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Successful Coaching Programs Require Advance Planning

As someone who evaluates health improvement programs for a living, Ariel Linden, president of Linden Consulting Group in Hillsboro, Oregon, has seen many missteps.


    One client threw in the towel after it could not prove that employee behavior had changed. But the company did not determine whether the health coaches it had retained were properly trained, and it wasn’t motivating employees to participate, Linden says. What’s more, union leaders failed to recognize the value to employees and were discouraging workers from participating.


    That company’s failed effort has some valuable lessons for organizations that are considering health coaching. Before hiring a company to provide such a program for employees, wellness experts recommend thoroughly evaluating the provider and the program itself, as well as understanding its responsibilities in making the program work.


    Here are some suggestions for successful health-coaching programs:


    Assess the potential savings. Ask a provider how it plans to save you money. If the answer is through reduced hospital admissions, find out how many admissions your company currently has, Linden says.


    Look into the exact categories of savings, the number of employees who will generate that savings and the time frame for achieving a return—all of which should be measured against health care spending before implementing a coaching program.


    If a provider promises a steep or speedy return on investment, be skeptical. There aren’t enough large-scale studies to demonstrate such savings.


    For example: In seeking a health coaching provider, Blue Shield of California identified six serious contenders. And of those, “only one really tried to show that they had established direct, claims-based savings,” says Dr. Andrew Halpert, senior medical director of the 3.2 million-member plan. Blue Shield did not choose that vendor and instead selected WebMD, at which the primary focus was improving consumers’ health over time, which could result in future claims savings, he says.


    Evaluate the coaches and methodology. Find out how health coaches are trained, credentialed and supervised. Know what techniques they will use. “Motivational interviewing” is the only scientifically validated coaching method to facilitate behavioral change, says Susan Butterworth, director of health management services at Oregon Health & Science University in Portland. According to the school’s Web site, motivational interviewing “is a client-centered, goal-oriented method of interacting with people to help them change their health behaviors. Motivational interviewing enhances a person’s own intrinsic motivation to change by exploring and resolving ambivalence.” Many providers are becoming interested in integrating the approach into their interventions, but few have provided the training and follow-up necessary to bring their coaches to a truly proficient level, Butterworth says.


    Communicate the program. Ohio State University’s wellness program is widely recognized and well-received among employees. The university spent “a considerable amount of time” communicating it, says Gretchen Feldmann, communications manager in OSU’s Office of Human Resources in Columbus.


    Yet the health coaching component that was launched in August 2006 has garnered mixed reviews. One group of OSU employees uses, understands and enjoys the program; the other group doesn’t quite understand that it is voluntary, and some see it as invasive, she says. The remedy: a targeted communications campaign to be rolled out before open enrollment this fall. OSU will solicit employee “testimonial champions” who are willing to share personal stories of success with a health coach, Feldmann says.


    Engage employees. Start by giving employees incentives to take a health risk assessment, Linden says. Once health risks are identified, the coaching provider can help determine who needs such help and how often. Incentives can boost participation in health coaching.


    At OSU, employees can earn $120 a year in premium reductions for undergoing a health risk assessment, plus up $125 a year in cash for participating in preventive care services, including $25 for participating in sessions with a health coach.


    Collect and analyze data. Larry Chapman, senior vice president at WebMD Health Services in Seattle, says employers should use quantitative and qualitative measures for “lifting up the hood” and “seeing exactly what’s going on in the engine” of their health coaching provider. Questions to ask include: Has there been a reduction in the number of risk factors or in the severity of risk per employee? Is there a difference over time in per capita claims costs of employees involved in coaching versus nonparticipants? How do the costs of low-, medium- and high-risk employees compare?


    “That change in growth rate is really one of the primary success parameters that tells you you’re making a difference in the rate of growth of these people’s health care costs,” Chapman says.

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The New Job Sharers

Sharing a job used to be the fast track to the mommy track.


    In days gone by, the only people interested in splitting a job were female employees who wanted it all, or at least a little of both—a job and time at home.


    The vast majority of employees who share jobs still fit the traditional description, according to HR managers, experts and other sources. But the picture is changing and more companies are discovering that job sharing is an attractive option for hanging on to other valuable employees, whether they’re older workers phasing into retirement, Gen Y employees who don’t want to work so hard, or disabled workers who can’t meet the demands of a full-time position.


