Notably, this particular incident wasn’t a product of the recession or the global economy or anything like that. From the looks of things, it was a simple corporate falling out. These two companies had worked together for decades, and one of them decided it was time to move on. Which is a good reminder to us all: these things happen. Regardless of the market forecast, accounts can be lost, and adjustments have to be made.

My heart goes out to those whose reality has changed. God knows I know what it’s like. My mind, on the other hand – which for better or worse views the world through Labor & Employment-colored glasses – thinks maybe its time we talk about what to do when you’ve got to let a lot of people go.

There’s a lot of ground to cover, so today’s post is going to just go over the basics of what the laws require. Future posts this and next week will discuss more specifics: what goes in the notice(s), exceptions to these requirements, how to calculate when the notice should be given, etc.

The Basics

The federal law governing mass layoffs is called the WARN Act. Before 2008, I’d say 99% of the populace had no idea what the WARN Act was. To say awareness of WARN has grown over the past few years would be an understatement. If you’ve been following the labor news through the recession, you’ll probably remember the Republic Windows sit-down strike from a few years ago. That incident – where a manufacturer here in Chicago shut down overnight after the bank pulled its line of credit – made WARN issues national news.

The WARN Act requires that companies with 100 or more employees provide at least 60 days’ notice of any “mass layoff” or “plant closing”. That means if you are laying off at least 500 people at any one location, or between 50 and 500 people if the layoffs equal at least 1/3 of your workforce at that location, the Feds want to know about it.

There are a million rules governing this basic idea – close geographic locations can be combined, temporary employees or locations don’t count, reductions in hours short of layoffs do count sometimes, the list goes on and on.

Illinois, like most states, has its own WARN law, as well, that extends the notification requirements to companies with fewer employees. The IL WARN Act requires employers with 75 or more employees to provide at least 60 days notice of pending plant closures or mass layoffs. But mass layoffs under IL WARN is half of the federal standard: either 250 employees or 25 or more, if the layoff equals 1/3 of the workforce.

What Happens if I Don’t Give the Notice?

Penalties. Big ones, too.

Failure to provide notice of a mass layoff can result in liability against every effected employee, equal to up to 60-days’ backpay and benefits, as well as fines of up to $500/day. Also, the laws allow employees who win at court to recover their attorney’s fees.

You can make voluntary payments to employees (e.g. – severance packages) to offset these penalties, but neither law recognizes pay in lieu of notice. So you can’t “make your workers whole” outside the rules of the Act, and avoid liability.

The Takeaway

The typical story when it comes to WARN is the big-bad-employer deliberately hiding bad financials and siphoning money away from paying its workers in its final days. I’m not saying this doesn’t happen sometimes, but far more often, it’s employers that mean to do the best they can by their employees, but don’t know how to navigate the law, or don’t even know it applies to them.

The regulations surrounding both state and federal WARN laws are tough to wrap your head around. There’s a lot of “if-then” factors involved here that can get even smaller employers in trouble. While we will get into some of these specifics later, I wanted to keep this post general to support the following suggestion: If you are considering laying off a significant part of your workforce, and you have upwards of 50 people working for you during the year, run the plan by your employment attorney. The smaller you are, the easier (and more cost-effective) it will be to assess any liability, but when you are facing a large-scale RIF, the piece of mind is worth it.

Search theory is a way of understanding why there can be a surplus of both supply and demand in a given market. Why, for instance, are unemployment rates so high at a time when so many companies say they need workers?

The Prize winners developed a theory, which now bears their names, to explain how external factors – the increased efforts of other job seekers, the matching of candidate skills with employer needs – can add cost barriers to the efficient, supply-and-demand equilibrium of the job market. The theory provides analysts with a starting point to model the job market, and hopefully figure out how to unstick a log jam in the seek-and-find dance of recruitment on a macro level.

More information on the Laureates and the Prize can be found here.

If you’re like I was, you’re now asking what language they speak in this Utopia.  Well, it’s English.  Moostly, ya noo. 

Yep, jobless midwesterners, break out that Bison penant  - North Dakota wants you!

