A cautionary lesson in litigation management

10 years ago, an Atlanta restaurant fired its highest ranking female manager. Last month, a federal jury finally dismissed her sexual harassment case. The latest verdict was the third handed down by a federal jury in the last five years. In the interim:

• The employer won the first jury trial in 2004.
• The employee appealed, and the 11th Circuit sent the case back down for retrial, but ordered a mediation before case could be retried.
• At the second trial, the employee won a $2.05 million verdict.
• This time, the employer appealed, and the 11th Circuit again sent the case back down for retrial, with yet another court-ordered mediation.
• Facing insurmountable defense costs and having to post a bond to secure the multi-million dollar verdict on appeal, the restaurant went into bankruptcy.

Law.com quotes the plaintiff’s lawyer, Edward D. Buckley III: “The moral of the story is that there is real value to settling these kinds of cases for both parties. That is something that there were many occasions when it could have occurred, but unfortunately it didn't. The 11th Circuit urged us to engage in meaningful settlement discussions. At least one of the district judges involved in the case urged us [to settle] and tried to facilitate that. Unfortunately, it didn't happen.”

Let this case serve a lesson for all businesses. This case spun out of everyone’s control – the lawyers and the parties. If everyone had put emotion aside (and their is no doubt that three trials and two appeals over 10 years is fueled purely by anger or spite, and not common sense and reason), the plaintiff would have realized that a guaranteed something is better than a roll of the dice, and the employer would have realized that paying a settlement is better than losing everything on principle.

I’m not arguing that the parties should have caved as soon as the case was filed. Indeed, some cases can only be resolved by a trial. After that trial, however, the parties should have listened to the court and viewed the verdict for what it was -- an opportunity to settle, not a reason to fight on.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus.

For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

The (im)morality of layoffs?

Money, not morality, is the principle commerce of civilized nations.

--Thomas Jefferson

In the May 24 New York Times, ethicist Randy Cohen argues that it is unethical for American businesses to engage in mass layoffs:

These days such mass layoffs are sadly unsurprising, but are they ethical?… They are not, at least until more benign tactics have been exhausted….

To deprive thousands of people of their livelihood can have a catastrophic effect on them, their families and their communities. For a company to get through a recession, suffering may be unavoidable, but ethical management means minimizing that hardship, spreading the pain equitably and bearing some responsibility for its consequences….

Before adopting the ethics of the overcrowded lifeboat, before tossing thousands of non-millionaires over the side, gentler — and more equitable — methods must be tried. Everyone’s hours might be reduced, diffusing the pain. Dividends to stockholders can be eliminated. Pay cuts can be instituted company-wide, with the deepest reserved for the highest paid (that is, those most able to endure them).

Mr. Cohen is selling employers short. I work with a lot of companies, many of which have, with much regret, been forced to downsize their workforces in the past few months. I can assure you it is never a decision taken lightly, or without careful deliberation. Certainly, layoffs are an opportunity for employers to shed some dead weight. Many good employees are also impacted, though. Those businesses that can offer economic help to severed employees do so, in varying sized packages. Others have considered alternate plans, such as furloughs, alternate work schedules, or wage reductions.

For some businesses, however, whether because of the need of their operations or the composition of their workforces, layoffs are the only viable option. A paycheck for some is better than a paycheck for none.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus.

For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Do you know? When it is lawful to take deductions from an employee’s pay?

For an employer to claim that an a professional, administrative, or executive employee is “exempt,” and therefore ineligible to receive overtime compensation, the employee must be salaried. An employee is paid on a salary basis when the employee receives the same amount of pay each pay period, without any deductions.

Despite the general rule against deductions from salaries, the Department of Labor’s rules permits employers to make deductions without risking an employee’s exemption in seven specific instances:

1. When an exempt employee is absent from work for one or more full days for personal reasons, other than sickness or disability.   
   
2. For absences of one or more full days occasioned by sickness or disability (including work-related accidents) if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by such sickness or disability.   
   
3. While an employer cannot make deductions from pay for absences of an exempt employee for jury duty, attendance as a witness, or temporary military leave, the employer can offset any amounts received by an employee as jury fees, witness fees, or military pay for a particular week against the salary due for that particular week.
   
4. For penalties imposed in good faith for infractions of safety rules of major significance.    
   
5. For unpaid disciplinary suspensions of one or more full days imposed in good faith for infractions of workplace conduct rules imposed pursuant to a written policy applicable to all employees.  
   
