Feds Look to Play Bigger Role in Cutting Health Costs
Plans by the new Democratic-controlled Congress to negotiate Medicare drug prices directly with manufacturers could lower the cost of the federal health insurance program for seniors and make it easier for employers to discontinue retiree health benefits.
Experts agree that by using its huge purchasing power to negotiate lower prices for prescriptions, the federal government could lower the cost of Medicare Part D, the prescription drug benefit for retirees. It would lower overall premiums for supplemental insurance, which is more expensive for individuals than insurance purchased by employers.
Should this occur, it could “make Part D even more attractive from a retiree’s perspective and result in a further acceleration of the trend among employers to drop retiree medical, at least for post-Medicare retirees,” Eric Grossman, a health benefits consultant with Mercer Health and Benefits, writes in an e-mail.
Reining in the cost of health benefits for retirees is a major issue for employers because retirees spend more per capita on health care than younger workers do. That spending will increase significantly as baby boomers retire.
Employers struggling with health care costs have been slashing retiree health benefits. Last week, Ford Motor Co. announced it would end retiree health benefits and opt instead to give retirees and their spouses $1,800 each to put toward health care. Earlier this year Chrysler made similar plans for retiree health benefits beginning in 2007.
The percentage of Medicare-eligible retirees who had employer-based supplemental health insurance dropped to 36 percent in 2004 from 66 percent in 1988, according to the Kaiser Family Foundation. Employers could opt to pay for Medicare premiums or a portion of out-of-pocket expenses, if the cost of doing so saves them money.
Beyond retirees, any new legislation allowing for the federal government to negotiate drug prices directly with manufacturers could affect employers in their efforts to pay less for prescription drugs. For employers struggling to tamp down increased pharmaceutical costs for their working population, a savings in Medicare Part D could give employers greater leverage when negotiating how much they will pay for pharmacy benefits, says Edward Kaplan, a pharmaceutical benefits consultant at the Segal Co.
Under the Medicare plan as passed under the Medicare Modernization Act of 2003, insurance companies and pharmacy benefit managers negotiate drug prices with manufacturers and fold that cost into their premium prices. Though Democrats have not unveiled details of the plan for how the government would negotiate prices, Kaplan believes it could include an open bidding process aimed at getting a manufacturer’s generic drug on the government formulary. The competition for business would likely drive down price, even though the final price would be fixed.
“If they do something like that, I think employers very quickly will want to leverage what is published,” he says.
Kaplan says lower prices could be used as a new benchmark for employers as they negotiate what they will pay for drugs.
But drug manufacturers could raise prices in other ways, possibly shifting the cost onto private employers either directly or indirectly, says Paul Fronstin, director of health research at the Employee Benefits Research Institute.
“You could argue drug companies would raise prices to pay for active employees and there will be a cost shift,” he says. “They are going to rob Peter to pay Paul.”
If pharmacy benefit managers play a smaller role in procuring discounts on drugs covered by Medicare Part D, they would likely make up the squeeze on their profit margin by increasing the fees they charge to adjudicate drug claims. An upside to this possibility, Segal says, is that administrative fees are more transparent.
The plan, which is scheduled to be taken up within the first 100 hours of the new Congress in January, will be among the first tests of the Democratic-controlled House. Lawmakers can expect heavy opposition from the pharmaceutical industry. With President Bush’s veto power, Fronstin says, “this thing is not a slam-dunk.”
Recruiters Cite Referrals as Top Hiring Tool
A recently released study gives new insight into how company recruiters perceive various methods for finding talent. And as other studies have shown, it comes down to who you know. Or, more precisely, who employees know.
Seventy-five percent of survey participants said employee referral programs are effective or very effective tools, according to the survey conducted by ERE Media, an online forum and source of information for recruiters, and consulting firm Classified Intelligence. The survey, released in September, includes feedback from 343 respondents across a wide range of industries and company sizes.
Currently, less than one-third of hires actually come from employee referrals. However, more than 50 percent of respondents say they will increase spending on referral programs to further tap into the benefits the programs offer as recruitment tools.
Classified Intelligence founding principal Peter Zollman says employee referral programs are highly regarded because, relative to other recruitment methods, they are fairly inexpensive. Furthermore, the quality of candidates they yield tends to be high, he explains.
While referral programs appear to be a favored recruitment tool, print ads are at the other end of the spectrum. Almost 60 percent of the survey’s participants rated print ineffective or very ineffective.
