Presentation to the Hawaii Food Manufacturers Association by:

Barbara Petrus, Esq. - Law Offices of Goodsill, Anderson, Quinn & Stiffel, Helping business go through issues related to employees.

Only a few years ago employees were scarce. Then the recession hit. Now we are faced with downsizing stories.

What do you pay most attention to in a recession? Costs and cash flow. This included full time workers.

Some laws apply to businesses with over 50 employees and some apply to companies with over 100 employees.

ABCs of RIFs - Reductions in (work)Force.

1. Create a business case for the RIF. You might ask way, everyone knows the economy is bad. But employees will often aledge that the employee did not need to cut their job. The key phrase is “legitimate business reason”

a. Look at the company as a whole. If you company is doing great, and one area is not profitable, you need to address this. You may need to document that manufacturing staff needs to be let go, but sales staff needs to be kept to keep sales going.

b. If your company as a whole is not doing well, put it down on paper. Use tangible information to show that business is down. Sales figures compared to last year.

c. If you well document the case, if the employee later sues for wrongful termination / discrimination they have to prove that there wasn’t a “legitimate business reason” . Juries are more likely to believe written documentation to someone sitting there So is the Equal Employment Opportunity Commission (EEOC) and Hawaii Civic Rights Commission(HCR). These hear discrimination cases before they go to court and with proper documentation it is easier to get rid of the claims before they go to court, which is preferable.

d. Plantifs (the people who sue) lawers love to say, “you laid off Jane, who now lost her home and …, tell me what types of benefits you get…” Do you get plants brought into the office, do you have office cars? Emotional arguments. So you should go through your expenses and document what you have cut before firing.

e. You will rarely get a businesss person on a jury, so you have to write and state very clearly how a business operates in a downturn. Documentation will save hearaches and headaches in the long run. It doesn’t have to be really long. Just logical

2. What areas will be targeted?

a. Some companies use a downturn as an opportunity to restructure and retarget markets. Some just look at the current business structure and deal with downsizing

b. The problem is that employees won’t understand why they were fired while that guy in the other department wasn’t? “Maybe it is because I am 62 and he is 35. Maybe it is because I am black and he is not.” This is why you have to clearly document.

c. Before and after organization charts, even for a very small business, is effective.

3. Determine is layoffs are permanent or temporary? Realize that union issues might be different. But for non-union employees:

a. Decide if you want to keep the employees tied to you, you might think of financial ways to help them such as COBRA.

b. If not, you may want to give a severance.

c. Make sure layoff is consistent with your action

d. Make sure if you are furloughing employees that your action reflects that.

4. Deciding who goes.

a. Decide the criteria that is best for your business. For example, if you are laying off manufacturing people you can:

i. Most qualified employees

ii. Level of work performance.

b. Must be consistent. Best not to choose to layoff one person because of bad perfomane, one person because of low seniority, and one because always late. If you are not consistent

c. Job descriptions should be up to date an accurate. Job descriptions are tedious until there are layoff issues. Then they become key evidence.

d. Combining positions. You might have 3 people performing 3 different funcions but one or two are not busy. Need to then recreate the job and identify the qualifications needed to now do two jobs.

5. Timely Performance Evaluations. Lawers always say keep up to date. If you want to use performance as a criteria for layoffs, performance evaluations need to be clearly have been done BEFORE you decide to do layoffs. Even if you have a good business reason, it could be thrown out if the evaluations used as a basis for layoffs appear to have been done after the employer started to think about layoffs. Or think very clearly about how you are going to use performance for employement/layoff criteria.

a. Objective criteria could be used. “This person produces 10 products per hour and everyone else produces 30 products per hour. “ This needs to be documented

b. Use more than one performance evaluation to use in your decision. First thing the former employees lawer will look at is your file on the employee. If it shows that employee has always got excellent reviews until the most recent evaluation. This will be an issue.

6. Don’t use the guise of a layoff as a means to get rid of poor performers. You need to do this through the performance review process.

a. If you “layoff” someone then hire someone to fill the position shortly thereafter, you are very open to the former employee sueing and you can’t prove a business reason.

7. Most employees sue because they feel they haven’t been treated fairly. But even if the employer has followed the law, they will have to spend money in the lawsuit.

8. One of the easiest wasy to justify layoffs is where whole part of business gets shut down. Those can stand up easier in court.

9. There is not practical “at will” employee. To many federal laws protect workers and supercede the “at will” clause. Though you should keep it in your employee handbook for some reasons.

10. When laying off, determine is there is other available work, within the company. If that person could do the job, he/she should. Sometimes even letting the person go through the interview process makes them feel like they are being treated fairly.

11. Consider a hiring freeze before and after the layoff(s). This looks good. If you are hiring for other positions, you need to be clear that the people you are laying off are not qualified for the positions for which you are hiring. Think long and hard within 3 months for the same positions as the layoffs. Six months starts to get a little safer. You must assume the laid off employee will find out since he/she probably still has accointences at your company. Claims are very common in this area.

12. Once you get your plan together, have it reviewed.

a. Spending a couple hours of a lawer’s time will be worth it. The lawyer will have a new set of eyes and will be thinking about things from another point of view.

b. The earlier it is reviewed in the process, the better.

c. Also, ask yourself if the plan makes sense from an outsider’s point of view. Other’s in your management team will also be helpful here.

13. Discrimination cases arise from “Disparate Treatment” - treating people differently who are in the same situation. i.e. some are laid off and other’s aren’t.

a. Look at who is being laid off. What are their races, ages, any other similarities that might lead to discrimination cases?

b. You might change who gets laid off after the analysis.

14. Determine if you have any employment contracts

a. Union contracts will dictate what happens with union employees

b. (Make sure you have Employee Handbook, and make sure it says that “this handbook is not a contract”. ) You don’t want something being declaired a “contract” which you didn’t mean it to be. Verbal discussions might also be construed a “contract”. Make sure your Employee Handbook describes what exactly is a contract, i.e. must be in writing and signed by the President, etc.

c. Even something said verbally could be declaired a contract of employement, for example the employee remembers 5 years ago that you said. “Oh, you are ohana, we will never fire you”, that could be declared a contract if you haven’t documented what constitutes a contract.

15. If you do hire again for those positions, consider hiring the same people you laid off.

a. This proves that it was a fair layoff, not just getting rid of poor performers.

16. Look at alternatives to layoffs, expecially if you have a valuable employee

a. Consider a leave.

b. Get vacations off the books when it is slow.

c. Some companies have voluntary sabbaticals. You might pay for some benefits but not salary while the person is away.

d. Loans of employees to other business partners. An employee could even work part time for you and part time for a business parther.

e. Reduce through attrition. May not always be feasible, expecially in a severe downturn.

f. Decrease work hours. Could go 40 to 30 hours. Downside is that it could be a moral issue.

g. Pay reductions. Pay reductions may work if your staffing is appropriate, but they cost too much. Should do pay reductions across the board, including management, for moral purposes.

h. Look at decreasing benefit costs. Shop around for different providers if you haven’t done so recently. Consider having employees pay a greater share of health care. Consider cost of adverse impact on moral.

i. Payroll lags. They are a one shot deal.

j. Restrict overtime.

k. Explore different compensation arrangements. Some employees could go on incentive pay.