Planning a Global Workforce Reorganization - An HR Perspective


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- Large-scale elimination or consolidation of jobs due to changes in a business organization:
- Change in corporate direction or leadership.
- Corporate mergers.
- Consolidation of divisions or organizations.
- Need to remove costs from business.
- Elimination or discontinuation of business area.
- Need to adjust to reduced market demand.
- Outsourcing or subcontracting.
- Relocation of business or function.

David A. McManus is a partner in Morgan Lewis’s Labor and Employment Practice and is the practice group leader for the Labor and Employment Practice in New York. Mr. McManus counsels and represents employers in a wide array of industries in labor and employment law matters, arising under federal, state, and local statutes, including Title VII, ADEA, ADA, FLSA, and the FMLA. He regularly represents employers in employment disputes litigated in federal and state courts, as well as various arbitral forums.

Mr. McManus is co-chair of the Labor and Employment Workforce Change Subpractice Group. He regularly counsels clients in a broad range of workforce change matters in the United States and internationally, including corporate restructuring, reductions in force, corporate transactions, and outsourcing. Mr. McManus also has experience representing employers in connection with labor and employment issues arising in the context of executive hirings and dismissals, leaves of absence, employment-related defamation, data privacy, trade secret and restrictive covenant enforcement actions, confidential workplace investigations, and other workplace related personnel issues. Mr. McManus regularly counsels and defends employers on whistleblower claims under both federal and state law. His experience also includes labor relations matters under the NLRA, including corporate campaigns, collective bargaining, grievance arbitrations, unfair labor practice charges, strikes, picketing, and union organizing campaigns.

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Planning a Global Workforce Reorganization - An HR Perspective

