Rick Bell – Page 44

February 13, 2019June 29, 2023

Benefits Roundup: The Employer Mandate and Fair Compensation

When you write about topics as broad as benefits and wellness, it’s easy to have too many ideas and want to write about a million things at once.

But that’s impossible. So these are some topics in the health and benefits space that have intrigued me these past few weeks. They relate to employee wellbeing based on compensation; the employer mandate; days off; and a wellness conference.

What’s been on your mind recently? Any trends, debates or legislation that you find especially fascinating? Let me know!

Unpaid Internships and the Government Shutdown

I had many reactions to the government shutdown, which doubtless made a lot of employees’ lives difficult, having to work in some cases while not getting paid while benefits were compromised and many people had to deal with things like not being able to afford basic necessities like food and rent. I recognize that the struggle this put on federal workers was very rough.

It made me think of unpaid internships. These interns must go through these exact same struggles (unless they’re wealthy, or their family is) of needing to work their asses off while not getting paid. A lot of students can’t take internships that would be good experience and look good on their resume because they need to make money and pay basic expenses. Proponents of the unpaid internship argue that they are a valuable learning experience or that students can get class credit.

But in my opinion as a millennial in the beginning of my career, most of us in college needed to take out loans to afford an education. Couple that with unpaid internships and entry-level jobs that for many fields pay minimally. The financial burden put on young people through education costs and unpaid work can be significant.

All I’m saying is, at least pay your interns minimum wage. It’s the least you can do. People should get compensated for the work they perform.

Some Employer Mandate News

I came across a couple of BenefitsPRO articles recently that highlight two opposing ideas of the same debate. In late 2018 the U.S. Department of Labor, Department of Health and Human Services and Treasury Department proposed a rule that employers could circumvent employer-mandate penalties by setting up a health reimbursement account that employees could use to purchase health care in the individual market.

The 2018 tax reform legislation struck down the individual mandate. But the employer mandate, an Affordable Care Act provision that states employers must provide affordable health insurance to employees or else face a fine, is still in place.

On the pro side: Large employees would realistically continue to offer group health plans to attract and keep talent. Meanwhile, it could potentially help smaller employers in the 50- to 100-employee range. Also, to avoid penalties, employers would have to make an HRA contribution such that “any remaining premiums the employee would have to pay wouldn’t exceed a percentage of his or her income to be considered affordable under the employer mandate.”

On the opposing side: Employers and employees may not fully understand the differences between employer-sponsored health care and the individual health insurance marketplace, and the limitations that exist between them. Also, the new rules could potentially incentivize employers to switch sicker, more expensive enrollees to the individual market.

“If employers could move sicker patients toward individual and short-term plans — some of which have more restricted coverage — the employer could save money. In addition, short-term plans often are more restrictive about pre-existing conditions,” the article states.

If these rules are finalized, they wouldn’t take effect until Jan. 1, 2020 at the earliest, according to BenefitsPRO.

What do you think?

Should the Super Bowl Be a National Holiday?

I want to give a shout out to a Twitter user and lawyer @SonyaOldsSom who responded to a Workforce tweet with something obvious but important. Also, it speaks to an even broader idea than what she was specifically talking about.

We posted a podcast in February 2018 in which hosts Rick Bell and Frank Kalman briefly discussed if the Monday after the Super Bowl should be a national holiday. That idea, simply, came from organizations’ frustrations that people often aren’t as productive as usual that day.

This was @SonyaOldsSom’s response:

Not before Election Day is https://t.co/Bm8RzGmqR1

— Sonya Olds Som (@SonyaOldsSom) February 2, 2019

Amen! Sure, National Super Bowl Monday is a cute idea to debate, but employers (and whoever decides what national holidays are) should consider the thing that’s been right under their noses for a long time. In general, for any organization, it can be easy to get swept up in trendy sounding ideas — whether that’s open office spaces, yoga classes or some other buzzword — but what’s more valuable to people are these straight-up practical ideas, like having voting day as an official holiday.

