Six Steps To A Safer Layoff

I recognize I’m about 3 years too late with this post. The truth, however, is that employers can be forced (or strategically choose) to reduce their workforce even outside a recession.† So, without further apology, here are my 6 steps to effecting a layoff in a way that eliminates, or at least reduces, your exposure to employment-related discrimination or retaliation claims and suits:

1. Be forewarned about the WARN Acts.  The biggest challenge for employers contemplating a “mass layoff,” plant closure, etc. can be WARN Act compliance. California employers are required to comply with the Federal WARN Act (29 U.S.C. 2101, et seq.) and the more rigorous California version (Cal. Labor Code Secs. 1400, et seq.). The specific ins and outs of what triggers Act compliance, exceptions and consequences are unbloggably‡ complicated. You should consult a knowledgeable employment lawyer* on this–no exceptions!

2. Offer severance in exchange for a release. I feel like a flight attendant describing how to use a seat belt, but I’m amazed that there are employers that do not premise a severance payment on execution of a release/waiver of claims. In order to “buy your peace,” the severance must give the employee something to which he/she is not already entitled. In other words, don’t propose the release after you’ve already agreed to pay severance. This kind of release/waiver agreement needs to comply with certain requirements, including timing and lack of ambiguity. You cannot demand the employee sign the waiver on the spot. Depending on the circumstances, you’ll need to allow the employee some time to consider the terms. Again, involve experienced employment counsel.*

3. Develop, and preserve evidence of, objective, nondiscriminatory criteria justifying both the need for the workforce reduction and why the affected employees were selected. Maintain this evidence for up to 4 years. I’m thinking here of meeting minutes, Power Point decks, etc.

4.  Review the list of affected employees. “Issue spot” each employee to evaluate the risks associated with the layoff. These include, not only risks of a claim that an individual employee was the victim of discrimination, but also that the architecture of the reduction disparately impacts a protected class. Look at age (40+), race, gender, disability and religion, FMLA leave, etc. Here, again, use knowledgeable employment counsel* to assist in this analysis.

5. Have upper level management, one or more layers removed from immediate managers and supervisors, decide who will be affected by the layoff. This helps reduce the likelihood of claims that an individual manager had a nonobjective discriminatory or retaliatory reason to select a given employee. It also strengthens the theme that the layoff was objective and necessary, as opposed to a mere “pretext” for an unlawful termination.

6. On the day of the layoff, meet separately, in-person, with each affected employee. Ideally, have an additional manager or HR representative in the room. Resist the urge to say more than necessary about the layoff. Remember that anything said to the employee, if later believed by a judge or jury, can be used against the company if a claim or litigation results. Having the second “witness” in the room reduces the likelihood or believability of a fabrication.

Good luck. Oh, and did I mention the importance of involving experienced employment counsel?*

†Yes, I’m aware there are people far smarter than I who believe we haven’t yet escaped the recession.

‡As far as I know I coined this term.

*Shameless use of link for self-promotion is acknowledged. The question becomes whether, by pointing out and acknowledging the self-promotional use of repeated links to my LinkedIn profile which, by implication, advertises me, variously, as “experienced” and “knowledgeable” employment counsel, I am somehow absolved of the sin of shameless self-promotion, or whether, the fact that, in addition to the link, I also used this footnote to attempt to absolve myself of said shameless self-promotion, is itself equally, or even more, shameless. To quote Bill Murray, “We’re getting into a weird area here.”

Recent Mixed-Motive Case Is A Mixed Bag For California Employers

In February, the California Supreme Court issued an important decision applying the mixed-motive defense to employment discrimination cases brought under California’s Fair Employment and Housing Act (FEHA). First, a brief bit of background: according to the mixed-motive defense, available in federal employment discrimination claims brought under Title VII, if an employer had both discriminatory and nondiscriminatory reasons for firing an employee, the employer should not be liable if the nondiscriminatory reason alone was sufficient to warrant termination of the employee.

In Harris v. City of Santa Monica, a bus driver was terminated for performance-related reasons shortly after she notified her supervisor that she was pregnant. She sued the City alleging the termination was an instance of pregnancy discrimination. At trial, the City asked the court to instruct the jury that, if the City proves it would have reached the same decision to terminate the driver even without a discriminatory motive, then it could not be held liable. The court refused this instruction and instead instructed the jury that if the bus driver proved her pregnancy was “a motivating factor/reason for the discharge” then the City was liable. The jury found the plaintiff’s pregnancy was a motivating factor and awarded her $177,905 in damages and $401,187 in attorney’s fees.