The reviews on career fairs weren’t quite as scathing. Some respondents believe they do not provide good value, while others consider career fairs a good tool for branding. The latter group also says career fairs are handy when it comes to filling large numbers of job vacancies in a short period of time.
Job boards received overall positive marks, ranking second among recruitment tools. About 50 percent of study participants say they are effective or very effective tools for recruitment.
Information from the report suggests that reliance on electronic recruitment tools is here to stay. Ninety-eight percent of the study’s participants say they use job boards. Some participants say more than half of their hires were found through job sites. Ninety percent of the study’s participants say they have developed corporate career sites.
Although the feedback about job boards was generally positive, there’s room for improvement within the industry, the survey reveals. Niche sites and job boards are regarded favorably, but the jury is still out on the recruiting effectiveness of social networking sites. This category includes both business-oriented networking sites like LinkedIn and purely social sites such as MySpace. More than 40 percent of respondents say they use social networking sites to recruit employees, yet the majority of that group spend less than $25,000 annually on this recruitment method.
The survey’s respondents gave diversity sites poor marks. Zollman says it’s the only category in the study that received no votes for being “very effective” as a recruitment tool. Zollman believes diversity sites are in a tough position. “Candidates that bring diversity to the table don’t want to label themselves as minorities,” he says. “They just want to be considered another regular candidate.”
Employers Often Fail to Protect Young Workers
The case of former U.S. Rep. Mark Foley and his salacious electronic messages to teenage congressional pages has grabbed headlines and, depending on the outcome of tomorrow’s election, might even have shifted the balance of power in Washington.
But Capitol Hill is not the only place in America where problems occur when teenage workers mingle with adults who take advantage of age and power to sexually harass them. Lots of employers are in similar situations—and they often are no more adept at dealing with them than Congress has been, workplace experts say.
Generation Y’s ability to find information on the Internet means that they often know more about how they should be treated at work than their supervisors do, says Michael Cohen, an attorney in the employment services group at WolfBlock in Philadelphia.
“To think that they don’t understand or appreciate their rights is a colossal mistake,” says Cohen. Some 3 million young people ages 15 to 17 are in the labor force during the school year, says Cohen, citing Bureau of Labor Statistics figures from 2004, the last year data for that age group was available. The number rises to 4 million in the summer, according to the BLS data.
The Equal Employment Opportunity Commission is reaching out to that age group through its Youth at Work initiative, which has sponsored more than 1,600 employment rights events over the past two years involving 112,000 students, education professionals and employers.
The EEOC touts its success in litigating claims involving teens. In September 2005, Carmike Cinemas agreed to pay $765,000 to settle a sexual harassment charge involving young male employees and a male supervisor in Raleigh, North Carolina. In December 2004, Burger King paid $400,000 to seven female employees who were sexually harassed by a male manager in St. Louis.
Companies incur these kinds of costs when they fail to take seriously harassment training for youth and their supervisors, says Lynn Lieber, an employment lawyer and founder and CEO of Workplace Answers.
It’s especially important to reach teenagers, who are often in their first jobs and hesitant to make waves that might jeopardize future employment prospects, she says. They may know that a manager is wrong when he gropes them, but they are hesitant to defend themselves.
“It’s extremely difficult to get them to report,” Lieber says.
Making them more confident in fighting back requires communicating with them better. “Organizations need to speak to them in a language they understand,” Lieber says. Companies also should monitor interactions between supervisors and employees and respond to complaints.
A former congressional page says that the weakness of the Capitol Hill program is not the training it gives to the high school-age students who work in Congress.
The pages were told in no uncertain terms what kind of behavior would get them sent home, says Moira Whelan, who is now director of strategy and outreach at the National Security Network.
And there was no doubt that the directors of the school, dorm and work sections of the page program would protect a student’s identity if he or she reported harassment, Whelan says.
The question was what would happen next.
“There was no clear line of authority,” she says. “There was no designated advisor who could take whatever it was you had forward. It becomes no one’s job when it’s everyone’s job.”
Employers Sending More Women on International Assignments
Employers are sending more female workers on international assignments than ever before, according to a report from Mercer Human Resource Consulting. The study looked at 100 multinational companies with about 17,000 male and female employees working overseas.
This trend reflects the increasingly global nature of modern companies. Nowhere is this dynamic more palpable than it is in the Asia-Pacific region, particularly China, which reports the greatest rise in number of female assignees.