The MBGH Wellness Forum

I recently attended an employer-only wellness forum hosted by the Midwest Business Group on Health, and although I’ve already written about some of the major takeways, there were a few other ideas that came up that are worth exploring:

I spoke to a man who expressed to me one of his greatest frustrations in the workplace wellness space: when companies go gaga over wellness programs without addressing cultural concerns like an abusive or toxic work environment. I agree!
One of my unlikely tablemates was Bruce Sherman, medical director for the National Alliance of Healthcare Purchaser Coalitions. I’ve coincidentally already interviewed him for a story coming up in our March issue! At this conference, he gave a talk about addressing employees with multiple chronic conditions [note: “multimorbidity” is the coexistence of multiple chronic conditions] in your wellness programs. One of his ideas: disease management programs that specifically address one chronic condition oftentimes do not sufficiently help employees with multimorbidity!
Sherman also mentioned that while people in the health care industry tend to have a narrow, clinical mindset with patient health, patients have many more focuses and stresses in their life. Personal health is just one of them — and, according to one survey, it’s not even the highest priority. Ranking factors that stress people out, “personal health” is No. 8, below other factors like finances, family health and work schedule. Personal health is not something that exists in a vacuum for employees!

February 13, 2019June 29, 2023

How We Work Might Be Changing But Independent Contractor Risks Remain the Same

The way we work in America is changing. The relationships between companies and their workers are more fluid and varied than in decades past. Our task in this appeal is to apply traditional legal protections to one such relationship.

So starts the 6th Circuit’s opinion in Acosta v. Off Duty Police Servs., which applies the traditional “economic realities” test to determine whether private security and traffic control officers are employees or independent contractors.

One would think that with such a pronouncement at the head of the 6th Circuit’s opinion, the court would be making a startling pronouncement broadening the landscape of who qualifies as an independent contractor.

Those making that assumption, however, are sorely mistaken.

The “economic realities” test balances six factors:

The permanency of the relationship between the parties
The degree of skill required for the rendering of the services
The worker’s investment in equipment or materials for the task
The worker’s opportunity for profit or loss, depending upon his skill
The degree of the alleged employer’s right to control the manner in which the work is performed
Whether the service rendered is an integral part of the alleged employer’s business

In balancing the factors, the court determined that all of ODPS’s private officers were employees, and none qualified as independent contractors.

1. Permanency of the Relationship

This factor examines the length and regularity of the working relationship between the parties. While some ODPS workers accepts jobs intermittently and for short terms, many worked for ODPS long-term, and some for decades without interruption. In addition to length, many ODPS workers did so with regularity (e.g., 20 – 25 hours per week, or even up to 50 hours per week). These facts mitigated against the fact that many ODPS was not many workers’ primary job or their primary source of income. Yet, according to the court, multiple sources of income is not dispositive, and using such a fact to deny employment status would ignore the “economic reality” that many workers need two (or more) sources of income just to make ends meet. Thus, the court concluded that this factor weighed in favor of employment status.

2. Degree of Skill

The evidence showed that the workers required little skill to render services. Workers only need four hours of training, and many have no background in law enforcement whatsoever. The workers described the jobs as either sitting in their cars with their lights flashing, or patrolling a parking lot spotting potential problems. Thus, this factor weighed heavily in favor of employee status.

3. Investment in Equipment and Materials

This factor compares the worker’s total investment to the company’s total investment. While the officers needed to buy their own equipment and provide their own vehicles, each only invested between $3,000 and $5,000 of their own money, compared to the hundreds of thousands of dollars ODPS spent to operate the business. Thus, this factor weighed in favor of employee status.

4. Opportunity for Profit and Loss

Courts evaluate this factor by asking if workers “could exercise or hone their managerial skill to increase their pay.” ODPS argued that workers could do so, because they had the discretion to reject assignment, thereby limiting their ability to increase their pay. The court, however, was not persuaded. That discretion, according to the court, is not managerial skill. Moreover, because the workers worked a set shift when they accepted work, they had no control over how much they earned based on how long they worked. They could not earn more by completing the job more quickly and moving on another assignment. Their skill did not increase their ability to complete their jobs and accept more, it merely gave them discretion to say yes or no to jobs when offered. Thus, this factor weighed in favor of employee status.

5. Alleged Employer’s Degree of Control

This factor asks whether the company “retains the right to dictate the manner” of the worker’s performance.” ODPS maintained policies and procedures, which addressed: (1) the type and color of uniform that may be worn, (2) vehicle and light requirements, (3) rules for exchanging job assignments with other ODPS workers, and (4) general rules on workplace presentation and conduct. ODPS also represented to its customers that it would inspect the work sites and supervise its workers.Workers testified that ODPS disciplined them for violating work rules, such as declining jobs. ODPS set the rate at which the workers were paid, would tell the workers where to go for the job, when to arrive, and whom they should contact when they got there, and had supervisors to whom they reported. Workers were also required to sign non-compete agreements, and ODPS had sued former workers to prevent them from working for competitors. Thus, for the majority of ODPS’s workers, this factor weighed in favor of employee status.