A report from Marketplace details how North Dakota is soliciting workers from hard-hit midwestern states like Ohio and Michigan for its booming work needs.

According to Marketplace, the Flickertail State is reveling in a combination of planning and timing – their banks steered clear of the subprime mess, and they lured companies like Microsoft to set up shop (if Jeff Krause is right, though, let’s hope it’s not an Office 2007 distribution center or something). 

While all that was going on, the coasts suddenly realized there was a huge land mass between them that could be used to create renewable energy, and North Dakota added a whole new industry to its list of hiring sectors. The state currently has a $700 million surplus and just lowered its taxes.

Will it be a switch from what you’re used to?  Sure, especially if you’re coming from a big city.  But don’t judge the state too quickly.  Here’s what one person featured in the story had to say about her new home:

Oh, Bismarck is beautiful! It’s clean, and there’s a mall, and it’s a nice mall, and has some of my favorite stores. 

Wait – even their malls are surviving?  Man, when can I move?

Two recent cases decided by the 1st District Illinois Appellate Court have brought an interesting facet of our unemployment law to the fore:  you don’t have to be a lawyer to represent a party in an unemployment hearing.

In both cases (here and here), former employees appealed the Illinois Department of Employment Security’s denial of benefits, alleging that the hearing was voided because the former employer had hired a “representative” that asked questions of witnesses and made factual closing statements. 

In both opinions, the First District noted that the unemployment statute is meant to create an informal process, and specifically allows for a “duly authorized agent” to represent either party at the hearing.  The courts also noted that factual questioning and analysis of this one specific issue – unemployment insurance – doesn’t qualify as “practicing law”. 

I’m not sure about that last point.  The official definition of ”the practice of law” is:

“the giving of advice or rendition of any sort of service by any person, firm or corporation when the giving of such advice or rendition of such service requires the use of any degree of legal knowledge or skill.” 

I don’t quite see how summarizing facts at an unemployment hearing would be useful if the person summarizing those facts doesn’t have an understanding of the underlying law.  Not saying the courts were wrong – there is obvious leeway in the statute for non-lawyer representation – and there are valid public policy reasons for allowing non-lawyers to assist companies and aggrieved employees, not the least of which is sheer cost. 

But the exposition in these decisions about factual work being outside the practice of law creates a shaky precedent for me in any context.   What do you think?

Finally, remember that unemployment insurance typically requires that you prove you’re still looking for work.  So if you do have to go in for a hearing, ask around – you never know whose hiring these days.

The first installment of “A Couple of Questions…” goes to Brian D. McCarthy, Chief Employment Counsel at the risk management powerhouse Arthur J. Gallagher & Co.  Before joining AJG, McCarthy spent 10 years on the other side of the table, as a business-side employment attorney at the Labor & Employment firm Franczek Sullivan (now Franczek Radelet).  

No suprise, then, that Brian gets the series going right with insightful answers about the relationship between inside and outside counsel:

CE: Okay.  A couple of questions.  Here we go.

1.  What is the most important factor in maintaining a good relationship with a corporate client?

BDM: That’s an easy one.  Make me think of you as an essential part of our business.

You can do that by demonstrating a desire to understand our business model and our specific objectives.  Don’t be a contractor; be a teammate.  Respect our goals and make them your own, without simply rolling over (this is not Burger King; the client is not always right).  Maximize my confidence that you will handle my business the same way I would handle it – better, even – because that is why we send work out in the first place.  These are the things that will truly build up your relational capital with corporate counsel.

All that other stuff that shows up in your high-end, four color glossy firm brochure?  That’s important, too – don’t get me wrong.  I demand a high level of legal expertise; an ability to meaningfully and practically communicate that expertise; a command of pertinent decisions, regulations and trends; transparent value in staffing and billing; and willingness to understand our business model and specific objectives.  But these qualities are the sine qua non, the absolute preconditions, of getting hired and staying hired by my corporate legal department.  They are only facets of the bigger picture we see in our favorite outside counsel, the “go-to” lawyers with whom we actually look forward to working.

