Employers Are Not Waiting for the First Quarter of 2011 to End Before Downsizing
I. Employers Are Not Waiting for the First Quarter of 2011 to End Before Downsizing – How to Manage the Legal Pitfalls
The euphoria of the holidays is now over, and employers are faced with the reality that although this is a new year, sales and revenue may not improve soon enough to maintain their existing staffing levels. Instead of waiting to see “what happens” at the end of the first quarter, employers are immediately moving forward to trim their payrolls. After being in a “no job growth” recession for more than two years, in which employer have already had to lay off rank-and-file employees, these new layoffs involve more senior employees who are the most likely to challenge your decision.
In my experience, this is the group of employees who are most likely to sue you. These are the employees who believe that you “owe them” for their loyalty, but ignore or discount your “loyalty to them” for consistently employing them over the years, signing their paychecks and paying their benefits.
Regardless of the sound economic justification that you may have for laying off these senior employees, to these senior employees your layoff decision is unfair and unjustified. They will attack your decision as being based on their age if they are 40 and over. Senior laid off employees may also attempt to delay the layoff by claiming some form of medical disability; file a workers’ compensation claim and/or file a harassment and/or discrimination claim internally with your organization or with federal and/or state administrative agencies. The key to successfully avoiding the costly legal actions that arise when you lay off senior employees is to clearly document the legitimate business reasons for your actions, and why you selected the particular employee for layoff and not someone else.
Ten important tips for avoiding legal challenges to your layoff decisions
1. Clearly document the reason for your decision to layoff and why you are making that decision now as opposed to six months ago.
2. Clearly document why you selected the employee or employees you selected for layoff and why you did not select other employees.
3. Use a uniform standard to determine who is being laid off that should include some credit for length of service, but should not be based solely on length of service. For instance, an employer who lays off a 10 year employee, and keeps someone in the same job classification who has been on the job for 2 or 3 years, will have a great deal of explaining to do to a court, jury, administrative agency or an arbitrator.
4. If your layoff decision is based on performance, you should have written performance evaluations to support your decision rather than the unsupported opinions of managers and supervisors.
5. Do not layoff a disproportionate number of employees who are 40 and older.
6. Never use salary savings as the sole basis for your layoff decision where your decisions disproportionately affect employees who are 40 and older.
7. Offer severance to employees being laid off only if this makes economic sense and condition the severance on the laid off employee signing a properly drafted and legally enforceable release of all claims.
8. Make certain to pay all laid off employees all monies due, including all accrued, but unpaid vacation.
II. Employers Deal With the Uncertainties of the Disability Discrimination Laws, but Occasionally Common Sense Prevails
In Milan v. City of Holtville 186 Cal. App. 4th 1028 (2010), a female city municipal water treatment plant employee was injured on the job. When she was recovering from her injury, she was terminated because the City did not believe that she could perform the essential duties of her job. She then brought an action under the California Fair Employment and Housing Act (“FEHA”) in which she alleged that the city had failed to attempt to accommodate her disability and that she was capable of performing the essential duties of her job. At the trial that ultimately followed, the court awarded her back pay and emotional distress damages, but refused to order her reinstated and also refused to award her future lost wages.
On appeal, the City contended that the City did not have to offer the employee any accommodation because for almost a year after the employee was injured, the City’s worker’s compensation administrator advised the employee that its doctor did not believe the employee would be able to return to her job, and instead offered her rehabilitation and retraining benefits. The employee accepted the benefits and did not directly contact the employer about her status. More than 18 months after the employee was injured, the City formally terminated the employee. The Court concluded: “This record shows the employee was given ample opportunity to express interest in retaining her job. For more than 18 months she failed to do so, but instead accepted retraining benefits for another career.” The Court went on to ultimately find that “[g]iven these circumstances, where the employee failed to express any meaningful or definitive interest in retaining her job, FEHA did not require that her employer discuss with or offer her accommodation for her disability.”
Under FEHA, employers have an obligation to engage in the good faith interactive process with the employee or applicant to determine effective reasonable accommodation, if any, in response to a request for reasonable accommodation by an employee or applicant with a known physical or mental disability or known medical condition. An employer’s failure to engage in the interactive process required by FEHA Government Code Section 12940, subdivision (n) gives rise to liability under FEHA. As to whether the City met its obligation to engage in the good faith interactive process to determine a reasonable accommodation, the Court stated: “…where as here, an employer has not received any communication from an employee over a lengthy period of time, and after the employee has been given notice of the employer’s determination that the employee is not fit, an employer is not required by Government Code Section 12940, subdivision (n) to initiate any discussion of accommodations. Imposition of such a duty under those circumstances would contradict the express terms of the statue which requires that the employee initiate the interactive process.”(emphasis added)
How to Protect Your Organization from Costly Disability Discrimination Claims
1. Do not abdicate your role in dealing with your employees to your workers compensation insurance carrier. Make certain that you are aware of the status of each injured employee and whether or not there is a likelihood that he or she will be able to return to work.
2. If there is a determination that your employee can only return to work with restrictions that are not reasonable and would not permit the employee to perform the essential duties of his or her job or any alternate presently available job, advise the employee of your concerns in writing and offer to have the employee given a fitness for duty examination to resolve this issue.
3. If a determination has been made that the employee cannot perform the essential duties of their job with or without a reasonable accommodation, notify the employee of this determination.
4. Engage in the good faith interactive process when the employee or the employee’s representative requests that you engage in this process.