6. Integral Part of the Alleged Employer’s Business

ODPS built its business around the security and traffic control services provided by its workers. It could not function or service its customers without them. Therefore, this factor weighed heavily in favor of employee status.

Balancing the evidence, the 6th Circuit had little difficulty concluding that ODPS’s workers were its employees, and not independent contractors: “Taking all these factors into consideration with an eye on the ultimate question of economic dependence, ODPS’s workers … were employees entitled to overtime wages under the FLSA.”

Off Duty Police Servs. serves as a stark reminder for employers that in all but the clearest of cases, businesses take a huge wage-and-hour risk by classifying workers as anything other than employees. The way we work might be changing, but the risk you take by misclassifying employees as independent contractors is staying exactly the same.

Also read: Identifying Independent Contractors Vs. Employees

February 12, 2019June 29, 2023

A Textbook Lesson: The ADA’s Interactive Process

Does an employer have an obligation to return an employee to work following an extended unpaid leave of absence granted as a reasonable accommodation under the ADA?

You might be inclined to say, “Of course.” The answer, however, is nuanced, and depends on the length of the leave, the composition of your workforce at the time the employee seeks to return to work, and your efforts to engage in the ADA’s interactive process with the employee during the leave.

For your consideration: Brunckhorst v. City of Oak Park Heights.

Gary Brunckhorst worked as an accountant for the city of Oak Park Heights, Minnesota, for over 15 years. In April 2014, he contracted Fournier’s gangrenous necrotizing fasciitis — a rare, life-threatening disease otherwise known as “flesh-eating” bacteria. He had three life-saving surgeries, spent five months in a hospital and nursing care facility and suffered long-term injuries.

At the outset of his hospitalization, Brunckhorst requested, and the city granted, FMLA leave. When that leave expired, the city granted an additional 60 days of unpaid medical leave and told Brunckhorst that he could qualify for an additional 30 more days thereafter. On Sept. 14, 2014, (the end of the initial 60-day unpaid leave), the city sent Brunckhorst his job description and asked him whether he could perform all of its essential functions of his position. Brunckhorst’s doctor responded that he was not able to return to work and that he needed additional unpaid leaves of absence, which was extended in serial through April 1.

In December 2014, however, the City Council had voted to eliminate Brunckhorst’s position as unnecessary. In an effort to soften the blow to Brunckhorst, is offered him the choice of a severance package or a return to work when he was able to do so in a new position, albeit with a 30 percent reduction in salary. Brunckhorst refused both, stating that he wanted to return to his original position. The city kept him on his unpaid leave in the interim, since he was not yet ready to return to work anyway.

Ultimately, the city gave Brunckhorst a hard April 1 deadline to return to work in the new position or be fired. Brunckhorst, through his attorney, refused and instead requested that the city permit him to work from home. The city refused, stating that remote work was not possible for the new position. It instead offered Brunckhorst a limited schedule as an accommodation — four hours per day four days per week in the office. When Brunckhorst declined the offer, the city terminated his employment.

The 8th Circuit Court of Appeals concluded that the city had not violated the ADA by eliminating his position, refusing to offer remote work as an accommodation, or otherwise failing to engage in the interactive process.

No reasonable juror could conclude that the City had failed to participate in the interactive process. Brunckhorst attempts to narrow the window of the interactive process to the last few days prior to his termination and claims that the City offered him only one, take-it-or-leave-it accommodation. To the contrary, the record shows that the City engaged in an interactive dialogue with Brunckhorst for months regarding his return to work. During that time, the City extended his leave multiple times, made multiple requests for information regarding what accommodations he required, and offered accommodations consistent with his doctor’s restrictions. There is no genuine issue of material fact that the City engaged in anything but a good-faith interactive dialogue.

This case provides a textbook roadmap for employers to follow when handling an employee on an extended medical leave. An employer can eliminate a position if the bona fides of its business and economic needs support that decision. It is not required to keep a position, or create a position, as a reasonable accommodation. It may have to offer an existing, vacant position, however. It also does not have to offer remote work if the essential functions of the position dictate otherwise.