    Job sharing is a standard, if small, part of many companies’ flexible-work initiatives. Eighteen percent of 525 U.S. companies surveyed by the Society for Human Resource Management in 2007 had job-sharing programs and another 2 percent expected to add them soon. An even larger percentage of companies recognized as good places to work offer job sharing. The Great Place to Work Institute found that 63 of 100 on the 2008 list of the “Best Companies to Work For,” which it produces with Fortune, offered job sharing, according to Amy Lyman, corporate research director at the San Francisco nonprofit management consulting and research firm.


    Those organizations don’t distinguish between traditional and nontraditional job sharing. But it only takes a little digging to uncover some examples of the new wave:


  • Timberland, the Stratham, New Hampshire, maker of outdoor footwear and apparel, has two 30-something male attorneys sharing one legal department job.
  • AstraZeneca U.S., the Wilmington, Delaware, pharmaceutical manufacturer, has a 60-year-old male employee sharing an HR department job as a way of phasing out of full-time employment before he retires.
  • A California executive recruiter filled a CFO position at a manufacturing company in 2007 by splitting the job between two women with complementary skills: an experienced CPA and a younger MBA with merger and acquisition experience.

    Such nontraditional job shares are still rare, however.

   The HR department employee at AstraZeneca, for example, is one of 200 employees in 100 current job shares at the global pharmaceutical company’s $13.35 billion U.S. subsidiary, which has 12,200 employees. The rest are women field sales reps or pharmaceutical sales specialists who want only part-time work because they’ve got young kids at home, says Andrea Moselle, senior manager of AstraZeneca’s work/life program.


    AstraZeneca began promoting job sharing as part of a comprehensive flexible work program in 2000. Since then, Moselle says she has seen a smattering of nontraditional job shares. A few male employees have shared a job as a way of taking an extended paternity leave. Other employees have requested job shares at the end of their careers or because they needed part-time hours to take care of elderly family members, Moselle says.


    Some field sales reps have shared a job for five or six years. But generally speaking, a job shares don’t last for a long period of time, Moselle says. It can be tricky for two people to cover meetings, interact with supervisors and juggle the other aspects of job sharing indefinitely. “People do them for a period in their lives and move on,” she says.


    That’s what happened when Kelly Watson, an executive recruiter and owner of Career Partners in El Segundo, California, filled the manufacturing company CFO slot in fall 2007 with a pair of finance executives with complementary job skills. “The CPA was older,” Watson says. “Her kids were in college and she brought a lot of maturity and perspective to the team. The MBA had two small children and was fresh and energized, just unwilling to work 80 hours a week anymore.”


    But the company they went to work for was in financial distress, so the team only worked together for a few months, Watson says. “They were pretty excited about how it was going at the time.”


Job-share hall of famers
    If there were a job-sharing hall of fame, Rebecca Hinkle and Karen Boda would be in it. For 14½ years, Hinkle and Boda shared a series of customer-service management jobs at Hewlett-Packard before leaving the technology giant in 2006.


    Over the years, they shared jobs through multiple promotions, bosses, corporate mergers and the birth of five children—three for Boda, two for Hinkle. For a majority of the time they worked in different states. In their last position, they managed an HP business customer support organization of several hundred employees in 24 countries.


    After they left HP, the women started Twinstar Consulting in Atlanta to help companies set up virtual teams and other flexible work programs in order to do a better job hanging on to valued employees.


    In their current position, Hinkle and Boda say they’re seeing more companies offering nontraditional job shares, including jobs shared by Gen Y-age employees who refuse to put in the 70-hour workweeks their baby-boomer parents did. “It’s still rare,” Boda concedes. “You might see this more in lucrative fields like accounting, law and management consulting where you can make plenty of money working just 30 or 35 hours a week.”


    That looks to be the case at Timberland, where two male attorneys in their 30s were interested in sharing a single job for work/life balance, says Cara Vanderbeck, a spokeswoman for the $1.4 billion company. This particular job share calls for both attorneys to work three days a week with one overlapping day “so the position is seamless,” Vanderbeck says.


    From a purely legal point of view, job sharing gives employers an avenue for complying with the Americans With Disabilities Act and similar state laws protecting the rights of disabled workers, according to Helene Wasserman, a partner with Ford & Harrison in Los Angeles who advises corporations on employment issues. Companies could comply with the laws by offering job sharing to workers who incur a disability while they’re employed, or to job candidate whose disabilities would prevent them from working full time.