Survey respondents in the Asia-Pacific region say they have 16 times more females on assignment this year than they did in 2001, according to Mercer principal Yvonne Sonsino.
But this is not the only region experiencing a boom in the number of female assignees. Respondents from North America report having nearly four times as many female assignees, while their European counterparts say they have twice as many.
The trend is expected to continue. Fifty-five percent of respondents anticipate that the number of female assignees will increase steadily over the next five years. Only 4 percent of the survey participants believe the number of female assignees will decline.
For their part, female workers are willing to take on assignments overseas because they can open opportunities for professional advancement.
“Going on expatriate placements can be an important step on the career ladder, and women are increasingly interested in taking these assignments,” Sonsino says.
Yet, going overseas could entail personal drawbacks for some female workers. Many companies’ policies are outdated and do not reflect the changing profile of their expatriates, according to Sonsino.
Almost 85 percent of the companies in the study reported that female workers go on overseas assignments alone. By contrast, 60 percent of companies said the majority of their male assignees are accompanied by a partner.
“Studies suggest partners of successful women also tend to have high-powered careers,” Sonsino says. “When a woman is offered an international assignment, their partner may be less willing to make career concessions to accompany them.”
Paltry benefits could contribute this dynamic. Sixty-six percent of survey respondents provide no incentives or support to help partners settle in the host location. And in the instances where support is available, it is usually only given when specifically requested. For example, only 7 percent of respondents offer partners information on the local job market, though 37 percent said they would provide it if assignees asked.
Companies do little in helping single parents on overseas assignments.
“Expatriate programs are simply not designed to cope with providing support for single parents,” Sonsino says. “There is an increasing need for companies to update their policies in this area.”
In the survey, 12 percent of companies said they have female expatriates who are single parents, yet only 4 percent provide additional support to this group of assignees.
Foster-Cheek on the War for Talent
WM: In June, Johnson & Johnson announced the $16.6 billion acquisition of Pfizer’s consumer health care business. How early on did you get involved in the deal?
Foster-Cheek: Clearly [I’m involved] on the due diligence side. Even though I am head of HR, I am also on the executive committee as a corporate officer. As we consider large-scale acquisitions the size of Pfizer, I would be involved in the upfront work before we make the decision to acquire the company. That early work around the financial analysis and valuation is work that occurs within the executive committee.
Further down, I sit on the steering committee for the Pfizer consumer health care acquisition. The steering committee has accountability for the high-level future organizational design and really ensuring that integration runs well. I have an HR leader for the consumer business of Johnson & Johnson who oversees the acquisition in terms of the organizational design.
WM: At what point do you start assessing talent before an acquisition?
Foster-Cheek: Immediately. That is part of the assessment of the acquisition. We think about things like “Does this give us access to growth markets that we aren’t currently in? What is the reputation in the marketplace of the talent of the organization?” And you can do that by looking at the business performance of the talent. I think about what is going to be required to run the future organization, and that is something I do with the HR leaders of the business.
With the Pfizer business, I have a little bit of insight, since I worked at Pfizer for 13 years. Part of the valuation is the talent we are going to get. Literally from the minute we ink the deal, we do as much as we can under Federal Trade Commission rules, since we are still competitors until the deal closes. We use any public information that we have access to and use that to do early integration planning.
WM: How important is that?
Foster-Cheek: We do so many acquisitions, and our historic growth has been through acquisitions. This Pfizer acquisition will be the largest in our history. You need to have your HR professionals in from the very beginning because that is how you know you are putting together processes to allow the organization to function properly.
Workforce Management, October 23, 2006, p. 21 — Subscribe Now!
Foster-Cheek on Acquisition Strategy
WM: In June, Johnson & Johnson announced the $16.6 billion acquisition of Pfizer’s consumer health care business. How early on did you get involved in the deal?
Foster-Cheek: Clearly [I’m involved] on the due diligence side. Even though I am head of HR, I am also on the executive committee as a corporate officer. As we consider large-scale acquisitions the size of Pfizer, I would be involved in the upfront work before we make the decision to acquire the company. That early work around the financial analysis and valuation is work that occurs within the executive committee.
Further down, I sit on the steering committee for the Pfizer consumer health care acquisition. The steering committee has accountability for the high-level future organizational design and really ensuring that integration runs well. I have an HR leader for the consumer business of Johnson & Johnson who oversees the acquisition in terms of the organizational design.