If you are considering terminating an employee out on a non-FMLA unpaid medical leave, consider this question — will it appear to a reasonable jury that you tried to work with the employee to return him or her to work. If the answer is an objective “yes,” then you are likely on solid footing terminating the employee who refuses your offers to return to work (understanding that you may have to justify your actions and decisions in litigation).

February 11, 2019June 29, 2023

Emojis Are Starting to Pop Up in Discrimination and Harassment Cases

Law.com recently pronounced, “The Emojis are Coming!”

That article got me thinking, are they coming to workplace litigation, too? After all, emojis are a form of communication, and work is all about communication. Which would suggest that we would start seeing them in harassment and discrimination cases.

According to Bloomberg Law, mentions of emojis in federal discrimination lawsuits doubled from 2016 to 2017. Let’s not get crazy. The doubling went from six cases to 12 cases. But, a trend is a trend.

While harassment cases dominate these filings, it’s not just employees who are using 🍆 to establish a hostile work environment. Employers are using employees’ use of emojis to respond to alleged acts of harassment (such as 😄, or 😉, or 😉) to help establish that the alleged hostile work environment was either welcomed or subjectively not offensive.

For example, in Murdoch v. Medjet Assistance (N.D. Ala. 2018), the court held that the plaintiff’s use of a smiley face emoji in a text message to her accused harasser helped establish an absence of a hostile work environment. Similarly, see Bellue v. East Baton Rouge Sheriff (M.D. La 2018) (😉) Stewart v. Durham (S.D. Miss. 2017) (😘 and 😉); and Arnold v. Reliant Bank (M.D. Tenn. 2013) (😊).

On the flip side, consider the salacious sexual harassment lawsuit filed against celebrity chef Mike Isabella. According that lawsuit, Isabella referred to attractive female customers as “corn” after one of his chef’s commented that one woman was “so hot, [he’d] eat the corn out of her shit.” The lawsuit alleges further acts of harassment via text messages with with corn emojis 🌽.

Also read: Harassment By Emojis

These cases all beg the questions, “Do you need a workplace emoji policy?” I answered this question in 2017 with an emphatic “NO.”

Most employers already have an emoji policy. It’’s called your harassment policy. You do not need a separate policy to forbid your employees from using what is becoming an acceptable form of communication … .

We can have a healthy debate over the professionalism of emoji use in business communications (like this one). Indeed, according to one recent survey, “nearly half (41%) of workers use emojis in professional communications. And among the senior managers polled, 61% said it’s fine, at least in some situations.” My sense is that your view of this issue will depend on a combination of your age, your comfort with technology, and the age of your kids.

As for me, I use emojis all the time, even at work. Email is notoriously tone deaf. It’s easier for me to drop a 😊 into an email to convey intent than to tone down my sarcasm.

In other words, 😁. Emojis are 👌, and it’s perfectly fine to ❤️ them at work 👍.

February 6, 2019June 29, 2023

President Trump Calls for Federal Paid Family Leave During State of the Union

February 5 was the 26th anniversary of the Family and Medical Leave Act being signed into law.

During last night’s State of the Union Address, President Trump called for Congress to make paid family leave a federal law.

I am also proud to be the first president to include in my budget a plan for nationwide paid family leave — so that every new parent has the chance to bond with their newborn child.

The devil is very much in the details. We have zero idea what this law would look like.

Who will pay for the leave — employers, directly via payroll, or employees, indirectly via a tax the funds a government benefit pool?
How much paid leave will the law provide — 6 weeks, 12 weeks, more, less?
What family issues will be entitled to paid leave — just childbirth, the same scope as the FMLA, or will be it broaden protections to other parental issues such as school-related events?
Which employers will it cover — those with 50 more more employees, 25 or more, or even smaller?

Before we heap too much praise on this effort, we need to know details. Still, the United States remains the only industrialized nation that does not guarantee working mothers paid time off after childbirth, and we lag behind most of the rest of world on other paid family leave.

Frankly, it’s embarrassing, and it’s high time we joined the rest of world on what appears for everyone else to be a non-controversial issue. Anything that moves this debate forward is an effort worth applauding.