The City appealed and the Court of Appeal determined that the proposed mixed-motive instruction should have been given. It reversed and remanded. Harris sought, and the California Supreme Court granted, review of the Court of Appeal decision.

The Supreme Court held that the instruction should have required the plaintiff to establish, not just that discrimination was a motivating factor or reason, but that it was “a substantial motivating factor/reason” for the termination.* If the plaintiff makes this showing, the employer then has the opportunity to limit its exposure by proving by a preponderance of the evidence that it would have made the same decision for nondiscriminatory reasons, such as job performance. If the jury finds in favor of the employer on this issue, the plaintiff may not recover compensatory damages, back pay or reinstatement, though she may still seek and recover injunctive and declaratory relief. Additionally, she may stll be entitled to recover her attorney’s fees in prosecuting the lawsuit under FEHA.

At first blush, Harris would seem to be a positive development for California employers–and it is. The problem is that employment discrimination suits tend to be attorney-fee driven, with the result that lawyers will file and aggressively pursue marginal liability cases with the hope of striking it big with an attorney fee award. Consider the trial result in Harris, in which the attorney fees sought were over twice the damages award. The practical impact is that the employer is punished (though an attorney fee award) even when it otherwise succeeds in its mixed-motive defense.

*Emphasis added.

Will Plaintiffs Choose Federal Over California’s Broken State Courts?

Law360 reported Wednesday that budget cuts are crippling the California state court system. Not that this is really news. Between court closures, job cuts, “no-host” court reporters, furloughs, getting regular, reasonable and reliable access to justice has become very difficult in California state court. And, it’s only anticipated to get worse. The article suggests that, in June, the Los Angeles Superior Court will experience a reduction to 25% fewer courtrooms. Apparently “all of the 16,000 personal injury cases are going to be divided among three judges.”

Really? How can any judge manage a docket of over 5,000 cases?

“Experts,” the article says, believe that plaintiffs will increasingly resort (gasp!) to filing their cases in federal district court. I know this is possible with employment actions where there are both state and federal remedies. But will this become a more appealing alternative to filing in state court and waiting as the case winds through that crumbling court system? I’m not so sure.

I’ve encountered a lot of practitioners on the plaintiff side who will do almost anything to stay out of federal court. I’m not suggesting that this is because these lawyers can’t, by putting in the effort, get up to speed and comply with the stringent federal procedural requirements. It’s more circular. Lawyers who have historically shied away from a federal practice seem less comfortable with the Federal Rules of Evidence or Civil Procedure, which leads them to choose state court, which perpetuates their discomfort with the federal rules and procedures, and on and on, ad infinitum. Could the clogged California state system get so bad that these lawyers overcome this bias against federal court?

There are at least two other reasons I don’t expect plaintiffs to rush into the federal courthouse. First, unanimous agreement among the jurors is required for a verdict in federal court. (FRCP 48) In California state court, only 9 of 12, or three-quarters of the jury, must agree to reach a verdict for the plaintiff. (CCP §613) This means a lot of wiggle room in the state system and absolutely no wiggle room in the federal system.

As I’ve noted, there’s also the question of where jurors are drawn from. In the Los Angeles Superior Court, the jurors will come from Los Angeles county, and typically a smaller judicial district closer to the courthouse. Thus, a case in the Santa Monica courthouse will get jurors with different socioeconomic, ethnic and educational backgrounds from a case pending in the downtown LA courthouse. The federal district courts, however, draw from the entire Northern, Southern, Eastern or Central districts, each of which is a broader conglomeration of separate communities. On the defense side, we often believe this tends to dull the anti-corporate bias which might be prevalent in any one community.

Finally, I cannot attest to the accuracy of this premise–but it has been my experience with federal district court judges that they at least seem more conservative and less pro-plaintiff. At the very least, they pay closer attention to the procedural rules and have less tolerance for blatantly sloppy lawyering. While I can’t control much once a case or issue is in the hands of a judge or jury, I can ABSOLUTELY control whether the lawyering is sloppy. Not everyone is so eager to please.