WM: At what point do you start assessing talent before an acquisition?
Foster-Cheek: Immediately. That is part of the assessment of the acquisition. We think about things like “Does this give us access to growth markets that we aren’t currently in? What is the reputation in the marketplace of the talent of the organization?” And you can do that by looking at the business performance of the talent. I think about what is going to be required to run the future organization, and that is something I do with the HR leaders of the business.
With the Pfizer business, I have a little bit of insight, since I worked at Pfizer for 13 years. Part of the valuation is the talent we are going to get. Literally from the minute we ink the deal, we do as much as we can under Federal Trade Commission rules, since we are still competitors until the deal closes. We use any public information that we have access to and use that to do early integration planning.
WM: How important is that?
Foster-Cheek: We do so many acquisitions, and our historic growth has been through acquisitions. This Pfizer acquisition will be the largest in our history. You need to have your HR professionals in from the very beginning because that is how you know you are putting together processes to allow the organization to function properly.
Workforce Management, October 23, 2006, p. 21 — Subscribe Now!
Business First
Kaye Foster-Cheek was upfront with Chuck Dombeck, vice president of corporate HR, when she interviewed with him at pharmaceutical giant Pfizer. It was the summer before her second year of business school at Columbia University, and Foster-Cheek was hoping to land an internship.
“I told him that I really didn’t have any HR skills,” she says. “And he said, ‘If you understand how businesses make money and how to put organizations together and enable them to deal with transformational change, then I can yteach you the HR stuff.'”
Almost 20 years later, it’s Foster-Cheek’s unrelenting focus on the business and the bottom line that defines the workforce management strategy at Johnson & Johnson, where she is vice president of human resources.
As a member of the company’s executive committee, reporting directly to chairman and CEO Bill Weldon, Foster-Cheek, 47, is spending much of her time these days planning the integration of the two workforces as Johnson & Johnson takes over Pfizer’s consumer health care business—its biggest acquisition ever.
Foster-Cheek also has spent the past 10 months overseeing due diligence as Johnson & Johnson plans to outsource various global HR processes to enable her workforce managers to be more focused on the business. The company expects to choose a provider by the end of the year.
But Foster-Cheek’s drive and focus on business performance don’t detract from her desire to nurture individuals—a key trait of Johnson & Johnson. A native of Barbados, she moved to New York when she was 22 and spent the first few years there working for her uncle, a physician by training who was running an ambulance service in Harlem. Blind as a result of diabetes, he relied on Foster-Cheek to help organize the business.
“That left me with this profound need for improving access to health care to underserved populations,” she says. “On a subconscious level, it’s probably why I’m so committed to health care.”
After receiving her MBA, Foster-Cheek spent 13 years working at Pfizer in various roles, ending up as head of HR for Japan, Asia, Africa, the Middle East and Latin America. In that role, she traveled the globe overseeing the workforce management strategy of the pharmaceutical businesses.
“The most profound thing I gained from working globally is a real appreciation for difference,” she says. “In the U.S., when we think of difference we think of race and gender because that has been our social history. But the more time I spent globally, the more I became aware of how powerful difference is and how beneficial it is when you have a common mission and can bring people who are different together.”
That understanding helps Foster-Cheek as she manages Johnson & Johnson’s decentralized workforce, which numbers more than 116,000 employees in 230 business units worldwide.
Foster-Cheek recently met with Workforce Management staff writer Jessica Marquez at Johnson & Johnson’s New Brunswick, New Jersey, headquarters.
Workforce Management: How do you define the role of a workforce management leader?
Kaye Foster-Cheek: What we have spent a lot of time in HR doing is being business partners. We don’t just say that as jargon. That means we need to understand how our business makes money. The first thing I ask my HR professionals is, “Do you know how your business makes money? What are the levers that your business leaders can pull to really affect those outcomes? Do you understand how that all works?” Because if you do, then as a person who is working on maximizing human capital, you understand how that actually affects the business outcome. If you don’t understand how the business makes money, then you can’t be relevant.
And I think that’s the big challenge for us. It’s not just “Think business partner.” It’s “What does that mean?” That starts with a clear understanding of how the business makes money. That starts with understanding the external environment. So, as an HR professional, I should be able to talk with you about the external forces—political, social and demographic—that are affecting our business. Then I should be able to understand, given all of those factors, where are the big opportunities for growth that exist within our business. And given all of those things, how are we going to make money? Once we are clear about our business model, then we can understand the implications for our workforce and what we need to do to make sure our employees are engaged and productive to deliver on those outcomes.