February 5, 2019June 29, 2023

How to Recover a Stolen Computer From an Ex-employee in 7 Easy Steps

As many as 60 percent of employees who are laid off, fired or quit admit to stealing company data.

Sometimes they download information on their way out the door. Sometimes they email information to a personal email account. And sometimes they simply fail to return a company laptop or other device that contains the data. In the latter case, according to the Ponemon Institute, it costs an average of $50,000 for an employer to replace a stolen computer, with 80 percent of that cost coming from the recovery of sensitive, confidential and proprietary information.

When you put this data together, it becomes increasingly apparent that businesses must take proactive steps to protect their technology and data.

In light of these stats, let me suggest a seven-step plan to recover your devices and the crucial information stored on them after an employee leaves your organization.

1. Institute a strong electronic communication and technology policy, making clear that all data and equipment belong to the company, and must immediately be forfeited upon the end of employment. Or, better yet, have employee signed an agreement affirming their obligations regarding the confidentiality of your data and confirming the obligation to return everything at the end of employment.
2. Cut off an employee’s e-access to your network as soon as you have notice that an employee has departed.
3. Remind employees upon termination or resignation of their absolute duty to return all data and equipment, including laptops, mobile devices and removable storage devices.
4. To the extent you have the capability, and you have confidence that you have your own backups of the employee’s data, remote wipe any unreturned devices.
5. If any data or equipment is missing, enlist the aid of an attorney to send a clear message that unless everything is returned immediately, the company will litigate to get it back.
6. Enlist the aid of a computer forensics expert to determine if, when, and how any data was stolen, and, if so, of what that data consisted.
7. Sue.

Notice that a lawsuit against the employee is step seven, not step one. In most cases, going to court is the last resort. It is expensive and time consuming.

Yet in many instances it is unavoidable. And depending on the scope of the suspected theft and the data at issue, it may quickly move up the list.

February 4, 2019June 29, 2023

Workplace Wellness Dominates at Employer Forum

One perk of working in a city as big as Chicago is the conferences, big and small, that provide learning opportunities, ideas, and free coffee and bagels in the morning — especially the everything bagels.

The Midwest Business Group on Health held an employer-only forum on wellness, well-being, and engagement Jan. 23, giving me the chance to hear what employers had to say, chat with my table mates informally about workplace health, and listen to several experts speak on different health-related topics.

Many more ideas came up in the seven-hour forum, but here are the major takeaways that any employer should be aware of:

The Workplace Wellness Debate: Ryan Picarella, president of the Wellness Council of America, spoke about rethinking the approach to workplace wellness and building inspired organizations. Even though health care costs are going up and even though organizations are spending more money on health and wellness than before, population health is declining. Something needs to change in wellness strategy.

One topic he brought up was the debate over the value of workplace wellness. He thinks it’s fun to debate, and I agree! The reputation of workplace wellness goes up and down through phases, from something that’s celebrated to something that gets analyzed in “Workplace Wellness Programs are a Sham” articles. Where does the truth lie?

I happen to land on the more skeptical side of this (as I do with many topics), unlike Picarella who is more optimistic. That aside, one point he brought up is hard to argue: No matter what side of this debate you’re on, what we can agree about is that having happy, healthy employees is important, and something needs to be done to improve employee health.

He gave a lot of behavioral-science-based ideas for improving wellness programs, like by thinking about what motivates people, how environmental factors impact employees, and where employees’ sense of purpose lies. Workplace wellness programs need a foundation that addresses people’s basic needs like food and shelter. A program that addresses something like the importance of nutrition or going to the gym without acknowledging that some people won’t be able to focus on that if their priority is keeping the lights on or putting food on the table? That won’t do.

Another idea he shared is simple, but I find it to be strong. It’s one of those statements that’s obviously true, but I can see organizations and people not following it in practice in more areas of business than just wellness. More wellness activities and programs aren’t always better, he said. Rather than think about adding another thing, and another thing, and another, think strategically about the value add.

Persuasion Vs. Manipulation: Part of this event was a roundtable discussion about the role of trust in wellness. When someone communicates to you, the message may sound like persuasion or as manipulation, depending on how you feel about that person. Even a neutral message can read as manipulation if you do not trust the party providing the information.

Everyone in the room had discussions with their tables and then with the whole room about how to build trust in the workplace.