Here’s a simplified test:  your corporate counsel client assigns you a piece of work in the late afternoon.  How does the matter weigh on your client that evening?  Over the weekend?  On Monday morning?  Is your in-house client calm, cool, collected and at peace with the world?  If not (or if you can’t answer that question), there is definitely room to improve the relationship.  Obviously, this simplification won’t apply to a bet-the-company case or your first assignment from a new client, but it’s a good general barometer. 

And the best news?  I’m a lot more likely to forgive and forget those inevitable missteps if they are made by one of my go-to lawyers.

2.  Has the recession changed your perspective on outside counsel?

BDM: No question it has. 

Corporate counsel who were previously focused on value and costs are becoming positively obsessed.  Many are simply drawing the line and saying:  “I won’t pay for this anymore.”  Computerized research?  Forget about simply passing on that overhead anymore.  Charges for faxes – are you kidding?  Gone are the days of dozens upon dozens of billable hours (let’s face it, mostly inexperienced associate hours) that are unconnected to realized value.

I’ll happily pay high rates for high quality and relevant experience.  Quality legal representation can be costly.  But I will be scrutinizing the value provided more closely than ever before. I’ll be looking to non-law firm consultants, contract attorneys and assistants and other nontraditional legal professionals who can do most of the work of associates in any number of disciplines – at a mere fraction of the cost. 

We could all take a lesson from the makers of “Borat,” who got big press, and saved a bundle, with their Indian off-shoring of legal work like research, litigation support, discovery, contract drafting and patent writing.  I’m not suggesting that most of my work could be sent to India, but I like that thinking.

Let me add that go-to lawyers, like the ones I talked about above, are the first to point out value that might be had from alternative staffing, billing and sourcing arrangements.  They concern themselves with hunting out and adding value to our relationship.  The result?  I now expect those suggestions from my business partners.  I would encourage other corporate counsel who aren’t getting them to pointedly ask outside counsel, why not?

There’s just something about that vision of the Great Idea Man, rising up as the suits around him fall, developing the next great business model or product or managerial structure that will rocket the business into the stratosphere, and will become the modus operandi for the inevitable Return to Greatness we all know is just one great concept away.  For sure, a lot of thought (and writing) has been spent in the current recession trying to divine what that next Great Idea is.  Green Energy?  Healthcare Reform?  The Wuggie? 

How about free labor? 

A story on NPR this morning profiled Ariel Horn, the head of a small ad agency in New York, who thinks he’s come up with a novel model for riding out the recession.  Horn has opened his doors to out-of-work execs to come in with their laptops, and utilize his company’s empty workspaces to look for work.  They can use the company’s desks, and presumably the internet connection, and can spend all day just sending out resumes, if they want.

Or, you know, if they feel like it, they could “brainstorm” with Horn about possible pitches to TV stations or other clients.  If one of the job seekers’ ideas hits, it could spell work at the Horn Group for a member of the unemployed brain trust.  From the NPR story:

If one of the ideas takes, it could lead to a job for Horn and his agency. It’s happened before, and when it does, Horn hires the person who came up with the idea. He pays them by the project, with no benefits. For Horn, this kind of business model has a big advantage. The people who come here have all kinds of backgrounds — digital marketing, social networking, music videos. It means Horn’s agency can function like a much bigger company than it really is.

Well, sure.  That is typically a benefit of getting something without paying for it. 

I don’t mean to be hard on Horn or his idea.  First off, letting freelancers use empty offices to come up with pitches isn’t new in the ad business.  Even the whole “you-get-paid-when-we-get-paid” thing happens pretty often, I understand.  Even if it’s not as novel as it looks, Horn seems to be repackaging the idea for the recession by turning these out-of-work execs into freelancers and his empty offices into job search stations.

To tell you the truth, I’m sort of on his side, here.  Is it a little deceptive to “open your doors” to down-on-their-luck executives just to tap into their various networks and ideas?  Maybe.  But like the story notes, one of the biggest problems with losing your job is the feeling that your talents aren’t being utilized.  If Horn’s method lets these guys keep their mojo while they’re searching, doesn’t that stand for something?  