WM: Are you planning to outsource some of your HR processes to enable managers to be more strategic?
Foster-Cheek: Right now we are working on a significant transformation of the HR function. That’s on two fronts. One side is just about efficiency, which is about the automation and integration of our systems, offshoring and outsourcing. These actions will get us to be much more efficient than we are right now. So in terms of the HR function, there are pure HR professionals; there are finance professionals that do HR and payroll. And then there are professionals who run our HR systems. Right now we are undergoing a significant evaluation of what the future model should look like. We are in the midst of evaluating HRO providers right now—that’s part of our transformation.
If you think about what I just said in terms of my expectations of our HR leaders, those capabilities are not necessarily resident within the function now, because that has not been the expectation of the past. We have to get HR to be more effective and skilled. There is the opportunity for us to resize the function in an appropriate way that meets the needs not just today, but the future needs of the business.
WM: Sharon Taylor, the senior VP of corporate human resources at Prudential Financial, has spoken to us about the challenge of getting HR managers to be more strategically focused after outsourcing. Are you concerned about that?
Foster-Cheek: I fundamentally do not believe that people transform and become strategic overnight. So what we have as part of this is a skill assessment and development process. I’m personally committed to the assessment and development of the HR professionals in the function. And again, we can’t do that for every single person. There are going to be people who are either unwilling [to stay on] or, at this point in their career, [are] ready for a transition. But I feel personally accountable, as do the HR and business leaders here, for at least assessing and giving people an opportunity for development.
It’s not instantaneous. You can’t go from doing one particular set of functions to changing the way they think. I have to first be clear about what the expectations are, and then give them the opportunity to operate differently.
WM: How do you teach those skills?
Foster-Cheek: Some of it is inherent. Some of it you can’t teach. Our HR model isn’t different than most HR models. We focus on business-based HR. We want to have some HR outsourcing; some centers of expertise, which offer best practices and tools for our managers; and then some service center capabilities, which handle more administrative, routine HR matters. That model is reflective of most of the current thinking about the HR service delivery model.
In a service center or at an outsourcing provider, there is still going to be opportunity for HR professionals. Not every HR professional is going to be a business partner. The needs of our business won’t require that. Service center leaders or customer contact individuals are critical jobs. And what we have to do is make sure that we don’t inadvertently send the message that those jobs are not just as important.
I think a lot of HR managers would tell you that they inadvertently created this tiered approach to HR, where people feel the only job worth having is the business-based HR professional. And I want to make it clear that the standards for people who work in a service center are just as important because we are touching a global workforce.
WM: Heads of HR often lament that their staff is too “touchy-feely” and not business-oriented enough. How do you handle that with your own staff?‘
Foster-Cheek: For me, it’s the balance. There is something endemic in the culture of Johnson & Johnson that has people think of us as the company that puts the needs of others first. And I think that requires us within HR not to be touchy-feely, but certainly to be sensitive to the implications of business decisions on the workforce.
Whether we are going through a major restructuring or going through a major acquisition, as we are right now with the acquisition of Pfizer’s consumer health care business, I want my HR professionals to understand the business implications. Does it have implications for plant closings? Does it give us access to growth to markets we are not currently in? But at the end of the day, these are 7,300 colleagues from the Pfizer business that are coming in, and you’d better be front and center in understanding how they are probably feeling because of the uncertainty of the change. When we think about future-state organizational design, what are the implications for people having a larger scope of responsibility or smaller scope of responsibility? It isn’t one or the other; it’s how you blend both of those.
I think what has happened in HR is that we are so scared of being perceived as touchy-feely that we probably swung the pendulum completely to the other side, to be hard-core business professionals. At the end of the day, I want both things: I want hard-core business professionals who understand the implications for the workforce.
WM: CEO Bill Weldon has put a lot of emphasis on leadership development during the past few years. What caused the company to take a closer look at what it was doing in this area?
Foster-Cheek: As our business has grown dramatically over the past couple of years, we said that we needed to not just accelerate the development of our leaders, but we actually needed a new leadership model because the nature of the business was changing. Given the increasing impact of globalization and the demand we are placing on our leaders—particularly in the pharmaceutical and medical device and diagnostics divisions, because they are such highly regulated environments—we thought about what would be required of leaders from a skill, experience and attributes perspective. It was different than what would have been required five years ago.
