Chapter 19 DOWNSIZING AND POST-TERMINATION ISSUES

Chapter 19

DOWNSIZING AND

POST-TERMINATION ISSUES

Outline

Downsizing

The Decision to Downsize

The Changing Workplace: Downsizing as a Fact of Contemporary Working Life

Informing Employees Prior to Downsizing – WARN Act

Clippings

Just the Facts

Weekes-Walker v. Macon County Greyhound Park

Selecting Employees for Downsizing

Elements of a Claim: Discriminatory Discharge in a RIF (AGE)

Barnett v. PA Consulting Group

Early Retirement Incentives

Clippings

Effects of Bankruptcy on Employee Rights

Post-Termination Issues

Unemployment Insurance

Eligibility criteria and benefits

Just the Facts

Insurance Claims

Clippings

Just the Facts

Restrictive Covenants

Clippings

NanoMech v. Suresh

Just the Facts

A Concluding Thought

Case questions

Weekes-Walker v. Macon County Greyhound Park

725 F.3d 1276 (11th Cir.2013)

Former employees of the Macon County Greyhound Park (MCGP) sued for violations of the WARN Act for MCGP’s failure to give 60 day notice of plant closing or mass layoff. MCGP maintained that no warnings were required under WARN because the actions did not constitute a mass layoff or plant closing under the WARN Act. MCGP also maintained that they were entitled to invoke the defense of unforeseen business circumstances, which would exempt them from the duty to give 60-day notice.

MCGP was a former greyhound racetrack turned into an electronic gaming facility. A new Governor created a Task Force on Illegal Gambling and began cracking down on Alabama establishments that offered it. On January 5, 2010, MCGP laid off 68 employees due to scheduled renovations (at the time, they had 865 employees), saying it was temporary. A month later, the Task Force seized MCGP’s electronic gaming machines. MCGP filed suit, and a restraining order was issued, but overturned on appeal. With that decision, MCGP laid off all remaining employees on February 4, 2010 without notice. On March 5, 2010, litigation resumed when Macon County officials and citizens filed a lawsuit in Circuit Court arguing that the Task Force lacked authority. On March 5, 2010, the Circuit Court entered a second temporary restraining order against the Task Force, and MCGP reopened for business. On July 30, 2010, The Supreme Court of Alabama reversed. On August 9, 2010, MCGP, in anticipation of a looming Task Force raid, permanently closed its doors. No WARN notice was provided at any of these layoffs or closings

1. What were the legal issues in this case? What did the appeals court decide?

The legal issues in this case were whether the several incidents constituted mass layoffs or plant closings for which advance notice was required, and whether the employer could assert the defense of unforeseeable business circumstances for its failure to provide any notice to its employees.

2. Was the January 2010 layoff, by itself, a “mass layoff”? Why or why not? Was the February 2010 layoff, by itself, a “mass layoff” and/or “plant closing”? Why or why not? Does it matter that the facility reopened within about thirty days? Why or why not?

The January 5, 2010 layoff was not a mass layoff under WARN because it did not meet the threshold number of affected employees. But the February 4, 2010 layoff was a plant closing under the Act because of the number of employees affected. Because the February 2010 layoff was a plant closing, the employees laid off in January were potentially “affected employees” that were entitled to notice of the February plant closing. It does not matter that the facility reopened in thirty days; that time frame is the span of time in which to determine the number of employees downsized. It is because of this that the January layoff cannot be aggregated with the February layoff

3. Why does the appeals court say that the district court erred by combining the January and February layoffs? Why does it matter whether the January layoffs were expected to last more than six months?

Because the February 2010 layoff was a plant closing, the employees laid off in January were potentially “affected employees” that were entitled to notice of the February plant closing. The appeals court remanded the case for determination of this question, as there were insufficient facts in the record to determine the question. The resolution depends on whether the January layoff was always intended to exceed 6 months, or whether the February plant closing turned what was assumed to be a short term layoff into an employment loss.

4. Why does the court say that the “unforeseeable business circumstances? Defense is not available to this employer? If this employer had been able to argue for the unforeseeability of the events causing the layoffs/closings, would they have been successful in doing so? Why or why not?

The unforeseeable business circumstances defense requires proof that the business circumstances at issue were not reasonably foreseeable at the time notice would have been required. Given the events as they unfolded, it was certainly a possibility that the Task Force would shut down the facility. Even if they had been successful in arguing unforeseeability, they would still have been required to give as much notice as practicable, but this employer gave none.

5. Do you agree with the decision in this case? Why or why not?

Barnett v. PA Consulting Group

715 F.3d 354 (D.C. Cir.2013)

The plaintiff, a 57 year old female, was terminated from her position as a management consultant during a restructuring of the firm, allegedly because her expertise was not a good “fit” for the firm’s new business focus.

1. What was the legal issue in this case? What did the appeals court decide?

The legal issue was whether the plaintiff was fired for lack of “fit” or whether that was a pretext for age and sex discrimination. The appeals court noted several questions of fact on this issue, and reversed the grant of a motion for summary judgment for the employer, remanding the case for trial.

2. If, as the court says, the consulting firm “was entitled to restructure the Transportation Group to return it to profitability and fire people to do so,” why are they in legal trouble for firing Barnett?

