain a new visa.

Is this the only type of problem employers can run into concerning expiration dates?
No. There’s a classification known as “E” visa holders, that dictates that every time a foreign national comes to the United States, he [it’s typically a man] is authorized to stay one year. If his wife and children accompany him, they can also stay one year. What typically happens is Mom and the kids stay at home and Dad travels internationally. Every time Dad, the employee, travels and comes back to the United States, he gets a new one-year authorization period of stay. It’s not uncommon for the employee and employer to forget about the accompanying spouse and children [until] somebody figures out that Mom and the children have overstayed. In the past the INS would usually cure that by simply authorizing an extension for them. They no longer have that authority.

So what will happen to them now?
Mom and the children are going to have to get visas issued to them by their home country. I think there are going to be some innocent employers who find they’re going to have to foot the cost of sending the family home to obtain new visas, paying for travel expenses that aren’t in the budget.

Any other advice for 1997?
There are going to be a significant number of regulations coming out this year in terms of the Illegal Immigration Reform and Immigrant Responsibility Act of 1996. Keep your eyes on the news.

NOTE: Employers who have questions on the Immigration Nationality Act, which prohibits discrimination against legal immigrants, are urged to call the Automated Employer Hotline established by the Office of Special Counsel for Immigrant-Related Unfair Employment Practices. The hotline, 800/255-8155, offers straightforward answers to employers’ most frequent questions.

Workforce, March 1997, Vol. 76, No. 3, pp. 108-111.

Remember back in the ’60s, when long-haired college kids ran around with buttons saying, “Don’t trust anyone over 30,” and middle managers pushing 50 responded with scornful frowns, mumbling disdain and disappointment over “today’s youth”?

Well, folks, it’s back, that dreaded Generation Gap—and this one looks to be a doozy. It’s now those same flower kids of the ’60s who are pushing 50, and a new Generation—X to be exact—is making them squirm.

No place is the clash between these two groups more evident than in Corporate America. Why? The baby boomers (typically considered as those who were born between 1946 and 1962), 76 million strong, are finally set squarely in middle age. And because of greater financial strain, a limited retirement budget and a youthful ethos, they’re going to be staying in the workplace much longer than their parents did. Meanwhile, they’re sharing desk space with the new kids—Generation X (born between 1963 and 1981 according to current literature)—of which there are now more than 40 million gainfully employed.

And if the friction is there today, it will only be bigger tomorrow: Each group will expand in the coming years. According to the Bureau of Labor Statistics, within the next decade, one out of three people in the workforce will be older than 55. And Generation X is awaiting millions more of its members to graduate from college and head to the office.

You think the ’60s hosted a culture clash? Wait until you squeeze these two very different groups into adjoining cubicles day after day. How do you keep the situation from bursting into all-out war? How do you harness the best qualities of each segment while downplaying the worst? How do you aid one group without alienating the other? We’ve got some good news, some bad news and some suggestions.

Be flexible.
The good news first. As different as these two generations may seem on the surface, they have one common need they want their employer to meet, and you may already be supplying it: flexible work arrangements—in forms from part-time jobs and flexible work hours to job sharing and telecommuting.

Flexible work arrangements will help ensure you hold on to experienced boomers—something you need to do given today’s low unemployment rate. Also, given this group’s youthful orientation, many of these workers scorn retiring at the age their parents did anyway. That magic number, 65, was incarnated back at a time when life expectancy hovered around 70. And many workers today need to work past age 65. A person leaving the workforce at 65 likely has 15 to 20 years of retirement ahead—with only about a decade’s worth of living expenses saved.

Despite the need and interest in working, many boomers may crave a little extra free time in their later years—and will go wherever they can to log hours and still have time for golf, the grandkids or developing their own businesses. Part-time work and job sharing just may be the answer for keeping this group on board.

On the part of Generation X, flexible work arrangements are even more of an imperative. Xers entered the workplace after this trend ceased to be novel: To them, it’s just a smart way to work. In Bruce Tulgan’s book, “Managing Generation X: How To Bring Out the Best in Young Talent” (Merritt Publishing, 1995), quote after quote from twenty-somethings relay the importance of being trusted to get the job done—whether that means working from noon to 8 p.m. (their peak-energy hours), working from home so they can have privacy, or even working while taking a stroll and mulling over a project. “Our generation is the one around which the term latch-key kids was invented,” explains Tulgan, who is a member of the X Generation. “We’re fiercely independent… Between goal-setting and deadlines, we want to be left alone.”

For all these reasons, flexible work arrangements have gone over big—for both Xer and boomer employees—at Framingham, Massachusetts-based Consolidated Group, an employee-benefits administrator. Monica Brunaccini, director of HR, offers a description of the current workforce that reflects what most companies will look like in the next decade: “We have 600 employees, and it’s a real split. We have very few people in their 40s and 50s. We have a lot of 20s and 30s and then we have this group that’s in their 60s.” The company is dabbling with more and more flexible arrangements, and Brunaccini says she sees all segments of the workforce showing interest. “I haven’t seen the requests from one group stand out from others,” she says. “It’s one of those universally popular benefits.”

