Lessons from Harley-Davidson

Yesterday I attended the Jonathan R. Lax Conference on Entrepreneurship at Swarthmore College, my alma mater.  Richard Teerlink, the retired chairman of Harley-Davidson, was the keynote speaker.   During his 18 years with Harley-Davidson, Teerlink led the successful cultural transformation of the company based on the premise that "people are an organization's only sustainable competitive advantage."

Teerlink discussed the importance of creating a work environment where employees can make their best contribution.  That can  be difficult to do in this economic climate where cost-saving measures, including lay-offs, may instill fear and uncertainty in the workforce.  On the other hand, today's challenges can be an opportunity to engage and vest employees in the future of their business.  

How to develop a workforce that can create a competitive advantage?

-  Understand and communicate how each individual employee makes a difference.

-  Consider lay-off alternatives.

-  Invest in employee talent through training, continued education and wellness.

-  Consider flexible work arrangements, such as alternative schedules and telecommuting.

Trust and communication are key.  Shifting some of the burden of the business to employees may actually be a benefit if employees feel they can contribute to survival and ultimately success.

Harley-Davidson has not been immune to the decline that most businesses have suffered.  But the company has overcome similar challenges in the past, including a lay-off of 40% of the work force in the early 1980s. 

For more on the Harley-Davidson story, see More than a Motorcycle: The Leadership Journey of Harley-Davidson. search.barnesandnoble.com/More-than-a-Motorcycle/Rich-Teerlink/e/9780875849508/

Lay-offs and Leaves of Absence

Can an employer terminate an employee who is on a protected leave of absence under the Family and Medical Leave Act ("FMLA") and/or applicable state leave law?

The FMLA provides a protected leave of absence of up to 12 weeks (or 26 weeks if the leave is to care for a covered servicemember) for eligible employees for qualifying reasons. 

In order to be eligible, an employee must have worked for the employer for 12 months (need not be consecutive); worked 1,250 hours in the 12 months prior to the leave; and, work at a worksite with 50 or more employees within a 75 mile radius. 

If the employee meets these eligibility requirements, then s/he can take a FMLA for any of the following qualifying reasons: care of a child following the birth or adoption of the child, or placement of the child for foster care; the care of a parent, child or spouse with a serious health condition; treatment of the employee's own serious health condition; care of a covered servicemember; or any qualifying exigency arising because a covered family member is called to active duty.

Recent amendments to the FMLA regulations changed both the employer and employee notice requirements; changed certification requirements; and, clarified the parameters of leave to care for a covered servicemember and due to a qualifying exigency when a covered family member is called to active duty. (For more information on the FMLA and the recent amendments see the Fox Rothschild Family and Medical Leave Act blog at: fmla.foxrothschild.com/)

Employees also may be entitled to leave under an applicable state leave law.  Moreover, in CA, NJ and WA, the employee may be entitled to paid leave through state-administered leave benefits.

If an employer is covered by the FMLA (has 50 or more employees); the employee is eligible; and the leave is for a qualifying reason, then the leave of absence is protected - meaning that the employee is entitled to be reinstated to the same or equivalent position with equivalent pay, benefits, and terms of conditions of employment. 

However, this right to reinstatement is not absolute.  An employee has no greater right to reinstatement or to other benefits than if the employee had been continuously employed during the FMLA leave period.  Specifically, an employee may not be entitled to reinstatement if: s/he unequivocally states his/her intention not to return from the leave; is a "key employee" (among the top 10% highest paid employees at the worksite) and reinstatement would cause the employer substantial and grievous economic injury; obtains the leave fraudulently; fails to provide a required fitness for duty certification; or, if the employee's position was eliminated or otherwise altered while the employee was on leave if it would have been eliminated or altered even if s/he had not been on leave.

Accordingly, if a position is chosen for lay-off, a protected leave of absence will not necessarily insulate the employee.  However, return to a position slated for lay-off when the employee's original position was not is not reinstatement to an equivalent position.   Employers should take into consideration whether an employee is on leave or recently took a leave when analyzing the impact of a reduction in force.  In addition, the non-discriminatory rationale for implementing a RIF and choosing an employee for lay-off should be documented.  For example, a list of slated employees or positions drafted before an employee requests a leave is strong evidence that the termination was unrelated.

Employees who are taking or have recently taken a leave of absence also may be subject to termination for reasons other than a reduction in force, such as performance or absenteeism.  Employers can hold employees to the same attendance standards as other employees, but any FMLA or other protected absences must be removed from consideration.  Accordingly, the reason for an absence must be carefully tracked and recorded if FMLA or other protected leave has been approved.

If performance or disciplinary issues arise during a leave, an employer can treat the employee on leave in the same manner as other employees, again keeping discrimination and retaliation claims in mind.  Employers should consider waiting until the employee returns and address the issues then.  If there are pending issues when an employee commences leave, such as  a Performance Improvement Plan ("PIP"), the employer can advise the employee that it is extending the protected leave, but those issues will  be addressed when the employee returns (such as continuing the PIP).