I love this discussion because there are so many deterrents to trust now, like with data privacy. Bring in wellness programs to that topic, and you get health data privacy, which is something people can be understandably sensitive about.

Without going into too much detail, the audience response here was interesting. One person spoke about employees worried about where their biometric data was going. The organization responded to this concern by making it crystal clear to employees what the company could see, what they couldn’t see, how the data was protected, and what they’d need to talk to the vendor about for answers.

Another audience gem: One person suggested including compassion in your messaging, and making sure your vendors do, too. At the organization, some employees had complaints about how rude a vendor was in answering questions and addressing concerns. The organization responded by reaching out to the vendor with this issue and suggesting that the call center employees go through compassion training.

In conclusion, be direct, transparent, and comprehensive.

Also, my initial big-picture reaction to this issue of trust: Isn’t a certain amount of skepticism healthy? Why should any employee blindly trust their employer? How much trust is realistic for employers to expect?

A piece of career advice that has stuck with me over the years is that even though loyalty and working hard are important, you need to look out for yourself. Don’t blindly believe that your employer always has your best interests in mind. If you feel guilty about quitting when you need to move on with your career, remember that at the end of the day if an employer comes across financial trouble, they may very likely lay you off. It’s just business as usual. Both sides can respect each other but acknowledge the reality that their employment contract is business, not personal.

The idea I’m trying to get across here — as somebody who sees that direct correlation between trust and loyalty — is that employers should want and expect employees to ask questions, be curious and even be skeptical when it comes to workplace matters that concern them. It gives both sides a chance to build a professional level of trust.

What do you think? What wellness-based conversations do you think more employers should be having with one another?

January 29, 2019January 29, 2019

Public Sector Employers and Age Discrimination

When Mount Lemmon (Arizona) Fire District faced a budget crisis, it laid off its two oldest (and highest paid) full-time firefighters.

They sued under the Age Discrimination in Employment Act. The district argued that it did not violate any laws because it is too small to be considered an “employer” under the ADEA. Section 630(b) of the ADEA defines the term “employer” to mean any individual or company who has 20 or more employees. It states the term employer “also means a State or political subdivision of a State.”

The district argued that the two sentences should be read together to excuse any state or local government employer with fewer than 20 employees from complying with the ADEA. The district urged the court to adopt this interpretation because it is consistent with court decisions applying the minimum employee requirement to public employers under Title VII of the Civil Rights Act of 1964. The court disagreed with each of the district’s arguments. It held that by using the terms “also means,” Congress intended to add a second definition of the term “employer,” not clarify the prior definition. The court also noted that the ADEA is sometimes broader than Title VII due to the different language used in each statute. Mount Lemmon Fire Dist. v. John Guido, No. 17-587 (Nov. 6, 2018).

IMPACT: Public sector employers are subject to the ADEA and prohibited from discriminating against employees over age 40 based on age.

January 25, 2019June 29, 2023

Labor Issues a Costly Concern During Acquisitions

When a company is considering a merger or weighing the idea of an acquisition, it is crucial to assess the impact on operations and, specifically, on labor and employment issues.

Deal attorneys and bankers focus on the underlying value analysis and purchase documents, which clearly are important.

However, liability for labor and employment issues can be created by acts or omissions and rarely is avoided solely by virtue of indemnification clauses or seller warranties in deal documents.

Put simply, our legal system operates in large part to protect the “little guy,” which in the employment context, means the employee, not the company. This means that, despite the iron-clad separation of entities from a financial perspective, if operations continue following deal closure, an acquiring entity may be held liable for workplace obligations agreed to by the seller-predecessor or for acts or omissions creating liability prior to the close of the purchase.

The Employee’s Right

How can this be, you ask? Remember the little guy. If they felt like they were wronged before the deal closed, they will chase both companies (especially if the selling entity was in financial distress). From a legal standpoint if, from our employee’s perspective, nothing changed after the deal closed — same physical office, same managers, same processes — it is possible the buyer may be found liable for the wrongdoings of the predecessor entity.