    Job sharing is also a way to accommodate an employee who wants to take time off under the Family and Medical Leave Act, Wasserman says.


    Plus, considering the dramatically low unemployment rates in some highly sought after professions, job sharing is a way for companies to creatively fill vacancies, she says. (View a video podcast hosted by Wasserman on next-generation job sharing.)


Job-share basics
    Regardless of the employees involved, most companies with job-sharing programs have a standard application process, says Lyman, with the Great Place to Work Institute. Generally, that process boils down to a written proposal spelling out conditions, such as overlap time. Proposals also address what changes—if any—a shared position will bring to the participants’ benefits and career development, Lyman says.

Some companies have adopted the job-sharing mentality without taking the next step of setting up true job shares. The Aerospace Corp., a government-funded space agency in El Segundo, has a long-standing practice of pairing entry-level employees fresh out of college with older employees who can share their collected knowledge.

At a company where half the employees are over 50, it’s important to mentor new workers, says David Jonta, an Aerospace Corp. spokesman. “This company represents the institutional memory of the military space program,” Jonta says. “Knowing what has gone before, that has a lot to do with what the future’s going to look like.”

If companies aren’t thinking about job sharing as an option for older workers, they should know that their employees are. And some are hiring consultants to map out strategies for using job sharing to phase into retirement.


    One such consultant is Pat Katepoo, who runs Kaneohe, Hawaii-based WorkOptions.com. Katepoo works with individuals, many of them baby boomers, who want advice on how to negotiate flexible work arrangements. Katepoo sells a flexible-work request template that she encourages people to tailor to their own situations and use to pitch job sharing to their management or HR department.


    In January, Katepoo started a Web site for baby boomers called Time Off Tactics that includes, among other things, suggestions for starting a job share with a younger worker as a way to get more free time.

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JPMorgan Hires Some Bear Stearns Workers; Thousands Lose Jobs in Merger

JPMorgan Chase & Co. of New York will make room for about 40 percent of the 14,000 Bear Stearns employees whose jobs were put at risk by the merger between the two companies, according to published reports.


On Monday, May 12, JPMorgan chief executive James Dimon stated that about three-fourths of hiring decisions have already been made.


JPMorgan will cut job positions to make room for talent coming in from Bear, making the net increase for JPMorgan approximately 3,000 hires.


Dimon also remarked that he has secured positions for an additional 1,500 Bear employees with other firms, according to reports.


Most of those not offered jobs were engaged in operations and technology positions.


The merger, expected to be completed by June 1, has been in the public spotlight since March 16, when JPMorgan purchased the Bear Stearns Cos. for $10 per share.


Filed by Matt Jacobs of Investment News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Is It Time to Reboot Your Defined-Contribution Plan

It is the rare plan sponsor who believes that defined-contribution plan participants have done a good job of investing. Indeed, the statistics remain grim: According to Hewitt Associates, at the end of last year, nearly two of every five 401(k) participants had 20 percent or more of their money in employer stock. Younger employees tend to be overly concentrated in stable value. Participants have been known to diversify by investing equally (and naively) in all funds in the plan. Others simply chase investment performance to their own detriment.


    Plan sponsors have recognized all of this and reacted by aggressively adding and promoting professionally managed asset allocation funds within their defined-contribution plans. The Callan DC Index finds that 89 percent of plans offer an asset allocation fund, with more than 60 percent of those being target-date funds. A good number of plan sponsors have gone even further and defaulted new participant money into such funds through automatic enrollment.


    Plan sponsors typically do so with the understanding that participant assets are likely to remain in these funds because of inertia and other factors. In fact, many would consider this a desirable outcome—or at least preferable to the outcome of participants making poor investment choices on their own.


    A logical next step for plan sponsors is to re-enroll existing participant balances into these asset allocation funds. After all, if such funds are a reasonable approach for new participants, wouldn’t they also be suitable for existing balances? Yet in a recent survey, Callan found that only 5 percent of plan sponsors planned to engage in a re-enrollment of their plan in 2008.


    Re-enrollment is essentially the same as “rebooting” the plan. It is a way of unwinding all of the poor investment decisions that plan participants have made in years past. It is also a way of seeing to it that existing participants more fully benefit from a plan that may look very different—and much more investor-friendly—from the plan in which they initially participated.