  1. 1. together Planning a Global Workforce Reorganization: A Human Resources Perspective David A. McManus Morgan, Lewis & Bockius LLP Sponsored by © 2013 Morgan, Lewis & Bockius LLP
  2. 2. Context: What Are We Talking About? • Large-scale elimination or consolidation of jobs due to changes in a business organization: • Change in corporate direction or leadership. • Corporate mergers. • Consolidation of divisions or organizations. • Need to remove costs from business. • Elimination or discontinuation of business area. • Need to adjust to reduced market demand. • Outsourcing or subcontracting. • Relocation of business or function. © 2013 Morgan, Lewis & Bockius LLP
  3. 3. Not Just an HR Thing • Reorganizations create litigation risks: • $4.3m verdict for single age discrimination plaintiff (Kelley v. Airborne Freight Corp., 140 F.3d 335 (1st Cir. 1998)). • $57m settlement of age discrimination claims by class of 1,697 employees laid off over two-year period (Williams v. Sprint/United Mgmt. Co., No. 03-02200 (D. Kan. 2007)). • $45m settlement of race, age, and national origin discrimination claims by 1,400 employees terminated in RIF (Frazier v. Detroit Edison, No. 97-71448 (E.D. Mich. 1999)). © 2013 Morgan, Lewis & Bockius LLP
  4. 4. The Role of HR • Can’t eliminate risk, but you can mitigate it. • HR has a major role to play. • Think backwards – from the litigation that may follow. • The rationale and decision-making process will be tested. • What is the company’s story for a judge, jury, or arbitrator? © 2013 Morgan, Lewis & Bockius LLP
  5. 5. Start With the Big Picture STRATEGIC CONSIDERATIONS © 2013 Morgan, Lewis & Bockius LLP
  6. 6. Early Engagement by HR Is Critical • Risk is created early and grows fast. • External business conditions create urgency. • Managers leap into action; e-mails fly; names are put on layoff lists. • A lot of forethought is required. • Are incremental or less disruptive alternatives available? • Who has Decision-Making Responsibility? • How will you handle Communications and Disclosures? • Logistically, what is required in terms of Timing and Process? • Privilege matters. • Understand the applicability and scope of legal privileges. • EEO Analysis should be performed by or under direction of counsel for purpose of providing legal advice. © 2013 Morgan, Lewis & Bockius LLP
  7. 7. Strategic Considerations— Define the Decision-Maker(s) • Before anything is decided or communicated, make sure you have clarity around the decision tree. • How far up the corporate hierarchy will the decisions be made? • Does the CEO want to be deposed? • Differentiate decisions —some might require CEO/President approval, while others can be delegated. • Consider need for a “committee” to make decisions. • Institutional Knowledge dictates who is in the loop. • Balance for accurate information against the risk of rumors/leaks. © 2013 Morgan, Lewis & Bockius LLP
  8. 8. Strategic Considerations— Communications • Communications should never be an afterthought. • Have a communications plan—before, during, and after. • Communications are essential to: • Maintain morale and preserve trust. • Dispel/inhibit rumors. • Demonstrate fairness and reasonableness. • Transparency enhances trust during uncertain times. • Be candid and forthcoming. Get out ahead of rumors. • Seize the opportunity to tell your story (affects what you will tell judge/jury). • Control the messages; must be consistent. • Funnel questions to a single, designated POC. © 2013 Morgan, Lewis & Bockius LLP
  9. 9. Strategic Considerations— Communications vs. Disclosures • How an employer characterizes the reorganization in employee announcements and press releases can dictate: • Scope of disclosures in Release Agreements. • Employees in “the Decisional Unit.” • “the class, unit, or group” covered by the termination program. • Need for WARN Notices. • Aggregate separate RIFs into a single WARN event? • “Operating unit” affected? © 2013 Morgan, Lewis & Bockius LLP
  10. 10. Strategic Considerations—Process • Process, process, process. . . • Do not assume your line managers (including HR managers) know how to implement the organizational change. • Develop and follow a defined and defensible process. • Ensure that clear goals and directives have been articulated and understood. • Is training appropriate? • Deviations from processes and procedures may give rise to an inference of discrimination. © 2013 Morgan, Lewis & Bockius LLP
  11. 11. Strategic Considerations—Timing • Adjust expectations on timing until you’ve done your internal due diligence: • Do we need to revise handbooks, layoff policies, or procedures? • Do we need to revise severance or other benefits? • How will layoff affect bonus or commission obligations? • How much time is needed to provide unions with notice and opportunity for bargaining? • How much time is needed to satisfy “Information & Consultation” obligations in European locations? • Will we trigger the WARN Act (60 days’ notice pre-RIF)? • How much time will we need for EEO statistical analysis from outside counsel? © 2013 Morgan, Lewis & Bockius LLP
  12. 12. Workforce Reductions/Layoffs COMMON CHALLENGES © 2013 Morgan, Lewis & Bockius LLP
  13. 13. Common Challenges: Who Stays and Who Goes? • The principal objective is usually to retain the individuals who are best suited to discharge the functions that the business needs performed to achieve future success. • Two Steps: • First, identify the functions/positions to be performed going forward. • Job eliminations result. • Second, choose the individuals to fill the new/remaining positions. • Different approaches to selection: • • • • • Force employees to apply for new positions. Forced Ranking: remove those with lowest ratings. Peer Review. Layoff by Performance: recent evaluation scores. Other factors: education, training, service, experience, special skills. © 2013 Morgan, Lewis & Bockius LLP