The idea is that a company should not be able to escape liability to its employees solely by changing its corporate name and closing a deal. Someone needs to make sure the little guy’s wrongs are righted. The way the courts often do it is by extending that liability to the “new” entity. The question is, how does “NewCo” avoid this? Ensure labor and employment are key components of due diligence, including the following:

Wage and hour. If you are the seller, conduct internal policy and practice audits on wage and hour issues as part of due diligence. These audits can reveal existing procedural violations that could mushroom into “bet the company” class actions if not cured (or expressly carved out of the purchase price!). Some examples of such issues are pay stub compliance, meal/rest break issues, and employee or contractor misclassification. One of the most frequently overlooked areas of exposure is unpaid vacation or paid time off for employees of the selling entity — all of whom would technically be terminated (and thus owed these monies) in an asset purchase. Even if the buyer hires every one of them.

Employment agreements. Know your obligations to employees, no matter the role. High-level executives who are key to the transition often have change in control or severance provisions in employment agreements that trigger significant payouts in an asset deal. If the buyer wants to retain these folks, the terms of new employment should be agreed-upon before closing. The buyer also should be conscious of any restrictive covenants — if key personnel are departing as part of the deal, make sure you are protecting your assets by limiting their ability to go across the street and start a competing concern. Even in California, noncompetition arrangements are available for limited purposes in the context of a purchase or sale of a business.

Turnover/hiring practices. Prepare yourself for WARN Act obligations, which require extended notice/payout periods, even if employees are not going to miss a day of work because they are being hired by NewCo. Diligence should include a discussion of which entity will be handling WARN and COBRA notices. And once NewCo takes over, to help avoid the type of pass-through liability described above in the context of an asset deal, it should follow standard hiring practices for each of the “old” employees. Assess them like any other new hire, and ensure all paperwork is completed to establish the new business relationship.

Labor union issues. Make sure you know about the seller’s union agreements or activity. Ask whether there have been organizing drives or union activity. If there is any organized labor, ask to see all collective bargaining agreements and review all grievances. The CBAs may contain clauses obligating the buyer to assume the terms contained therein and the seller to expressly disclose the potential of a deal. If you are not planning to transition the organized operations to NewCo post-close, you may be responsible for posting a bond to cover the withdrawal liability for the multi-employer pension plan into which the seller previously contributed. This can be hundreds of thousands (or even millions) of dollars, and it is held in escrow for five years.

Immigration. Understand your employee base. Does the selling entity have employees for whom it has sponsored work visas? If so, there needs to be an assessment of transferability and a discussion regarding that process. Does the deal involve international payments or taxes or transfers of operations that will necessitate analysis of non-U.S. issues?

Any company considering a merger or acquisition is acutely focused on the potential effect on its balance sheet from a pure numbers standpoint. It is axiomatic that a business’s largest asset (or liability) can be its workforce. Remember that effectively transitioning operations requires careful planning and educated decision-making as to how, or if, NewCo will be adopting the prior workforce and the policies and practices that applied to it. In order to make responsible decisions regarding the value of any prospective transaction, and the risks associated with it, both sides should look beyond the balance sheet to the people on the ground.

As these issues highlight, diligence regarding matters of potential exposure stemming from the labor and employment function is crucial when assessing the true net impact of a potential deal on your company’s bottom line. The little guys can have a huge impact; don’t overlook that in your focus on the paperwork.

January 22, 2019June 29, 2023

Labor Relations in the Public Sector, Part 2

Despite the Bureau of Labor Statistics reporting that 10.7 percent of all wage and salary workers in the U.S. are union members in both the private and public sector, union membership of public sector employees at the federal, state and local levels is well above that at 34.4 percent.

Just in local government, the rate of union membership is 40.1 percent and includes teachers, police officers and firefighters. In contrast, only 6.5 percent of private sector employees belong to unions. That number is significant because average private sector compensation costs average $34.19 per hour, compared to an average of $49.23 per hour in state and local government — a 30 percent difference in private to public employment costs.

So how do public sector unions achieve such important gains when some of these same unions don’t have the ability to strike? First, let’s take a quick history lesson.

The New York state Legislature was one of the first states to pass labor laws protecting women and children. Labor unions continued to gain strength in the subsequent decades, resulting in the passage of the Railway Labor Act in 1926, allowing railroad employees to unionize, and the 1935 National Labor Relations Act, which guaranteed basic rights of private sector employees to organize into labor unions and encourages collective bargaining — generally defined as the negotiation between an employer and a labor union on issues of wages, hours and working conditions.