    The virtues of a reboot range from potentially dramatically reducing exposure to company stock to increasing the economies of scale (and possibly reducing fees) in the plan’s asset allocation funds.


    There are several reasons why reboots are still rare. One concern frequently raised by plan sponsors is that rebooting involves unwinding the active investment choices that participants have made, as well as shifting defaulted monies.


    This may be uncomfortable from a fiduciary perspective. Plan sponsors, of course, will have to rely on their own legal counsel for the ultimate answer regarding any possible fiduciary risk attached to re-enrollment. However, it is worth noting that the Pension Protection Act contains a number of provisions that provide ERISA Section 404(c) safe harbor protection for fund mapping and investment defaults.


    The provisions provide guidelines on notification requirements, specify what constitutes a qualified default investment alternative, and provide a framework for appropriate fund-to-fund mapping. In other words, the Pension Protection Act appears in many ways to support re-enrollment.


    And what about those active participant elections? Is it fair to change them? Studies have shown that even when defined-contribution plan participants make proactive choices, their investment preferences are weak at best.


    Professors Shlomo Benartzi of UCLA and Richard Thaler of the University of Chicago found in an experiment that participants unknowingly rated the average portfolio of their fellow employees equal to their own portfolio, and judged the median portfolio of their fellow employees to be significantly more attractive than their own.


    Indeed, only 20 percent of the participants in the experiment preferred their own portfolio to the median portfolio. In other words, even participants who make active choices don’t appear to do so with much conviction. Few participants tend to rate their own investment knowledge very highly, and many will admit that their investment choices were a guess. Often these choices were made at a time when the fund selection was vastly different from the way it is today. They were made, for example, before asset allocation funds were even available.


    Why does this matter? A Hewitt Associates study found significant delays in the use of new funds by existing participants. According to the study, it took more than three years for more than half of existing participants to use newly added funds. It took less than three months for more than half of new hires to use the new funds.


    Plan sponsors also worry about angry calls to their service center in response to shifting participant monies—especially in volatile market conditions. It is probably true that call volume will increase during a re-enrollment. However, consider the experience of one plan sponsor who recently re-enrolled participants from a balanced fund to a series of target-date funds. As a result of the change, the record keeper’s service center did experience a 30 percent increase in calls compared with the same time period a year earlier.


    Still, the plan sponsor reported that overall participant reaction was positive and supportive of the new program. Most important, the vast majority of participants allowed their assets to be defaulted into the target-date funds.


    Plans that are the best candidates for some form of re-enrollment are those whose participants would not generally be characterized as investment savvy. In other words, re-enrollment is generally likely to be better suited to a retailer than to a financial services firm.


    Plans that are engaging in a reshuffling of their fund lineup may also wish to take the opportunity to re-enroll or reboot, rather than to simply map assets from old to new funds. The rebooting solution may also make sense for plans with clear diversification issues, such as plans with an overweighting in company stock, stable-value funds or sector funds.


    It wasn’t so many years ago that features such as automatic enrollment, advice and target-date funds were considered aggressive and cutting edge. Plan sponsors harbored all the same worries about such features as they do today when it comes to re-enrollment and rebooting.


    However, today nearly half of plans offer automatic enrollment, and more plans offer target-date funds than risk-based asset allocation funds. Rebooting is just another such tool for plan sponsors to consider in their ongoing effort to improve the potential outcomes for defined-contribution participants.

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GM Says Assistance to Strike-Bound Supplier Was a Practical Decision

General Motors brass considered several options to help strike-bound supplier American Axle & Manufacturing Holdings Inc., but decided the most practical and ethical plan was to offer $200 million in assistance, a top GM executive said.


“There were a number of us involved in it and in the discussions, and collectively we evaluated several options. There were several levels of engagement and we thought that this would be the right thing to do and the right time to do it,” Troy Clarke, president of GM North America, told Workforce Management’s sister publication Automotive News in an interview.


The 10-week-old strike by 3,650 UAW members at five American Axle plants has idled or slowed work at 31 GM plants in North America—primarily light-truck operations.


After saying for weeks that it would not get involved in the dispute, GM changed course on Thursday, May 8, and offered $200 million to help American Axle sweeten its buyout and buy-down offers for the rank and file. American Axle has sought cuts in pay and benefits approaching 50 percent, and GM’s assistance could be crucial in mitigating those cuts and gaining worker approval of a new contract.