6. For any time not actually worked during the first or last week of employment.
   
7. For any time taken as unpaid FMLA leave.
   

It is critical for businesses with salaried employees to familiarize themselves with these rules. A mistaken deduction could prove costly. Generally speaking, if an employer makes a deduction from the amount paid, the exemption will be lost during the time period during which the improper deduction was made. The lost exemption does not only apply to the affected employees, but also to all employees in the same job classification working for the same managers responsible for the actual deduction.

The Department of Labor also provides a safe harbor for employers that have a clearly communicated policy that prohibits the improper pay deductions, and which includes a complaint mechanism, reimburses employees for any improper deductions, and makes a good faith commitment to comply in the future.

Before you implement a policy or practice of docking the pay of salaried employees, it is best to consult with experienced employment counsel to evaluate employees’ job classifications and exemptions, to examine the proposed deductions, and to review or draft an appropriate safe harbor policy.

WIRTW #80

This week’s most popular topic is the Supreme Court’s AT&T v. Hulteen [PDF] decision. That case held: “An employer does not necessarily violate the PDA when it pays pension benefits calculated in part under an accrual rule, applied only pre-PDA, that gave less retirement credit for pregnancy than for medical leave generally.” I agree with Michael Fox that “[i]f the case had gone the other way, it is possible to imagine how it could have had broad ramifications. However, given its narrow holding, it seems unlikely to be very important beyond its impact on the parties.” For more details and commentary, click over to the following laundry list of employment blogs: California Workforce Resource Blog, Connecticut Employment Law Blog, Daily Developments in EEO Law, Delaware Employment Law Blog, Labor & Employment Law Blog, LawMemo Employment Blog, Nolo’s Employment Blog, SCOTUS Blog, Workplace Prof Blog, and World of Work.

Social networking and its impact in the workplace continue to be a hot topic among employment bloggers:

• Where Great Workplaces Start suggests that employees maintain separate on-line profiles for their personal and professional lives.

• BLR’s HR Daily Advisor provides a concise primer on workplace web 2.0 issues.

• HR World discusses the natural disconnect between employers and employees on the issue of social networking.

• The ABA Journal reports on the legal issues of Twitter.

• Dan Schwartz at the Connecticut Employment Law Blog compiled a list of 10 employment law twitterers to follow.

• For those that tweet, you can follow me @jonhyman.

In related news, Robert Ambrogi at the Legal Blog Watch notes that a New Zealand judge has okayed service of process by Facebook.

Sindy Warren at the Warren & Hays Employment Blog discusses the recent trend in courts protecting transgendered employees.

Donna Seale’s Human Rights in the Workplace gives the following very good advice – have regular harassment training.

Natalie Beck at the Employeescreen IQ Blog talks about the dangers that lurk when companies skip background checks.

Kris Dunn, The HR Capitalist, gives his very pro-business take on the EFCA’s binding arbitration requirements.

The Iowa Employment Law Blog lists some challenges HR will face this year.

Fair Labor Standards Act Law suggests that employers read the fine print in their EPL policies to check if wage and hour claims are covered. My guess, based on past experience, is that they are not.

Frank Roche’s KnowHR Blog asks, “How do you handle weirdos at work?”

Finally, Texas attorney Michael Maslanka at Work Matters quotes the Talmud for some words to live by for employers and employees alike: “What is hateful to you, do not to your fellow man. This is the law: all the rest is commentary.” In other words, follow the golden rule and all else should fall into place.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus.

For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Supreme Court’s expanded pleading rules give employers added tool to combat lawsuits

Today, I am going to get a little academic, but I promise I’ll bring it back around at the end with some practical information for employers.

Two years ago, in Bell Atlantic Corp. v. Twombly [PDF], the U.S. Supreme Court ruled that to state a legal claim and survive a motion to dismiss, a legal pleading (the initial filing in a lawsuit) cannot simply recite the elements of a cause of action or make an unsubstantiated conclusion, but must set forth a claim that is “plausible on its face.” The Court explained:

Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the claim showing that the pleader is entitled to relief,” in order to “give the defendant fair notice of what the … claim is and the grounds upon which it rests. While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff’s obligation to provide the “grounds” of his “entitlement to relief” requires more than labels and conclusions, and a formulaic recitation of a cause of action’s elements will not do. Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all of the complaint’s allegations are true. (internal citations omitted).

For example, in discrimination case, I sometimes see complaints that simply say, “X was terminated because of his race in violation of Title VII.” While Twombly was an antitrust case, if it’s rationale extended to employment cases these types of pleadings would not suffice. Twombly, however, left open the question of whether it applied beyond the antitrust arena.