Some things are the same, like commitment to values, respect and dignity. But when you think about the external environment—the media, the impact of regulations—even first-level managers have to deal with all of those things.
WM: What did you do about it?
Foster-Cheek: When we talked about how we would grow the company over the next decade, we looked at it from a workforce planning perspective. We realized we needed a new leadership model and an acceleration of the development of leaders. This is a critical priority for not just the chairman, but for the executive team. And that’s why I was late today. I was talking to my boss about talent. Every month, the executive team meets and discusses various issues, including talent. In two weeks we have a five-day meeting, and two of those days are dedicated to talent.
WM: How does Johnson & Johnson define leadership?
Foster-Cheek: Johnson & Johnson has had a leadership profile in place for years, but three years ago—as part of our recognition that we needed to redefine what our leaders do—we were asked to create a simplified leadership model. We took the existing model, and through research, focus groups and surveys we defined 10 competencies that make up a Johnson & Johnson leader. We use it now in all of our assessments and development.
Once we close the Pfizer deal, we will use it as an assessment for future leaders joining Johnson & Johnson. The executive committee does this work, and each member has it cascade down their organizations.
WM: How do you make sure that potential leaders make it onto the radar screen given the decentralized nature of the company?
Foster-Cheek: Every single leader within Johnson & Johnson is held accountable for this. People development is a stated goal for each HR professional on my leadership team as well as for all of the professionals throughout the organization. Our chairman also is measured on people development as part of his assessment.
WM: Is compensation tied to talent development?
Foster-Cheek: We have that as one of the measures of performance. It is not the only factor. I think a more accurate way of saying it is that compensation is tied to performance. One of the ways that leaders are assessed is the development of their teams. Because we are decentralized, we don’t have a firm percentage.
WM: How do you get managers to let go of their best talent?
Foster-Cheek: It’s hard. And some of that is about what we call “dual citizenship.” We really enforce that, as a leader within Johnson & Johnson, you are not just a citizen to your operating company but to all of Johnson & Johnson. One of the strongest ways we can do this is by starting at the top. Over the past year, we have moved a dozen business leaders across sectors. And one could argue that these were people that we really needed to keep in their current positions for business continuity.
But that’s where succession and development planning comes in. You create an expectation that part of your success is all about the development of your successor. If you are good at developing your successor, it gives us the ability to move you across sectors. Given the breadth of our company and our continued growth, the ability for business leaders to understand how to navigate across the different sectors is very valuable.
WM: What other metrics do you use to gauge how you are doing from a workforce management perspective?
Foster-Cheek: Each of the different businesses do their own pulse surveys. We do town hall meetings. We really try to communicate with our workforce. We track turnover. Our turnover is significantly below industry average. We also look at voluntary versus involuntary turnover because that’s really telling; and we look at retention of high performers.
A couple of years ago we ran a regrettable-loss survey where we went out to people we had identified as regrettable losses from the organization. We interviewed them to get insight as to why they left their jobs. And you can imagine that once a period of time has passed from leaving an organization, people felt much freer. We rehired a lot of those individuals as a result of those discussions.
We learned from that again the importance of communications. Many of those employees were not getting the feedback and communication loop with their supervisor to understand how valued they were within the organization.
WM: What’s your biggest challenge today?
Foster-Cheek: Ensuring that our workforce has relevant skills moving forward. And that our business leaders are equipped to manage the dramatic changes every day.
Workforce Management, October 23, 2006, p. 23 — Subscribe Now!
The Foley Factor The Risks of Negligent Hiring
As the investigation of former U.S. Rep. Mark Foley unfolds, workforce management executives recognize all the makings of a negligent hiring and supervision lawsuit, blocked only by congressional immunity. What did congressional leaders know about Foley’s past behavior, and when did they know it?
“If Foley worked at any Fortune 500 company, we’d be picking the jury right now,” says David Curtis, a partner and employment law specialist at Shackelford, Melton & McKinley in Dallas.
Although the most infamous negligent hiring and supervision lawsuits arise from incidents of workplace violence, employers may be liable for many types of unlawful behavior by their employees, including acts of harassment, identity theft and fraud. Reports of applicants seeking jobs purely for the purpose of gaining access to sensitive information have fueled concerns about negligent hiring liabilities.