GM no longer has any legal obligation to American Axle employees, Clarke said. The decision to help American Axle was both practical and ethical, he said. GM said the strike cost it $800 million in the first month alone.


“We thought it was in our best interests and the best interest of all parties to do something positive and helpful in trying to encourage the parties to reach a resolution,” Clarke said.


He said all work stoppages are painful—it just depends on the degree of the pain. GM was able to withstand the immediate impacts of the strike because of high light-truck inventories.


“Did we have a high truck inventory? Yes, that’s a true statement,” Clarke said. “Did it bleed off some of that inventory that we may have had to bleed off otherwise? I think that’s a fair statement too.


“But I don’t think it’s the kind of thing where we were on the sidelines saying, ‘Wow, I hope the strike lasts another two weeks because it gets me down to my inventory number.’”


Clarke said that GM has other ways to winnow inventory and that strikes are very volatile.


“Labor issues are complex, and [it’s] very tough to talk about these kinds of things in the press,” he said. “I do know one thing: The strike will eventually end.”


Filed by Jamie LaReau and Philip Nussel of Automotive News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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HP Acquisition of EDS Could Mean Good News for ExcellerateHRO

Hewlett-Packard has announced that it is acquiring EDS, a move that may mean good news for ExcellerateHRO.

On Tuesday, May 13, HP and EDS announced they had signed an agreement for HP to acquire the Plano,Texas-based technology company for $13.9 billion, or $25 per share.

Industry observers say that if the merger goes through it would provide a swath of new resources and potential clients for ExcellerateHRO, the jointly owned HR outsourcing business shared by EDS and Towers Perrin.

ExcellerateHRO was formed in 2005, but hasn’t amassed many deals in the past three years—causing many to wonder about the fate of the company.

But now that HP is buying EDS, the company could revamp ExcellerateHRO into an HR outsourcing provider that would be competitive with the top players in the market, experts say.

“It would give them a lot of investment in the company at a time when the market is very slow and it will give them access to the HP infrastructure and client base,” says Phil Fersht, an analyst at AMR Research.

The merger would also give HP a partner in the HR outsourcing business, which it has been seeking, analysts say. HP entered the HR BPO business in 2006, when it signed a deal with Nestlé, but has done nothing ever since.

Experts predict that HP will take over Towers Perrin’s ownership of ExcellerateHRO since it doesn’t need the consulting expertise.

It’s unclear what is going to happen to ExcellerateHRO, says Bill Ritz, an EDS spokesman.


“Subsidiaries like ExcellerateHRO are key components of our strategy and sales delivery system,” he says. “It is too early to speculate on any impact this event may have on our subsidiaries.”


—Jessica Marquez


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Real Victim of Pension Underfunding Future Earnings, Says UBS

While almost half of the companies in the S&P 500 have underfunded pension plans, the shortfalls at Ford and Goodyear pose more of a threat to future profitability of those companies than is the case with any of the others in the index, according to a new report from UBS analysts.


David Bianco, a strategist in the investment research group at UBS, notes that a company’s funded status should be compared with its market capitalization to truly measure its effect on a balance sheet. That said, the pensions at Ford and Goodyear are underfunded by roughly $3.3 billion and $1.5 billion, respectively—or 22 percent of their market caps. This, according to UBS, ranks as the largest pension shortfall-to-market value ratio among S&P 500 companies.


“Any shortfall in pension funding will require a diversion of future corporate profits to the fund, and equity capitalization represents the market’s estimate of future profits,” Bianco noted. “Therefore, this ratio reveals the relative burden of the deficit.”


On the other end of the spectrum, the pensions at General Motors and Eastman Kodak are nicely overfunded, and they appear less likely to drag down earnings. GM is carrying a roughly $8.3 billion pension surplus, which represents an estimated 59 percent of its market cap, the highest of any company in the S&P. Eastman Kodak, meanwhile, has a $1.5 billion surplus, which registers as 24 percent of its market cap, second only to GM.


Filed by Mark Bruno of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Connecticut Passes State Insurance Program Expansion

Legislation approved by the Connecticut Legislature on Tuesday, May 6, would open up the health insurance program covering state employees to Connecticut municipalities, nonprofit organizations and employers in the state with fewer than 50 employees.