So, while I’m confident the crisis in the California state court system will have repercussions and practice-changing consequences (such as reserving a date for summary judgment when you answer the complaint!), I’m not inclined to think there will be any kind of stampede to the federal courthouse. Just a hunch.

Pay Your Employees Sales Commissions? If So, Read This!

An important change to California Labor Code 2751 takes effect January 1, 2013. That’s next week!

The change requires California employers who pay their employees sales commissions (regardless whether commissions are all or just part of the worker’s compensation) to enter into a written employment agreement. The law previously only required an agreement for out-of-state employers with no permanent and fixed place of business in California. Note that simply setting forth compensation terms in an employee handbook or written commission policy will not satisfy this obligation.

Here’s the fine print:

• Again, the agreement must be in writing.
• It must explain how the commission will be computed and paid.
• It must explain how a commission is earned and any conditions required for the commission to be earned.
• The employee must be given a signed copy of the written agreement and employers must obtain a signed acknowledgement from the employee confirming receipt. This signed acknowledgement should be kept in the employee’s personnel file.
• Employers who wish to terminate or change the commission policy, should do so by a written amendment or new written agreement that supersedes the earlier agreement (again, with a signed acknowledgement of receipt).
• This agreement is not required for short-term productivity bonuses.
• This law does not apply to independent contractors.

Happy New Year employers!

California’s FEHA Will Explicitly Cover Religious Dress And Grooming Practices

Some employers struggle with reasonable accommodation of an employee’s religious preferences. Effective January 1, 2013, the California Fair Employment and Housing Act (FEHA) definition of ”religious creed” will be amended to explicitly include “religious dress practice” and “religious grooming practice.” “Religious dress practice” includes the wearing or carrying of religious clothing, head or face coverings, jewelry, artifacts, and any other item that is part of the observance by an individual of his or her religious creed, while “religious grooming practice” includes all forms of head, facial and body hair that are part of the observance by an individual of his or her religious creed. The terms “religious dress” and “grooming practices” are to be broadly construed.

I hold the (perhaps naive) belief that, when most employers violate prohibitions against religious discrimination, it’s often by accident. So I try to provide examples.  The HR Gazette provides these:

“‘[R]eligious dress’ means virtually any piece of clothing or accessory that signifies or expresses a religious creed or belief.  The most common examples are a hijab (the headscarf worn by Muslim women), the dastar (the turban worn by Sikh males) or a yarmulke (the skullcap worn by Jewish males).  Religious dress could also include jewelry such as a Christian cross, Star of David, or an Ankh.”

“[A]n employer would be required to accommodate an employee’s religious belief by allowing him to wear a beard or long hair in the workplace.  Some religions require men and women to shave their head.”

Here are a couple of ripped-from-the-headlines cases to further illustrate:

1. A certain “preppy” store refused to hire a woman when she appeared for an interview wearing a headscarf, which she wore for religious reasons as a devout Muslim. The employer argued that it had a strict “Look” policy in order to insure a unified “preppy” brand image. The jury awarded the woman $20,000.

2. A fast food chain was sued after terminated a devout Nazirite due to his failure to cut his hair. Nazirites do not cut their hair as a sign of devotion to God. The employee had worked for six years without cutting his hair (in fact, he had not cut his hair since he was 15 years old) before the company tried to enforce its grooming policy that required him to cut his hair. The chain entered into a consent decree whereby it settled the case and agreed to pay the employee $27,000, and also to adopt a formal religious accommodation policy.

Employers subject to FEHA must reasonably accommodate an individual’s religious creed. The amendments provide that an action that segregates or hides an individual, either from other employees or the public, because of that individual’s religious dress or grooming practices is not a reasonable accommodation of an employee’s religious dress or grooming practices.

Lesson From Big Dog Defendants: Insist On An Evaluation

I counsel and defend both small and large companies, mostly on employment issues and cases. I see many differences in how a larger, more established company handles its role as a defendant in civil litigation, and I think there are important lessons a smaller entity can learn from these “big dogs,” even if they never plan (hope!) to get sued again. Chief among these lessons is the value of a well-considered evaluation report.