What if an employee works for another employer while on FMLA or other protected leave?  Unless the leave is fraudulently obtained, other employment will not necessarily disqualify an employee for reinstatement unless the employer has a uniformly-applied policy prohibiting outside or supplemental employment.

Alternatively, the end of the leave does not always end the employee's protections.  An employee may be entitled to additional time under a company policy or as a reasonable accommodation of a disability. 

In sum, when separating an employee on a protected leave for any reason, an employer must:

- make sure it has complied with the employee's leave rights

- make sure the reason for the termination is objective and well-documented

- not discriminate on the basis of leave (or for another reason that places the employee in a protected class, such as pregnancy, disability or association with someone with a disability)

- not retaliate against the employee for exercising his/her leave rights.

As employee leave rights expand and paid leave becomes available, more employees may request a protected leave of absence. Some employees may do so in an attempt to preserve their position - at least during the term of the leave.  While a protected leave of absence isn't insurance against termination, employers should make sure the decision doesn't interfere with an employee's rights under the FMLA or other applicable leave laws.



Bias Claims on the Rise

As employee rights expand and the economy contracts, it is not surprising that employment claims are on the rise.  With respect to discrimination claims, the Equal Employment Opportunity Commission had an unprecedented surge in discrimination claims in 2008, with a 15% increase since 2007.  The greatest increases were in retaliation and age charges.

The combination of more terminations and less jobs can be expected to lead to an increase in discrimination and other employment-related claims.  In the context of a group termination, it is more likely someone in the group may pursue a complaint.  Moreover, if a termination is for economic, rather than performance, reasons, an employee may feel s/he was chosen or treated unfairly.  Employees who may not have sued if they were able to move on and find other employment now may be more likely to do so if they cannot find another job.

Former EEOC General Counsel Ronald Cooper commented on the uptick in claims at an employment conference sponsored by the American Law Institute - American Bar Association in Washington, DC in December, 2008.  Mr. Cooper noted that the recent amendments to the Americans with Disabilities Act will make it easier for employees to prove that they are disabled because individuals who use "mitigating measures" or have episodic conditions will not be excluded.  In addition, more employees will be entitled to reasonable accommodations, so claims for failure to accommodate may increase as well. 

However, "undue hardship" on the employer may be easier to prove in this economic climate. Undue hardship may relieve an employer from the obligation to accommodate and takes into consideration the size and financial condition of the business and expense of the accommodation.

Mr. Cooper also described current conditions as a "perfect storm" for age claims.   The workforce is older, and reductions in force may have a more severe impact on older employees who are more expensive.  In addition, age claims are easier to pursue than other types of discrimination complaints.  For most claims, an employee has to exhaust his or her administrative remedies by filing a charge with the EEOC first and then waiting for a right to sue letter.  Employees bringing a charge of age discrimination with the EEOC may file suit after 60 days without waiting for a right to sue letter.  In addition, the recent United States Supreme Court decision in Meacham v. Knolls Atomic Power Lab. puts the burden on an employer to show that a challenged employment decision that allegedly has a disparate impact on older workers was based on a reasonable factor other than age, essentially requiring employers to disprove age discrimination.

As workforces become more diverse, religious discrimination claims are increasing as well.  As with disabilities, employers have an obligation to reasonably accommodate bona fide religious beliefs, although the burden is not as high.  This obligation can include relaxing dress codes, changing schedules, and allowing prayer breaks.

What can employers do to protect themselves from discrimination claims?

1.  Take proactive steps:

       -    Implement equal employment opportunity policies that include a procedure for employees to request reasonable accommodations where required.

      -  Implement a harassment avoidance policy that includes a complaint procedure and prohibition on retaliation.

       -    Conduct harassment avoidance and diversity training for all managers and employees so that employees understand their right to be free from harassment and discrimination and their responsibility to refrain from prohibited conduct and to report claims internally. Properly conducted, training can significantly decrease the risk of agency claims and lawsuits by teaching employees to correct behavior and to report to the company first.   In fact, employers who have a harassment avoidance policy, which includes internal complaint procedures, and conduct training may have an affirmative defense to hostile work environment harassment claims if an employee fails to take advantage of the employer's safeguards.  For more information on employment training, click here: http://www.foxrothschild.com/uploadedFiles/

     -  Make sure you post all postings required by federal and applicable state law.

2.  Make sure each adverse employment decision, including terminations and reductions in force, is supported by objective, non-discriminatory business reasons and documented.  For more information on RIF considerations, see my January 27th post on RIF plans.