The theory behind the legislation—which the Senate approved on a 22-12, largely party-line vote—is that by joining the state program, cities, nonprofit groups and small employers would become part of a much bigger purchasing entity and pay lower rates than they would buying coverage on their own.


Earlier, state officials had said expanding the program could increase costs for the state because insurers writing coverage could seek to raise rates to reflect an expansion.


“These additional costs to the state are not budgeted anywhere, and additional resources would have to be budgeted if the bill passes,” state Budget Director Robert Genuario wrote in a letter to lawmakers before the House approved the measure last month on a 102-43 vote.


Connecticut Gov. M. Jodi Rell, a Republican, hasn’t said whether she will sign the measure.


Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Democrats Criticize Labor Dept. on Training Grant Oversight

Tension between congressional Democrats and the Department of Labor will remain high for the final several months of the Bush administration.


The latest flare-up occurred regarding the agency’s process of distributing about $900 million in training grants for fiscal years 2001-07.


A Government Accountability Office report released Wednesday, May 7, shows that the awards did not include performance goals and other assessment criteria. In addition, $263.8 million in grants targeted toward high-growth industries did not go through a competitive bidding process.


Jennifer Coxe, deputy assistant secretary of public affairs at the Labor Department, maintained that the grants followed federal procurement rules and are crucial in helping workers upgrade their skills for the changing economy. 


“We stand by these investments and their results as a sound use of taxpayer dollars,” she said.


But a training advocate said the GAO has added to the perception that the Bush administration is undermining the state and local boards established by the Workforce Investment Act.


“This GAO report confirms what Congress already believes—that there hasn’t been appropriate oversight and accountability in how these grants have been administered,” said Rachel Gragg, director of federal policy for the Workforce Alliance in Washington. “These grants are circumventing the current workforce development system.”


Democrats on Capitol Hill echoed that point and criticized President Bush for seeking to reduce training funds at a time when workers are being laid off and need to retool their careers.


“Under this administration, the Labor Department’s ability to … support a prepared and competitive workforce has declined significantly,” said Sen. Tom Harkin, D-Iowa and chairman of the Senate Appropriations subcommittee with jurisdiction over the agency, in prepared testimony at a hearing Wednesday, May 7.  


He cited a proposed 16 percent, or $474 million, cut in training grants to argue that the area is not a Bush administration priority.


Labor Secretary Elaine Chao responded at the hearing Wednesday that the current workforce system is riddled with wasteful duplication and bureaucratic inefficiencies. She said that states didn’t spend about $900 million in workforce monies in the last fiscal year.


Harkin dismissed that calculation, especially in light of a $250 million rescission in WIA funding that the administration advocated and Congress approved last year. It’s causing states to deplete their workforce budgets.


“The data we have doesn’t show there’s all that leftover money,” Harkin said.


The Bush administration asserts that it can do more with less by consolidating WIA funding, currently spread over four programs, into individual “career advancement accounts” that provide $6,000 over two years for education and training. Congress has rejected the idea for several years.


Too many people lack “the training they need, and that’s a tragedy,” Chao said.


And workers in the system can be misguided. “We’re training people for jobs that don’t exist,” she said.


But Harkin doesn’t accept the notion that the answer is to reduce funding.


“As we move forward through this budget process, I will fight for the investments that keep our workers’ skills sharp,” he said.


—Mark Schoeff Jr.

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Nine Ways to Protect Your Company During Staff Reductions

In good times, companies tend to hire employees with abandon. With business on the rise, individual employee performance problems become less important than having a sufficient number of employees to handle the increasing workload. Problem employees are retained in the face of potential litigation over employment terminations.


    When business slows down and profitability turns, companies consider reorganization, which generally includes a reduction in staff—a layoff—to reduce fixed costs. The priorities change as companies seek to terminate those whom the company has “carried” for years, despite performance problems. Now the prospect of wrongful discharge litigation becomes an important economic consideration as the company weighs the two seemingly unattractive alternatives of either: (a) keeping the poorer performers despite the negative impact on the business, if their termination poses a threat of litigation, or (b) terminating the poor performers (thereby helping the business) in the face of potential costly litigation.


    Although there is no simple answer to this dilemma, companies faced with a downsizing can minimize the risk of litigation by taking the following steps in the reorganization process:


1. Consider the documents
    Most employees are “at-will,” permitting either the company or the employee to terminate the employment relationship with or without cause or advance notice. Nevertheless, some employees have employment agreements that may limit the ability of their employer to terminate the employment relationship, or that may provide for severance benefits in the event of termination. Likewise, an employee handbook or company policies may limit employee terminations or establish severance requirements in the event of layoffs.