Gear benefits communications toward needs.
Speaking of benefits (here’s the bad news), this is the area in which Brunaccini also sees the biggest chasm between the two groups. Employees demand benefits that reflect their needs—that’s only natural. It’s just when you have see-sawing needs that you have a problem. For instance, the Consolidated employees in their 50s and 60s want more focus on retirement: bigger 401(k) contributions and more communications on saving a nest egg. The twenty-somethings present at these communication efforts yawn over retirement lectures. They don’t want to fiddle with 401(k)s. “We try to get them to invest in their future and participate in a 401(k),” says Brunaccini. “And they couldn’t care less.”

But just as retirement talk is lost on many young employees, so too is child care of no particular interest to most older employees. And yet, to keep a happy workforce, HR must balance both. Brunaccini admits it’s not easy: “From a communications standpoint, especially when it comes to benefits, it’s quite a challenge because you have very different audiences.”

Consolidated’s solution to all this: Over-communicate rather than under-communicate. Anytime a benefit is changed, added or up for re-enrollment, HR conducts both written and verbal presentations. Brunaccini and her colleagues sit down beforehand for a preparation meeting. “We try to anticipate any question we might get—either from male or female, younger or older, new or tenured,” she says. This approach ensures that benefits, and education components, don’t get overly skewed to one side or another. If such communications are handled effectively—with an eye toward all workforce segments—Generation Xers may suddenly realize that 401(k)s are for them too, while older employees could use the information on dependent care in their elder-care strategy—or for their grandkids.

Chances are, by talking the right language to these two very different groups, you can make your current benefit offerings work for all. But, can you get these two groups with warring views of each other to work together? It’s not as impossible as you may think.

It’s a matter of diversity.
In a nutshell: Boomers see Xers as disrespectful of rules, scornful about paying dues and lacking employer loyalty. They “couldn’t care less” is a phrase boomers often use to describe them. Xers, of course, have a different view of themselves—and why they act the way they do. “You have to remember that we entered the working world in the post-job-security, post-pension-security era, in the wake of downsizing” says Tulgan. “That means traditional notions of loyalty and dues paying aren’t really applicable. That kind of career model isn’t even available to us. That doesn’t mean we’re disloyal. In fact, we’re capable of a new kind of loyalty, which managers can easily earn by forging a new workplace bargain based on relationships of short-term mutual benefit.” .

And baby boomers also have a different self-identity than the hierarchy-worshipping, over-cautious employees Gen Xers have them pegged for. They were the kids of Depression-era parents, to whom the job—and keeping the job—meant everything. Born into post-war prosperity, they had the luck of being able to sign on with big, healthy companies and stay there for life, which, they’d learned from their parents, was a great thing. Joan Kelly, manager of the Business Partnerships Program for Washington, D.C.-based American Association of Retired People (AARP), recalls her father, a Depression survivor, urging her into teaching—because then she’d always have a job. “If you’ve been through the Depression, or your parents have been through the Depression, you tend to think very differently about work,” she says.

These generational differences are no different than racial or gender differences, and should be treated the same—as a diversity issue. The more a company’s leadership talks about the issues of older and younger people and airs them out, the less likely grudges against work styles will fester. It’s a theory that Tulgan is working on now with New Haven, Connecticut-based Rainmaker Inc., a strategic think tank that consults companies on better managing their Gen-X employees. A current program revolves around two-way feedback: Rainmaker consultants enter a company and conduct focus groups with Gen Xers one day and boomers the next. “The third day, we bring them all together and say, ‘Want to hear something interesting? You all agree about this stuff, but you’re on totally different pages when it comes to this other stuff. And did you know what these folks thought about you? Isn’t that funny?’ It opens up the dialogue,” Tulgan says.

Once that dialogue is open—and maintained—HR can focus on the second strategy: managing the groups’ differences so they complement rather than clash with each other. It’s not an unlikely scenario.

Take, for instance, the technology issue. Although older workers consistently have high marks on attitude, attendance and practical knowledge, they routinely score low on their comfort factor with technology. In an AARP study, for example, 400 companies rated older workers lowest in this category. This isn’t unexpected. Baby boomers didn’t grow up with computers. But Gen Xers did. So why not pair the two to create a little team spirit? Gen Xers instruct boomers about PCs, gaining some credibility among that audience for their techno know-how, while older workers gain much needed knowledge.

There are similar synergies just waiting to be created. For instance, as Tulgan highlights in his book, most twenty-somethings crave mentors. But there don’t seem to be enough to go around in today’s strapped business world. Conveniently, older workers have often put in years at the company. They’re ideal contact people for any questions new kids may have, about the actual company, its processes or working in general. “[Older people] represent the corporate memory,” says Kelly.

It’s just such an informal give-and-take that Consolidated nurtures. Brunaccini says there’s little conflict between the two groups, thanks to effective management and a sense of mutual respect. “I’ve seen that some of the older workers tend to be the younger employees’ supplemental parents,” she says. “Older members tend to be the ones younger people go to when they’re having problems or need advice.”

Just as those with diverse workforces celebrate the texture a variety of cultures and mindsets offers, so should companies with a strong mix of younger and older employees—because when properly managed, this can be a true blessing. Says Kelly: “Each group brings something to the table, and you need to value them for what they bring. The young people bring some new ideas; the older people bring their experience. I think it’s a nice strong match you’ve got there.”