Notably, the NLRA did not extend those protections to employees in the public sector for fear that public employees would strike, leading to paralysis of government until their demands were met. In 1943, the New York Supreme Court in Railway Mail Ass’n. v. Murphy, said, “Nothing is more dangerous to public welfare than to admit that hired servants of the state can dictate to the government the hours, the wages, and conditions under which they will carry on essential services vital to the welfare, safety and security of the citizen.”

Please read: Labor Relations in the Public Sector, Part 1

Today, most states have laws that formalize the bargaining process for some or all public employees, and some states permit only “meeting and conferring” on work-related issues. Only 11 states allow public employees to strike. Of those, most prohibit striking for essential employees and in cases where striking would endanger public health and safety.

For example, New York’s Taylor Law grants public employees the right to organize and elect union representatives, but also makes work stoppages punishable with fines and jail time. Some states prohibit collective bargaining for teachers while others prohibit all public sector collective bargaining.

The Power of Public Sector Unions

Without either limited or no ability to strike, public sector unions may try to leverage their power to help elect the very politicians who sit across from them at the bargaining table and influence legislation that affects public employees’ wages and availability of jobs. According to the California Fair Political Practices Commission, the California Teachers’ Association spent more than $211 million from 2000 to 2009 on political campaigning — more than any other donor in the state and as much as the pharmaceutical industry, the oil industry and the tobacco industry combined. In 2005 alone, the CTA spent $54 million to defeat initiatives intended to cap the growth of state spending and make it easier to fire underperforming teachers.

Politicians who attempt to limit the power of public sector unions and their lobbying arms need to come to the table prepared to make realistic changes. A case study of how not to negotiate with a public sector union is the Chicago Teachers’ Union strike in 2012, which was in response to some of Chicago Mayor Rahm Emanuel’s initiatives. Emanuel campaigned to improve the education of Chicago schoolchildren and used his political might to pass an aggressive education-reform bill without consulting the teachers’ union.

The CTU brought other public unions to their cause and engaged in a 10-day strike. After an unsuccessful attempt to get a court order to force teachers back to work, both sides reached an agreement. While Emanuel did get a longer school day and longer school year, the teachers got an average raise of 17.6 percent over four years, health insurance increases, seniority pay increases and raises for additional education.

In jurisdictions where striking is prohibited, there are ways to reach final resolution of negotiations if parties disagree. These include arbitration, mediation, fact-finding and bargaining without a final resolution mechanism.

In arbitration, a neutral third party facilitates discussions, examines the facts and makes a binding determination. In mediation, the parties agree on a professional who facilitates discussions and proposes solutions that both parties can accept or decline. In mediation/arbitration, the parties jointly choose a mediator and if both parties fail to come to an agreement, the mediator becomes the arbitrator. Fact finding is a labor dispute resolution measure where an independent “fact finder” examines the arguments of both parties and offers a nonbinding resolution. In the public sector, as many state and local governments are in poor financial health, the fact finder generally sides with the employer and finds the unions’ proposals unreasonable to allow the employer to control costs.

Unions strive to secure good outcomes for the employees they represent during the initial stages of negotiations. Allowing a dispute to lead to arbitration takes the decision away from management and labor. Since arbitrators must adhere to certain standards, the awards are somewhat predictable. Generally, arbitrators reach decisions that neither labor nor management view as the best solution. In a world where labor-management cooperation has become so important, having someone with no vested interest in the outcome decide a union and agency’s fate is a poor outcome that can take years for the parties to repair.

It is encouraging to see that some state and local governments and unions are using tools borrowed from the private sector that help lead to voluntary agreements. The following are important methods that increase the likelihood of fair, voluntary agreements:

• Engage employees at the workplace.

• Use interest-based bargaining techniques in contract negotiations, where both sides declare their interests and then work together to draft agreements that align common interests and balance disparate interests.

• Share information and consult with unions on long-term strategies. Since most labor agreements are in effect for at least three years, a government’s labor relations strategy should align with its own short- and long-term financial planning and overall strategy. Given the repetitive nature of the bargaining process, successful labor-management relationships have management communicate with and involve stakeholders regularly, not just during negotiations.

Bargaining involves transparent communication between labor and management regarding terms and conditions of employment. Effective bargaining is usually measured by whether labor and management can reach an agreement without involving a third party. By demonstrating interest in building rapport, exploring alternatives, refusing to put limits on the number of topics for negotiation, and coming to the table with the goal of a solution, management can maximize the chance of a favorable outcome without compromising the operations of government.