“An employer is ultimately judged–if not in court, then in the public eye–on what it should have done to protect its employees and the public given what it could have inferred from the available information about an applicant,” says Ann Margaret Pointer, partner in the Atlanta office of employment law firm Fisher & Phillips. “Sophisticated HR executives know this.”
Negligent hiring lawsuits were once relatively uncommon.
“The real drumbeat began three or four years ago, driven by the plaintiffs’ bar and by the increasing frequency and notoriety of incidents of workplace violence,” Curtis says.
Sixteen states have specifically addressed negligent hiring in legislation and other states recognize the tort concept entailed.
Although negligent hiring cases are less common than many types of employment-related lawsuits, the size of the risk is large. Claims arising from workplace violence can result in a huge exposure because there are no caps on punitive damages.
“We’re talking about millions of dollars,” notes Jody Ballmer, an attorney in the Chicago office of employment law firm Littler Mendelson.
“These cases revolve around the failure of companies to act ‘reasonably’ in the hiring process,” Curtis says. “With these lawsuits, if the employer has not taken reasonable care in hiring, then there is no defense and the employer must settle the case.”
HR executives can take specific actions to reduce the risk of a negligent hiring lawsuit, but the process is complicated by conflicting legal concerns about privacy laws, discrimination charges and defamation claims. Skilled interviewing techniques and a more thoughtful approach to reference letters can minimize these difficulties and limit the potential for a claim.
Skilled interviewing
To show reasonable care in hiring, employers must make a systematic effort to gain relevant information about the applicant, verify documentation, follow up on missing records or gaps in employment, and keep a detailed log of all attempts to obtain the information, including the names and dates for phone calls or other requests.
Wide variations in state privacy laws restrict screening efforts.
“Most states allow some access to conviction records, for example, but some limit the number of years that can be covered in a search.” Ballmer says. “The key is what the employer could have and should have known.”
Interviewers commonly fail to pursue the lines of questioning that might help protect an employer from a negligent hiring claim.
“Most interviewers are not sufficiently familiar with the open position to ask the right questions,” Curtis says. “And some companies have outsourced interviewing to people who don’t know what the job entails.”
To reduce the risk of a negligent hiring lawsuit, the interviewer must have a detailed understanding of the work performed, the degree of contact with other employees and the public, the amount of access to sensitive information, and the level of independent judgment required.
“If you know the position, you know what ‘reasonable’ questions to ask to screen applicants,” Curtis says.
For example, hiring a candidate with a history of difficulty in dealing with minority groups for a position that requires direct contact with those groups may open claims of negligent hiring if the new hire engages in harassment or violence.
“You must attempt to unearth any difficulties the applicant had in the past,” Curtis warns.
In many cases, interviewers are keenly aware of the discrimination charges that may occur if they ask certain questions, but are unaware of the negligent hiring claims that may arise if they fail to pursue certain topics.
“There is a lot of irrational paranoia about discrimination claims stemming from the interviewing process,” Curtis reports.
Curtis suggests that interviewers mentally place themselves on the witness stand in a negligent hiring trial and explain to the jury why they did or did not ask the job candidate certain questions that might have revealed red flags.
“The people who were responsible for the hiring will have to describe exactly what they did. An interview is not just talk and intuition,” Curtis says. “A trained interviewer knows how to read an application and ask tough questions.”
Shared liabilities
Policies on reference letters can create additional risks because many companies will provide only the most basic information on a former employee.
“But getting at least this basic information is important to spot gaps in employment and confirm the job titles for previously held positions,” Pointer says. “And for some occupations, employers have an affirmative duty to inform a prospective employer about any negative conduct or behaviors.”
In addition to reviewing reference letters, Pointer recommends that HR staff should attempt to talk to the candidate’s former supervisors.
“Sometimes they will be forthcoming,” she says. “When you talk to them, you not only learn what they say and–equally important–what they don’t say, but you can also note the tone and the nuance of the conversation.”
HR should keep written records of the phone calls, including the names and dates and any follow-ups based on the discussion. The key is to document all elements of the screening effort. Pointer also recommends that employers request official transcripts directly from the schools so they can verify the degrees earned and check for time gaps.
The liability for a previous employer is generally limited if that employer has a clear policy that it will only release a limited amount of information, Ballmer says.
“The real question is what the prospective employer asks, not what the previous employer reports,” Ballmer says. “It is important to record all attempts to gain information and any results.”