Smaller companies might view any kind of written evaluation as a frivolous, unnecessary expense. I sympathize with this view, but I think it is misplaced. First, as you’ll see, I’m not advocating the kind of “term paper” report demanded by large corporate defendants. For a corporate client or insurance carrier that is regularly involved in litigation and knows what it wants to know, I’m happy to provide the most detailed report in the world. Why would I object–I get paid to do it?

But when I counsel a company that rarely finds itself in civil litigation, I don’t think it’s necessary to incur the cost of a 20 or 30 page tome. Rather, something that is between 2 and 4  pages total balances cost-efficiency with the importance of a written evaluation.

Before I get to what to look for in an evaluation, I want to cover timing. Large corporate clients for whom I’ve prepared evaluation reports typically require a comprehensive initial report anywhere from 90-180 days after the suit was assigned. Thereafter, most corporate clients like to see an update every 90-120 days, with some kind of even more comprehensive pre-trial evaluation about 60-90 days before the scheduled trial date. There’s no reason a smaller company should deviate from this timing. It is important to understand that an update is just that, it’s not a re-writing. I simply bold any information that is new since the last report. If there are things from prior reports that no longer belong, they can either be scored or deleted altogether.

Here are the elements I would, as a client, always expect from an evaluation of a case in litigation:

1. Brief statement of operative facts. Brief means brief. The point is to make sure both the client and the lawyer have a common understanding of the operative facts. These might be both what is alleged and what the defendant is expected to prove. The last thing any client should want is for its lawyer to start trial without ever having run through a narrative of the operative facts on paper.

Also, even a very small company will likely have people involved at the management level with only a marginal understanding of the facts. This brief (did I say brief ?) statement can be shared with senior management, directors, investors or partners, to bring everyone up to speed. In addition to the liability facts, I would also include a list of the theories of liability and a brief statement of the damages sought, even if only in summary prayer, rather than concrete dollars and cents.

2. Very brief evaluation of the venue, judge, opposing counsel and plaintiff. (I mean brief dammit!)

3. Evaluation of each viable defense, including strengths and weaknesses. This is really the heart of the evaluation. This should be written in language that, to the extent possible, is devoid of legalese or confusing concepts. Clients who are not lawyers should be able to read this section and get a clear understanding of what will be proven at trial and how. On receiving this, clients should ask counsel to clarify any point that is not clear.

Now, while this section of the evaluation is written for the client, part of the value is in the composition process itself. In formulating this part, the lawyer will be forced to think through the client’s defenses, evaluate their viability and even develop a short inventory of what evidence will support the defense or make it challenging.

4. Exposure. How much, realistically, could the client lose if the case is tried and lost. In my field, employment law, this needs to include an estimate of the opposing side’s attorney’s fees since most federal and state employment law schemes permit a prevailing employee to recover her reasonable attorney’s fees.

5. Ultimate recommendation. Is this a case that should settle? Is it a trial candidate: i.e., one in which there is a 75% or greater likelihood the client will win (I prefer to think of it this way: a jury will return a defense verdict 7 out of 10 times)? Clients’ risk tolerances differ; some are more willing to gamble, others want to be virtually certain of prevailing at trial (there’s no such thing as virtual certainty of a verdict, by the way).

If the recommendation is to pursue settlement, what is a reasonable settlement amount, and what is the proposed path to get there?

6. Tasks and budget. Clients should be entitled, at every stage of any lawsuit, to a list of what is anticipated to be done in the next 60-120 days, and a reasonable estimate of what the cost will be. Hopefully clients understand that this is only a thoughtful estimate of what is required and the cost. None of us is omniscient.

Crucially, an evaluation should be considered a living document. Cases evolve. If every single fact, estimate and nuance of an evaluation remains the same from the beginning of the case until the start of trial, something is missing. Again, I advocate an approach that simply adds new developments to an old evaluation in bold.

Many lawyers will provide some kind of evaluation as part of their ordinary practice. If you’ve hired one that does not, ask her not only to provide an evaluation, but to provide it early enough so that a bad case can be settled before so much time and money has been invested that settlement is not a viable option for one side or the other.

You Cannot Force A California Employee To Disclose Her Facebook Password, Unless . . .

A new California law restricts an employer’s right to seek access to existing or prospective employees’ social media accounts.