Is the business model a blatant violation of the Fair Labor Standards Act?  Yeah, maybe.  But so are most of the unpaid college internships in this Country.  And when you think about it, how are these brainstorming sessions any different than a few guys in a startup partnership, each putting in ideas with no promise or remuneration, but with the understanding that success will be shared among them all? 

My new-lawyer/compliance/fear-of-lawsuit brain says he should be putting some enormous waiver or contract in place before the “job searchers” ever plop down at a desk, but the part of me that wants to see the economy improve, see the concept of employment evolve, wants to encourage fostering partnerships with all levels of workers, that part of me wants Horn’s thing to be the Next Big Thing, no roadblocks, please. 

And as long as it’s a victimless crime (which, done correctly, is what it looks like to me), maybe any violation with the FLSA says more about the FLSA than it does Horn’s business model.  In this economic environment, laws should encourage people who are thinking of creative solutions, not boxing them in.  And it’s clear by now that this recession is leading a lot of employers to use a lot more freelance, temporary, or other types of arrangements that would typically fall into independent contractor categories.  Maybe instead of raising the red compliance flags at creative employers, it’s time we start analyzing the usefulness of the law they are being forced to comply with.

The concept poses a lot of interesting questions about what employment means, and what employees and employers both are owed.  How involved can Horn get in helping the job searchers find other work?  Can he endorse them?  Does he have to worry about distracting them from their job searches if their brainstorming is successful, but they don’t get paid from it?  At what point does Horn’s firm become an employment agency?  What happens when one of the brainstorming sessions produces a good idea, but a bad employee/contractor?  Who keeps the client after the job is done? 

But these questions can be addressed by some short, to-the-point agreements that don’t have to overwhelm the freewheeling spirit Horn’s idea is trying to capitalize on.  Plus, you can’t tell me normal employment relationships aren’t just as rife with issues.  If that was true, we’d all be out of work.

On the contrary. 

Amidst the gradual demise of this country’s economic infrastructure, legal and financial institutions have been faced with historic downsizing efforts.  The public has been inundated with headlines foretelling salary cuts, layoffs, and disappearing pensions.  As the dust begins to settle, it appears that these mass reductions are widening a gender gap that, up to now, had been slowly closing. 

On March 16, Forbes magazine ran a cover article exposing claims made by Wall Street women that female employees have endured the brunt of downsizing efforts.  According to the article, the financial services and insurance firms have cut approximately 260,000 jobs.  An astounding 72% of these jobs belonged to women, even though women only constituted 64% of the workforce before the economic downturn. 

Many of the ousted female professionals are seeking legal recourse and have recently filed charges with the U.S. Equal Employment Opportunity Commission.  Attorney Douglas Wigdor, who is featured in the Forbes article, currently represents a group of five former managers and rising young stars who claim they were victimized by the cuts.  In the article, Mr. Wigdor describes the cuts as a case of “recessionary discrimination.”

Still, other women with cognizable claims against various financial institutions will not come forward.  There is a concern that in doing so, they will be professionally exiled from the industry once the economy regains its footing.  The Forbes article recounts a 2007 class action settlement, where female employees at Morgan Stanley were given the opportunity to opt-in:

 Alice Hughes, a Morgan Stanley financial adviser in Dallas, talked with several women who declined to participate–and not because they planned to pursue separate claims. “It was just sheer fear,” she says, that even if they kept their jobs they might be excluded from benefits like getting a chunk of business when another broker left the firm. “They’re right,” says Hughes. Moreover, she claims, if they make trouble, “they will be blacklisted from working at any major firm.”

I love David Greising.   The Chicago Tribune and NPR business contributor seems to understand everything business, especially the stuff I don’t.  This morning, he took on AIG’s bailout apologist CEO, Edward Liddy, for going soft on derivatives execs after canning 6000 Allstate employees a few years ago, employment contracts be damned.  