3.   While a fence at the top of the hill is better than an ambulance at the bottom, obtaining a release of all claims from a departing employee can protect an employer from liability.  When offering severance, make sure it is conditioned on an effective release.  For more information on release of age claims, see my January 27 post on the Older Workers Benefit Protection Act.


COBRA Clarifications

The IRS and Department of Labor has issued interim guidance to address, at least in part, some of the many questions raised by the changes to COBRA implemented by the American Recovery and Reinvestment Act of 2009. 

There are two signficant aspects to the new COBRA requirements: the notice and the subsidy.

Notice: Every employee who had a qualifying event  since September 1, 2008 is entitled to the new notice; that includes employees who resigned even though they are not entitled to the subsidy.   By April 18, 2009, plans must notify eligible individuals of a second election opportunity that gives the employee 60 days to elect COBRA coverage, which would be prospective.  The daily penalties for failure to provide the required notice are severe.  Model notices have not yet been issued by the Treasury Department.

Subsidy: Employees who lost coverage as the result of an involuntary termination of employment are entitled to a subsidy of 65% of their COBRA premium for up to nine months.  The subsidy ends sooner if the individual becomes eligible for coverage under Medicare or another health plan, or when the maximum COBRA period is exhausted.  The premium reduction begins February 17, 2009, so as of now it does not appear to be retroactive to September 1, 2008. 

Even termination for performance related issues or for cause is covered.  If the employee is not eligible for COBRA because s/he was terminated for "gross misconduct," then the employee would not be eligible for the subsidy - but what constitutes gross misconduct is extremely limited.

The IRS has modified Form 941 to include a line for reporting COBRA subsidies.  While supporting documentation is not required, employers should keep accurate records of the notice and subsidies. 

For more detailed information, see our recent Alert on this issue at: www.foxrothschild.com/uploadedFiles/alert_feb09_Labor

More guidance is expected.  Stay tuned.



RIF Alternatives

Many businesses are considering and implementing cost cutting measures as alternatives to lay-offs, including pay cuts; reduced workweeks; shorter days; elimination of overtime; reduced paid time off; travel and expense restrictions; and, reductions or elimination of benefits.  These efforts can be effective in maintaining and attracting talent and sustaining and even improving employee and public relations.  However, there are implications employers should consider.

Any adverse action towards an employee - including the above measures - can be the basis for a harassment, discrimination or retaliation claim, even if that action falls short of termination of employment.  Therefore, if an employee feels that s/he was affected because of his or her membership in a protected class (race, religion, gender, age, disability, etc.) or because s/he exercised a protected right, then the employee may have a claim for unlawful discrimination, harassment or retaliation, even though employment continues.  Employers need to make sure that they have an objective, documented business reason for implementing any cost cutting approach that could negatively affect an employee, and ensure that the measures do not have a disparate impact on any protected group.

In the event of a lay-off, employers often offer a severance package which includes a release of all claims by an employee.  Such releases can not be prospective, meaning that employees can't release future claims. Therefore, generally they are not useful where employment continues.

Employees who have a reduction in hours may be entitled to unemployment compensation. In addition, if the reduction in hours results in a loss of health benefits, an eligible employee will have a right to continue the benefits under COBRA or a state mini-COBRA, where applicable.  The applicability of the new COBRA subsidy to reductions in hours is unclear - for now reductions in hours are not covered.

In addition, when eliminating benefits for any group, employers need to make sure their practice is consistent with plan documents. An employee may assert a contractual right to coverage under plan documents, and employers can be liable for uncovered medical expenses.

There are also wage and hour considerations when pay is reduced. Employees must receive the minimum wage.  In addition, employers need to make sure the pay of salaried employees does not dip below the statutory minimum ($455 under federal law).

Before reducing pay, benefits or time off, employers should check that there are no contractual obligations to the employee, such as in an employment agreement.  Employee handbooks must contain a disclaimer stating that employees are at-will; that the handbook does not create a contract; and that the employer reserves its right to change any policies or benefits.  In some states, a handbook can create contractual obligations to maintain benefits in the absence of such a disclaimer.

If employers are implementing reduced workweeks or schedules, they should consider how they will handle moonlighting and other outside employment where those activities could interfere with the employee's job duties or pose a threat to the business.  Employers should implement policies on outside employment and conflicts of interest and restrictive covenants (such as non-compete and non-solicitation agreements) to protect their interests.

Finally, whether implementing lay-offs or other savings measures, employers should be mindful that employees may be looking for ways to protect their jobs and benefits. Unions can be an attractive alternative.  Keeping communication with employees open is critical to employee relations.

On a positive note, where implemented properly, many of these alternatives are the family-friendly options many employees are seeking.  Employers can benefit from the cost-savings, while employees may be able to benefit from added flexibilty and additional family time.

Most employees will appreciate any job preservation efforts, even if they result in a lesser economic package. However, employers need to keep the legal considerations in mind when weighing the costs and benefits of this approach.