The law, Chapter 2.5 of Part 3 of Division 2 of the Labor Code (commencing with Section 980),  defines “social media” for purposes of the new law to mean “an electronic service or account, or electronic content, including, but not limited to, videos, still photographs, blogs, video blogs, podcasts, instant and text messages, email, online services or accounts, or Internet Web site profiles or locations.”

Under the new law, employers cannot request existing or prospective employees to disclose either a username or password, to access a personal social media account in the presence of the employer, or to divulge any personal social media.  It is also unlawful to retaliate against an employee or applicant for refusing such a request. 

Important exceptions to the law are (1) where divulging social media is “reasonably believed” to be relevent to an investigation of an employee’s violation of law or allegations of employee misconduct; and (2) if done for the purpose of accessing an employer-issued electronic device.

Cal. Supreme Ct. To Decide If Terms Or Conduct Govern Franchisor Liability For Employment Practices

The California Supreme Court will decide whether the terms of a franchise agreement, or the franchisor’s conduct at-odds with that agreement, govern for purposes of whether the franchisor can face liability for (mis-)treatment of a franchisee’s employee.

The issue is simpler than it sounds, but an opinion could have wide-ranging implications for franchisors doing business in California.  In Patterson v. Domino’s Pizza, a 16 year-old employee of a Domino’s franchise sued, not only the franchisee and its manager, but also Domino’s, for alleged sexual harassment, retaliation and constructive wrongful termination.  The franchisee petitioned for bankruptcy protection and Domino’s obtained summary judgment on the grounds that the operative franchise agreement placed sole responsibility for recruiting, hiring, training and supervising employees on the franchisee, such that the franchisee was an independent contractor for liability purposes.

In June, 2012, the California Court of Appeal for the Second District issued and certified for publication an opinion that reversed the summary judgment in Domino’s favor.  In a nutshell, the Court of Appeal looked well outside the terms of the franchise agreement, focusing instead on the course of conduct between Domino’s and its franchisee.  Among the items of evidence cited by the court was Domino’s specific hiring requirements applicable to all franchisees, including rules about qualifications, appearance standards and required training software programs.  The court also pointed to testimony from the franchisee owner about Domino’s practices, including specific direction to fire certain franchisee employees (including the alleged harasser) and tactics, including “mystery shoppers,” designed to exert control over individual franchise stores.  Triable issues remained, the Court of Appeal concluded, whether “there was a lack of local franchisee management independence” which could render Domino’s liable.

Accepting Domino’s petition for review, the Supreme Court has ordered the parties to limit analysis to the question whether Domino’s is entitled to summary judgment on plaintiff’s claim that it is vicariously liable for tortious conduct by a supervising employee of the franchisee. 

If the Supreme Court’s opinion is unfavorable to Domino’s, it could change in a very material way the degree of control franchisors maintain over their franchisee’s employment practices.  If it results in a shifting of responsibility to the franchisor, I imagine it will increase franchise purchase costs, trigger different or additional insurance provisions, with corresponding cost increases, and overall make franchise arrangements less appealing in our golden state.

There Are Useful Conferences, Then There Are REALLY Useful Conferences

Each year I’m faced with the decision which, if any, industry conferences to attend.  A shortage of time and money dictates that I cannot go to every conference I would like to attend.  Even if I could cobble together enough money to attend more conferences, my time is severely constrained and every hour spent at a conference is an hour that cannot be spent working for a client. 

I’ve attended Defense Research Institute (DRI) conferences just about every year I’ve practiced, even though I’ve migrated committees from Young Lawyers, to Products Liability, to Commercial Litigation, to the Labor & Employment conference.  I’ve found these are well-organized and pretty useful.  I would recommend a DRI conference to colleagues.

A couple of weeks back, though, I attended a completely different kind of conference, which was an exponentially better use of my time.  I’m not going to discuss the specifics, because I was a guest and, unlike DRI or ABA, this industry group doesn’t maintain a website, publications and huge membership.  But it is precisely because of this concentrated scale that the meetings were so productive. 