Curtis notes, however, that the extent of a previous employer’s duty to reveal information about a former employee is now a developing area of law.
“For example, if an employee was fired after multiple incidents of sexual harassment, and the former employer fails to reveal this information in a reference, that employer could share some liability for the employee’s unlawful behavior in the new workplace,” he says. “This is the next wave in negligent hiring lawsuits.”
Curtis advises employers to revisit their policies on the information they reveal in reference letters.
“Companies are afraid of defamation lawsuits, but that position is being pierced now,” he says. “There may be greater risks in withholding information.”
The prospective employer can find protection in a properly constructed waiver. The waiver should explicitly list all references requested.
“Make sure that the waiver particularizes each employer and complies with state law,” Curtis advises. “Once you’ve done that, if a previous employer refuses to release information, your liability is limited.”
Liability issues are also complicated when a third party is involved in the hiring and screening process. When a negligent hiring claim arises from the behavior of a temporary or contract employee, the employer and the employment agency may be held in joint employer status and incur joint liability, according Ballmer. When screening is outsourced, both the employer and the screening firm may be jointly liable.
In selecting a screening vendor, the employer should ensure that the firm is complying with federal and state privacy laws. Particularly if the screening firm handles sensitive jobs, the employer needs to exercise due diligence in its investigation of the vendor.
Recruiting and hiring staff should exercise extreme caution in screening applicants for HR positions.
“Research indicates that some people are taking jobs in human resources and other corporate departments purely for the access they gain to other employees’ Social Security numbers and other personal information,” Pointer cautions.
Budget-stressed companies may bring in temporary workers without considering the type of information they will have access to.
“This is a real flash point for danger,” Pointer says. “Some applicants may be looking for access to trade secrets. This is a growing concern for HR executives. The point is that the downstream negative consequences of insufficient screening go well beyond the threat of a negligent hiring lawsuit.”
Too often, recruiting risks are not properly evaluated because recruiting is not a priority for operations, Curtis says.
“In these situations, the role of the HR executive is to provide vertical education—informing the COO, CFO or CEO about the potential liability that occurs when exercising ‘reasonable care’ is not part of hiring process,” Curtis says. “If the top executives understand that the threat is a verdict with a seven-figure price tag, they will pay attention.”
Low-Wage Workers More Engaged When Given Better Benefits, Opportunities
Low-wage employees are more likely to be engaged and productive when they have access to the same types of benefits and opportunities available to high-wage workers, according to newly released research from the Families and Work Institute.
Creating a base of entry-level and hourly employees that is more productive and effective could boil down to one critical concept: access. According to newly released reports from the Families and Work Institute, low-wage employees are more likely to be engaged and productive when they have access to the kinds of benefits and professional opportunities that their high-wage counterparts enjoy.
The research defines low-wage employees as individuals earning about $9.70 per hour, with total annual income below 200 percent of the federal poverty threshold, or $39,612 for a family of four in 2005. The findings were drawn from the National Study of the Changing Workforce, which was conducted by the Families and Work Institute in 2002 and 2003.
The study sampled 3,504 workers in the U.S. At the time when the survey was taken, 12 million to 13 million employees were considered low-wage earners.
Creating a more egalitarian workplace would entail a multi-pronged approach by employers, says Ellen Galinsky, president and co-founder of the Families and Work Institute in New York City. Companies would have to pay close attention to narrowing the wide disparities in access to training, health insurance, paid vacation and other fringe benefits that elude many low-wage workers but are abundant among high-wage workers.
The imbalances are quite pronounced, Galinsky says. For instance, only 42 percent of low-wage workers receive personal insurance from their companies. By contrast, 94 percent of employees in high-earning brackets are offered personal insurance. Paid time off for personal illnesses extends to only 39 percent of low-wage workers, while 90 percent of employees in the high-earning segment have this benefit.
Even initiatives like training and development, which are directly correlated with productivity and employee effectiveness, are scarce among low-wage workers. The research reveals that 81 percent of high-wage earners have access to training or educational programs. Only 45 percent of low-wage workers had access to training or educational benefits.
Bridging the differences in benefits might take effort and dedication, but it wouldn’t necessarily break the bank for employers. According to Galinsky, many of the initiatives that can foster balance in the workplace require little investment and could produce a big payoff for companies.
Low-wage workers who receive more job autonomy and flexibility, for example, are less susceptible to negative spillover from home to work, which could reduce stress on the job and bolster productivity.