2. Establish the reason for the layoff
    No employee welcomes his or her employment termination in a layoff. However, if an employee understands the need for the layoff—that the company is losing money, for example—the employee is more likely to accept the necessity for a layoff. Moreover, in certain types of litigation, it may be necessary for the company to establish a business justification for the staff reduction.


3. Determine the scope of the layoff
    The layoff may be companywide, but this is not necessarily true. For example, a company may see a need to reduce employees in certain departments, or at midmanagement levels, while perceiving a need to retain its current sales force.


4. Timing of the layoff
    In the majority of cases, companies that finally decide to implement a layoff want to accomplish it “now.” In fact, there may be good business reasons to keep an upcoming layoff quiet until the last minute, and to make the layoff effective on the date it is announced to the affected employees.


    However, federal law requires 60 days’ notice to affected employees if certain thresholds are met concerning the size of the employer and the number of affected employees at each work site. Generally speaking, if 50 employees are being let go in the reduction, the company must determine whether the 60-day notice requirement is triggered. There also may be state or local laws that impose notification requirements.


5. Selection of employees
    As stated above, employees generally will understand the need for a layoff if there is a sufficient business justification. However, it is not as likely that each affected employee will agree with his or her selection for termination. Accordingly, it is important for the company to make the selection process as clean as possible, by doing the following:


  • Establish the selection criteria: Job elimination is usually one criterion. For jobs that will remain with fewer employees performing them, companies generally select either seniority or performance as the guiding criterion. The former is more objective and generally results in a reduced risk of age discrimination claims, but sometimes results in keeping poor performers that have been carried for years. Using performance as the criterion is less objective and has a greater risk of litigation, particularly with respect to age discrimination claims, but results in retention of the best employees who are needed by the company to weather the storm of a downturned economy. Note also that selections based on performance must be consistent with performance evaluations.


  • Educate decision-makers on illegal considerations: The company should instruct the persons who will make the tentative selections for termination that there are prohibited considerations in the selection process, such as age, race, national origin, sex, disability and leave status.


  • Analyze the tentative selections: Before finalizing the tentative selections for termination, review them with labor counsel (a privileged conversation) to see if there are any hidden issues or traps. Also, analyze whether the planned layoffs will have an adverse impact on any group, such as workers over the age of 40, women or minorities.


6. Notification
    When the time has come to announce the reorganization, two notices are generally used: (a) a general notice to all employees regarding the reorganization and the business reason for the layoffs, and (b) a specific notice to the affected employees regarding the details of their separation, such as the time and the severance package.


7. Severance packages
    In the absence of a contractual commitment, the law generally does not require a company to provide severance packages to laid-off employees, and companies that are going through difficult financial times sometimes resist providing severance packages for economic reasons. Nevertheless, upfront severance packages tend to avoid later litigation costs, and therefore should be considered.


    Among other things, a severance package might contain all or some of the following elements:


  • A severance payment, usually based on years of service.


  • Payout of medical insurance (COBRA) premiums for a period of time.


  • Outplacement services.


  • A retention bonus, if and as needed.


  • A general release of claims by the terminated employee (including special release requirements for employees over 40 years of age).


    Moreover, companies should consider the possibility of relocation/transfer options, if applicable, and should consider helping terminated employees file for unemployment benefits.


8. Dealing with others
    In addition to notifying the affected employees, companies will need to determine:


  • How to respond to job reference requests.


  • How to notify customers of the changes.


  • Whether a press release is advisable.


  • How to handle the employees who remain after the reorganization, in the context of uncertainty and their increased workload and responsibility.


9. The overriding principle
    It is not just what you do; it is how you do it. Employees who are treated with dignity and respect in this difficult transition period are far less likely to seek legal redress for their termination than employees who receive a modern-day version of the “pink slip.” Designate authorized spokespersons to give the employees truthful information. Take time to deal with their problems as well as yours.


    There is no surefire way to avoid employment litigation in a staff reduction. However, the old adage “An ounce of prevention is worth a pound of cure” rings true here. Taking the time to follow the steps outlined above will minimize the risk of litigation, and will put your company in the best position to defend itself in any post-reorganization employment litigation.