First, actual membership in the group is limited to in-house general counsel or legal staff members of companies in industries that routinely face the same or similar employment issues.  Actual members can bring guests who are outsiders, but membership will never be available to us “outhouse” lawyer.  This alone sets it apart from large industry or bar association conferences.  There are no sponsors or exhibitors.  More importantly, the conference does not become a “feeding frenzy” where hundreds of outside lawyers showboat or compete for the time and attention of a handful of in-house counsel.  There may be some marketing component to the conference, but it is low-key–limited to maybe buying someone dinner–and definitely not the focus or sole reason to attend.

Second, the group is smaller, but it is also comprised of industry leaders.  Sure, war stories are traded, but they tended to be fresh, relevant and real.  Because of the tighter group size, it permitted the agenda to be loose and unstructured in a way that permits the group to spend more time on topical topics.

Another advantage of the limited group size was that the actual members (and some of the guests) knew each other pretty well.  I observed that this led to a candidacy of the discussion that I would never expect to see at a larger group function.  Anyone who’s tried to build a better mousetrap by committee knows that familiarity breeds comfort which tends to lead to better end product.  That’s what it looked like to me, anyway.

It was a good experience; I hope I am invited back.  I would surely counsel anyone lucky enough to be invited to attend one of these smaller, more concentrated industry conferences to jump at the chance.

At What Point Should A Young Company Think About Hiring Employment Counsel?

I have a friend who is a BSD in the venture capital world.  I reached out to him a while back because I had read that one of the companies his firm was funding was about to undergo a significant expansion.  I asked my friend if he wouldn’t mind introducing me to the company’s general counsel, so I could get my foot in the door in helping the company establish a solid platform for management of employment issues which were bound to arise, given their imminent hiring.

To my surprise, my friend rebuffed me.  “To tell you the truth,” he said, “it’s really not something that’s on their radar at this point.”  I let it pass–there might have been a variety of reasons he didn’t want to make the introduction.  But, suppose he was telling me the truth, that he thought the general counsel of this emerging tech start-up really didn’t need to be thinking about who to use to prevent and, if necessary, deal with employee “issues.”

If he was telling the truth, I think he was mistaken.  This is particularly true given that the company was domiciled in California, unquestionably the most hostile legal environment in the world for employers. 

Granted, I don’t think selecting employment counsel is on par with raising funds or gaining market share. If the company fails, there won’t be employees to make claims or file lawsuits.   On the other hand, meeting and potentially retaining a legal expert to review the company’s policies, draft or revise a handbook and perhaps conduct some training is neither time-consuming nor rocket science.  It is certainly not expensive.  Particularly if the ounce of prevention establishes, at the company’s early stages, a solid foundation which prevents even one otherwise avoidable employment lawsuit.

I have seen up close organizations that started and grew without a solid, systematic adherence to employment laws.  In each instance, I’ve become involved only after the company has been sued and we are trying to frame a defense.  At that point, the company’s management invariably recognizes its shortcomings and vows to do better going forward.  Unfortunately, this only happens after the company is forced to spend tens of thousands (or more) in settlement and defense costs.

It is not unusual for small employers to look to their “business” counsel for guidance on complying with employment issues.  This is the lawyer that drafted their articles of incorporation or negotiated a lease.  However, it is more common for this to occur only after there has been a claim or suit.  Before that time, my friend is right, it’s literally “not on their radar.” 

I’m partial to the idea of working with a lawyer that concentrates his or her practice on employment defense, rather than a business generalist.  There are lawyers who do nothing but employment advice and counseling, which is who I–a litigator–will look to if I’m confronted with a particularly unusual question.  The problem for the commercial lawyer in advising on employment issues is the rapidly changing nature of employment laws.  An additional problem arises when the claim goes further, and ripens into an administrative complaint with the Equal Employment Opportunity Commission (EEOC), California’s Department of Fair Employment and Housing (DFEH) or similar agency, or if there is a civil lawsuit filed.  While the company’s business lawyer might be a wizard at negotiating a complex lease, he or she might struggle when conducting a deposition, drafting a solid motion for summary judgment or representing the company in front of a jury.

I have all the respect in the world for entrepreneurs.  And I expect there are a thousand and one issues and headaches to successfully navigate without having another lawyer stick his or her nose into how the company runs its business.  But the last survey I saw said that the average verdict or award in employment lawsuits where the employer lost was over $400,000 (and this was a few years ago).  I’d argue that it’s never too early to put retaining an employment lawyer “on the radar.”