Earlier this week, the Supreme Court decided Ashcroft v. Iqbal [PDF], which extended the Twombly pleading rules to an unlawful detention case. In the wake of the Court’s expansion of Twombly outside the antitrust context, it is likely that its pleadings requirements will apply in all civil litigation. In other words, a discrimination plaintiff should no longer be able to simply speculate that discrimination occurred, or make bald, unsubstantiated conclusions. A discrimination plaintiff will have to plead sufficient, specific facts to at least put the employer on notice of what is alleged to have actually happened.

The Ashcroft decision has three big practical implications for employers:

1. Employees will be required to file much more detailed complaints, and employers will know at the earliest stages of the lawsuit exactly what is being alleged. Employers will no longer have to engage in expensive discovery just to learn the theory of the plaintiff’s case.

2. Employers will be able to make more accurate analyses of cases earlier. Earlier analysis of a case’s strengths and weaknesses will allow employers to decide early in the litigation whether a case is worth fighting, or should be settled earlier. Thus, companies should save defense costs.

3. More lawsuits should be dismissed for failing to state a claim. In theory, the less meritorious lawsuits will fall by the wayside, saving businesses the cost of defending nuisance lawsuits.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus.

For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Alternative compensation plans pose wage and hour risks

Employees can be paid in many different ways: an hourly rate, an annual salary, by commission, by piece, a flat rate, with additional established or discretionary bonuses, or in some combination of any of the above. The more creative an employer becomes in how it compensates its employees, the more risks it takes under the wage and hour laws. Baden-Winterwood v. Life Time Fitness, Inc., decided earlier this week by the 6th Circuit, provides a good illustration of how certain alternate compensation schemes can jeopardize employees’ exemptions and render an employer liable for unpaid overtime.

Life Time Fitness paid its employees a pre-determined, semi-monthly base salary, in addition to monthly bonus payments based on year-to-date performance as set forth in a written bonus plan. For the years 2004 and 2005, the bonus plan permitted Life Time Fitness to make deductions from employees’ salary to recover prior bonus overpayments. In 2006, it amended the plan to provide that while it could still make semi-monthly salary deductions for overpayments, “[o]n an annual basis, in no case will the Guarantee Pay be lowered.”

The Sixth Circuit found that the 2004 and 2005 plans violated the FLSA, which does not permit salary deductions “for the reduction of guaranteed pay under a purposeful, incentive-driven bonus compensation plan.” Because the deductions were illegal, the employer could not claim the benefit of the FLSA’s exemptions for its employees during those years.

The loss of the exemptions in this case opened the employer to significant exposure for unpaid overtime. If you are considering implementing an alternate compensation scheme for your employees, also consider a review by experienced employment counsel to avoid a similarly expensive wage and hour miscue.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus.

For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Do you know? Adopt the TEAM approach to fight unions

Whether the EFCA will become law, and in what form, is very much up in the air. Democratic support for the measuring is waning, and business organizations have united in an unprecedented level of opposition. There is no doubt that if card-check becomes law, labor unions will have a much easier time becoming certified in workplaces. Yet, it is unclear whether unions even need the EFCA. In 2007, unions won 60.1% of elections, compared to a mere 51.5% in 1997. In the first half of 2008, the number of elections won by unions increased to 66.8%.

Because unions have become increasingly aggressive, even without the EFCA, I recommend that employers adopt the T.E.A.M. approach to union avoidance:

Train supervisors
Educate employees
Accessibility
Modernize policies


1. Train Supervisors. If a union is organizing, supervisors are likely to be the first people to know. They will also be the people that rank-and-file employees will come to with questions or concerns. Thus, supervisors need to know how to report, monitor, and legally respond to union activity.


2. Educate Employees. Employees should not be told that the company is anti-union, but why it is anti-union – competitive wages and benefits; positive communication between management and employees; history of peaceful employee/management relations; management’s openness to listen to employees and handle their concerns without an intermediary; and an unwillingness to permit a third-party to tell the company and employees how to do their jobs.


3. Accessibility. Management should routinely round its employees to learn what is happening and what they are thinking. Management should walk the floor on a daily basis. It should also hold regular meetings with employees, whether in small sessions with HR or large town hall-style meeting.


4. Modernize Policies. In an ideal world, employee handbooks and other corporate policies should be reviewed and updated annually. I’ve yet to come across a company that does so this frequently. The threat of the EFCA is a perfect excuse to take a good, hard look at current policies. Do you have a written statement on unionization? An open door policy? An issue resolution procedure? Peer review? An employee bulletin board? An electronic communications policy? Most importantly, do you have a no solicitation policy? It is the single most important policy to help fight labor unions.
No program is foolproof. No matter what steps are taken, no matter the quality of employee relations, every company is at risk for a union organizing campaign. Businesses should strive to be an employer of choice for employees, and not an employer of opportunity for labor unions.