  14. 14. Age Discrimination Issues • Statistical analysis should evaluate: • Race, gender, and age. • Age discrimination is the most frequent source of exposure in reorganizations that include long-term employees. • RIFs: Adverse Impact (aka Disparate Impact). • Reasonable Factors Other Than Age (RFOA): • EEOC Regulations. • Did you consider other alternatives? • Training. © 2013 Morgan, Lewis & Bockius LLP
  15. 15. Age Discrimination Issues: Statistical Analysis • The Peter Principle: A theory that employees reach a maximum level of promotion consistent with their abilities: • Employees hit their limit and stay there. • The statistical theory that a continued presence of employees who have reached their plateau warps conventional statistical analysis of age. • Is age different?—Do some job-related traits correlate with age? • • • • Compensation levels. Relative abilities. Relative motivation. Relative mobility. • Theory: statistical analysis that does not take these factors into account may not tell the whole story. © 2013 Morgan, Lewis & Bockius LLP
  16. 16. Age Discrimination Issues: Highly Compensated Employees • Cost reduction is a legitimate factor in selecting employees for an RIF, and selecting higher-paid employees cuts costs more effectively… • BUT: greater pay often correlates with greater age—risk that decisions based solely on pay (despite being an RFOA) will cause disparate impact or be viewed as intentionally disparate treatment. • “Where salary acts as a proxy for age, consideration of salary may be no different from direct consideration of age” (EEOC v. Newport Mesa Unif. Sch. Dist., 893 F. Supp. 927, 932 (C.D. Cal. 1995)). • To reduce risk, combine salary with other RFOAs. • E.g., salary plus performance: EEOC guidance approves “[D]ecid[ing] to reduce costs by terminating [the] highest paid and least productive employees” as an adequate RFOA. © 2013 Morgan, Lewis & Bockius LLP
  17. 17. Reductions in Force: Legal/HR Review Process • Assess scope of RIF selections and affected employees to minimize litigation risk and ensure real organizational change. - Maintain strict RIF review process. - Pay particular attention to “high-risk” employees, i.e., anyone who: • Is on, or recently returned from, a leave of absence (FMLA, USERRA, or otherwise, including intermittent absences). • Has a disability or a record of a disability. • Is within six months of vesting for a significant benefit event. • Has complained of discrimination, harassment, or has pending or previous employment-related litigation. • Has raised ethical or financial concerns, e.g., fraud, waste, or abuse. • Has or may have a litigation support role in any ongoing or threatened litigation that might require future cooperation. © 2013 Morgan, Lewis & Bockius LLP
  18. 18. Reductions in Force: Legal/HR Review Process (cont’d) • Eliminate open positions that are not necessary from a functional/operational/budget standpoint. - Ensure that business understands that eliminated positions generally cannot be reconstituted and filled for a period after the RIF. • Ensure that each individual selection for RIF makes business sense and is based upon legitimate and defensible reasons. - Perform a statistical analysis of the employees to be “RIFed” to determine if the RIF has an adverse impact on any protected class. - What to do when the statistical analysis is problematic? © 2013 Morgan, Lewis & Bockius LLP
  19. 19. Reductions in Force Legal/HR Review Process (cont’d) • RIF selections are only “proposed” until Legal/HR review. • Following review by legal and human resources departments, finalize RIF selection decisions. • Ensure that severance/separation packages are competitive with the market and are positioned to maximize the likelihood of acceptance. • Consider outplacement service for exchange of release to help mitigate risk. • Severance Agreements—Releases /Age Discrimination Claims. • OWBPA Disclosures on “Decisional Unit.” – “Rolling RIFs.” • Preserve existing Confidentiality, Trade Secrets, IP obligations. • Non-disparagement clauses. • Non-competes. © 2013 Morgan, Lewis & Bockius LLP
  20. 20. Voluntary Exit Incentive Programs Structure. • Richer benefit offered to eligible group as a one-time opportunity. • Employees volunteer by submitting an application during an announced “window period.” Employer can reject applicants. Benefits are not paid until severance and release agreement is signed. Advantages of a Voluntary Program. • Reduces risk of EEO discrimination claims. - Especially important where targeted workforce consists of disproportionate number of employees in a protected class. • Likely less damaging to employee morale. • Can be presented in a pro-employee positive light. • Can be paired with subsequent involuntary RIF. © 2013 Morgan, Lewis & Bockius LLP
  21. 21. Voluntary Exit Incentive Programs (cont’d) Disadvantages of a Voluntary Program. • Potentially more difficult to target terminations with precision. • Often must offer greater inducement. • Cost uncertainty (but can put caps on amount). • Potential for oversubscription (i.e., may lose personnel that employer wants to retain). - May be alleviated to some extent through careful design and implementation of eligibility rules of the program. • Greater potential for ERISA fiduciary breach claims by employees who voluntarily resign or retire prior to announcement of program. - Risk can be minimized with proper planning. © 2013 Morgan, Lewis & Bockius LLP
  22. 22. Recommitment Campaign • RIF can have lingering effect on remaining workforce. • Develop a post-RIF “recommitment campaign” designed to proactively encourage remaining employees to recommit themselves to the future success of the company. © 2013 Morgan, Lewis & Bockius LLP
  23. 23. CONCLUDING REMARKS AND QUESTIONS David A. McManus Morgan, Lewis & Bockius LLP © 2013 Morgan, Lewis & Bockius LLP
  24. 24. international presence Almaty Beijing Boston Brussels Chicago Dallas Dubai* Frankfurt Harrisburg Houston Irvine London Los Angeles Miami Moscow New York Palo Alto Paris Philadelphia Pittsburgh Princeton San Francisco Tokyo Washington Wilmington © 2013 Morgan,Mohammed Bockius LLP *In association with Lewis & Buhashem Advocates & Legal Consultants