5. Some employers routinely engage in this interactive process whether or not the employee has requested to engage in the process because some Courts have found that there are no “magic words” that the employee must use to initiate the process and trigger the employer’s duty to act.
6. Making a decision to terminate an injured employee, even when you have information that they employee’s condition would prevent the employee from performing the essential duties of his or her former job, or any available alternative job, creates a number of legal considerations and risks. Before taking this action, you should consult with legal counsel because what makes common sense does not always protect your organization from the costly legal consequences of your actions.
III. In Desperate Times, Fired and Laid Off Employees Sometimes Take Desperate Actions – Be Prepared to Combat these Bad Faith Tactics
Now that the holidays are behind us, and everyone is returning to work, many employers have decided that they want to go forward with decisions that have languished over the holidays to terminate and/or lay-off short-term and long-term employees, as mentioned in the prior discussion.
However, many employees are not leaving quietly. In addition to the normal course of action that these employees take, including filing civil lawsuits, unemployment insurance claims, disability claims, workers’ compensation claims, claims before the Labor Commissioner, and claims with the DFEH/EEOC, a new weapon has emerged in their arsenal and is being used – extortion.
Instead of filing legitimate grievances and complaints with appropriate administrative agencies and the courts, desperate employees believe that they can extort monetary payouts from their former employers through direct and veiled threats of disclosing personal, proprietary, and/or confidential information if they do not receive payment. In a typical case, an employee who has been terminated and/or laid-off within a short period of time contacts his/her former employer. Instead of seeking a job referral or recommendation, these employees threaten, either directly or through veiled comments, that if they do not receive a cash payout they will expose embarrassing information regarding their former co-workers, supervisors, and/or company to outside investigative agencies or bodies for criminal prosecution. (E.g. the IRS, SEC, the police, the District or U.S. Attorney’s Office, etc.).
In extreme cases, former disgruntled employees, have attempted to extort their former employers by claiming that they were a victim of and/or witness to criminal misconduct, including tax evasion, labor standards violations, embezzlement, and/or other related crimes and offer employers their silence in exchange for severance or other deferred compensation. However, employers are not without their defenses. In a pivotal California Supreme Court case, Flatley v. Mauro (2006) 39 Cal.4th 299, the California Supreme Court held that someone who attempts to extort a cash payment from another individual without any basis in law or fact can be held liable along with their attorney for damages arising from and/or related to their extortion. Moreover, the Court in Flatley finally decided that enough was enough, and that any attorney who participated and/or was a part of the conspiracy to commit extortion could be held liable for all damages without being shielded by the litigation privilege.
IV. BUSINESS/TRANSACTIONAL LAW: THE COURT OF APPEALS MAKES IT EASIER FOR A CREDITOR TO SUE A JUDGMENT PROOF COMPANY OWNED BY A TRUST
In Greenspan v. LADT, LLC, et al., 2011 DJDAR 43, a real estate developer created several limited liability companies to supervise his various construction projects. The developer transferred ownership of the companies to an irrevocable trust for the benefit of his children, chose his brother to serve as the trustee, and acted as the “manager” of the companies.
The Plaintiff filed suit against two of the companies alleging a breach of contract and claiming more than $4.2 million in damages. Plaintiff also sued the manager of the companies alleging breach of fiduciary duty and other causes of action. The case was arbitrated. At the time of the arbitration, one of the Defendant companies had recently received more than $47 million in property sales. The arbitration resulted in Plaintiff prevailing against the two Defendant companies for breach of contract and being awarded $8.45 million. The Defendant manager prevailed on the claims by Plaintiff against him.
The Plaintiffs filed a petition in Los Angeles Superior Court to confirm the Arbitrator’s award. The Defendants petitioned the trial court to vacate the Arbitrator’s award. The Court entered Judgment in favor of the Plaintiff’s for $8.8 million based on the arbitration award, interest, costs of suit, and attorney fees. The Plaintiff initially recovered approximately $1.1 million, leaving over $7.7 million to be collected. During this period of time, the $47 million on Defendants balance sheet had dwindled to less than $13,000.00. As a result, Defendants companies appeared to be judgment proof and Plaintiffs would be unsuccessful in their recovery.
After conducting judgment debtor examinations, the Plaintiff filed a motion to amend the Judgment to add the manager, the trustee of the irrevocable trust, and two other affiliated companies as judgment debtors, relying on the alter ego doctrine. The trial court denied Plaintiff’s motion to amend the Judgment. However, the Court of Appeals reversed the trial court’s decision and found that the manager of the companies could be added as a Judgment debtor because, although he prevailed against Plaintiff in arbitration on breach of fiduciary duty claims, he was not sued on a breach of contract theory and therefore did not prevail on that cause of action.
Most importantly, the Court of Appeals allowed the Plaintiff to amend the Judgment and add the Trustee of the irrevocable trust as a Judgment Debtor because the Court found that the Trustee was legally considered to be the owner of the irrevocable trust assets, and was an alter ego of the real estate developer who was one of the Judgment Debtors. Specifically, the Court stated: “[u]nlike a corporation, a trust is not a legal entity. Legal title to property owned by a trust is held by the trustee. A trust is simply a collection of assets and liabilities. As such, it has no capacity to sue or be sued, or to defend an action. The proper procedure for one who wishes to ensure that trust property will be available to satisfy a judgment is to sue the trustee in his or her representative capacity.”
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