Why, Greising asks, after pushing Allstate into a handful of class action lawsuits (two by the EEOC, even – that takes work) because he ignored the axed employees’ contracts, has the man brought in by the Bush Administration to clean up AIG dropped the broom?

Given his own history, Liddy’s explanation that his “hands are tied” because of the derivative department’s executive agreements is sad.  Can you imagine the media tsunami that would follow a class-action lawsuit on behalf of AIG derivatives executives for their bonuses?  It’s not even their salaries, it’s their #%*$@* bonuses!  …  [cough] sorry. 

Honestly, it’s like Wall Street and K Street are having a “who can sound more hollow” contest. 

Greising also points out that other ailing corporations, including Motorola and Continental Airlines, have worked out deals with their executives for pay cuts, bonus paybacks and the like.

And then there’s the big wrench in Liddy’s explanation – the United Auto Workers.  They, too, had a contract.  A few, actually.  But nobody – not the government, the union or the automakers asking for tax money ever questioned whether it could be renegotiated.

And that’s as it should be.

So what’s different about AIG?  How is it that, in the face of a furious public, following one of the biggest collective renegotiations in history, and with a proven executioner at the helm, this company can’t get out of paying millions in bonuses?

Is there a double standard among contracts for workers and contracts for executives?  Probably.  But Greising’s article proves that that can’t answer the whole question.  Honestly, I think the real problem here is a denial of workplace realities. 

When the auto industry was getting bailed out, one of the biggest arguments against giving them the money was that it would create a false sense of stability.  The employees and executives of the Big 3 needed to understand the dire straits they were in, and government infusions would keep that from happening. 

The same is clearly true at AIG.  Employees and executives alike simply don’t understand how close to the edge they are.  They want to pay bonuses to “retain talent”?  Talent? 

The department created confusing securitized investments that didn’t work.  Now it’s months away from being wound down, and they’re still paying to retain talent?  This is a group of people who need to feel their livelihoods are in jeopardy.  That’s why the UAW renegotiated their deals.  That’s why Motorola execs adjusted theirs, too. 

Employment contracts are only as good as the companies that agree to them.  Perhaps if AIG were suddenly small enough to fail (potentially, at least), its employees would find it in their hearts to discuss their compensation structures.

Sound familiar?  

Well, sorry.  Those statistics didn’t come from the U.S. Department of Labor.  They came from the Supreme People’s Court of China, according to AFP. 

Lawsuits nearly tripled in some eastern and southern coastal cities during the period… partly due to companies taking cost-cutting measures in their struggle to pull through the financial crisis.

***

Some companies also cut jobs in response to … [a new law that] requires employers to offer open-ended contracts to employees who have worked for them for 10 years or more or have completed two fixed-term contracts. 

It also mandates companies to make larger contributions to pension and insurance funds, the China Daily said.

Finally, to really put a 95% uptick in litigation for China’s courts into perspective, note that the report says about 20 million migrant workers lost their jobs in China last year.  And that’s just factory workers. 

A DOL report from last week shows the estimated total Americans out of work is hovering around 5 million.

Employers can, and generally do, charge former employees and/or their dependents up to 102% of the premium that the employer would have paid for the coverage had the individual and/or his dependents continued to be covered by the plan. In addition to multiple other notices employers are required to provide with respect to COBRA, employers must provide notice of the availability of COBRA to each covered employee at the time of termination of employment.

The American Recovery and Reinvestment Act of 2009 (ARRA), which the President signed into law this afternoon, provides for a 9 month, 65% subsidy for COBRA premiums for coverage periods beginning on or after March 1, 2009, for those individuals who lost/lose their jobs between September 1, 2008 and December 31, 2009.

Employers must provide notice to all former employees and their dependents to whom this subsidy is available.  In other words, employers must provide additional notice to those former-employees who were already laid off and already provided the “regular” COBRA Notice.

Consistent with current COBRA requirements, the subsidy will no longer be available to individuals who become eligible under another health plan, and the subsidy is not available to individuals with annual income exceeding $145,000 and couples with income exceeding $290,000.