Their actions did not comport with their purported reasons for firing Barnett. A similarly-situated employee, Gao, a younger male, was retained, and arrangements made to cover his salary by sharing him with another group at the firm, but no similar arrangements were made for Barnett, though she was the higher earner.

3. Evidence on the relative performance of employees is central to this decision. What was the evidence regarding the performance of Barnett compared to the younger male employee who was retained (Gao)? Does that evidence support Barnett’s claim that the firm’s stated reason for her termination is pretext? Why or why not?

Over several years, Barnett was consistently the highest earner at the firm. Gao, her younger male college, did not do as well, and his expertise – China – would not be part of the firm’s focus going forward, either. In fact, the firm closed its Beijing office.

4. Overall, does it appear that Barnett’s termination was discriminatory? Why or whyt not?

There are certainly many questions raised by the facts, including the fact that the spreadsheet prepared for comparison of employees prior to deciding whom to downsize contained the ages of each employee. Since age cannot be a consideration for termination, that question alone raises another disputed fact which the jury will have to decide.

5. Are there things that this employer might have done to better handle this situation? What things?

It should have made the same arrangement for Barnett as it did for Gao, and could have done so. In failing to do so, it lost a valuable employee. In addition, all of the actions noted above raised questions about the reasons for Barnett’s firing.

NanoMech v. Suresh

2013 U.S. Dist. LEXIS 128213 (W.D. Ark.)

Plaintiff Suresh, a product engineer, sued her former employer, NanoMech (an R&D firm creating nano-technology), when it alleged she violated the terms of a Non-Disclosure (NDA) agreement and a covenant not to compete, and her new employer fired her.

1. What were the legal issues in this case? What did the court decide?

The legal issues in the case were whether the NDA was valid and enforceable against Suresh, whether the noncompetition agreement was enforceable, and whether NanoMech was entitled to a permanent injunction.

2. What did the Nondisclosure Agreement (NDA) call for? Why did the former employer claim that the agreement was breached by the former employee? Why does the court disagree?

The NDA required that Suresh keep confidential the information that was shared with her pre-employment “solely for the purpose of evaluating a potential employment relationship.” But the information that was allegedly given her during this period was nowhere described, and the complaint alleged disclosure of information learned during her employment, not her pre-employment. NanoMech alleged that Suresh emailed several confidential documents out of the firm, but could not prove a breach of her obligation to keep information confidential, and must allege that she will “inevitably” disclose confidential information. Nor can they prove damages. This claim was dismissed by the court.

3. What did the Noncompetition Agreement call for? Why does the court conclude that this agreement is unenforceable?

The noncompetition agreement was contained in the Employment Agreement Suresh signed, and forbade her from competing with NanoMech for a period of two years following her separation from the company, but contained no geographic restriction, which meant that she was prohibited from working anywhere in the world for a firm that might be considered a competitor, and impinging on Suresh’s ability to earn a living. Such open-ended restrictions are void and unenforceable. In addition, it forbade her from working for “any business which competes” which the court found to be vague and undefined.

4. This decision mentions in passing that the former employee was terminated by her new employer and is suing NanoMech for this. What do you think happened here? How does the existence of restrictive covenants complicate post-employment life for both the former employee and prospective new employers?

Students may have different ideas, but it seems likely that Suresh filed suit against NanoMech for interference with contract. Suresh alleges that she was fired from BASF because of NanoMech’s actions taken during the course of the lawsuit, so an interference with contract claim and perhaps defamation.

5. What should NanoMech have done differently?

The NDA applied only to pre-employment disclosures, so was of little use. A proper NDA/confidentiality agreement protecting information learned during employment should have been prepared. In addition, the non-compete was written so broadly that it was unenforceable, and also useless. A proper noncompetition agreement should have been prepared.

JUST THE FACTS

A car dealership informed its employees in a written memo on September 26, 2007, that the business would close on October 7, 2007, unless a new owner could be found before then. The memo also said that it had not been possible to provide notice any sooner because intense efforts to sell the dealership had been underway and these efforts would have been further complicated by the absence of an intact workforce. At the time of the memo, the dealership had 150 employees. After the memo was issued, most of these employees stopped coming to work. By October 5, 2007 – which turned out to be the actual date of closure – only thirty employees were reporting to work. Did this employer violate the WARN Act? Why or why not? (See Collins v. Gee West Seattle, LLC, 63l F.3d 1001 (9th Cir. 2011))

The WARN Act provides that “[a]n ‘affected employee’ is one who “may reasonably be expected to experience an employment loss as a consequence of a plant closing . . . .” The employer focused on the issue of employment loss and argued that the employees who stopped coming to work had voluntarily departed employment and hence, suffered no employment loss due to the closing. The court said that the employer’s argument “flips the basic structure of the WARN Act on its head. Instead of placing the onus on the employer to give 60-days’ notice before closing a plant, Gee West’s reading of the Act would measure an employer’s liability based solely on the number of employees remaining at the plant at the time of its closure, even though employees departed because of the plant closure. Such an interpretation is inconsistent with the basic structure of the WARN Act and frustrates its purposes.” The concept of employment loss is relevant to two issues under the WARN Act. First, it is used prospectively to gauge the number of employees likely to be affected by a plant closing or mass layoff for purposes of determining whether advance notice is required and to whom. Second, it is used after the fact to determine whether the numerical requirements to establish the occurrence of a plant closing or mass layoff have been met by the number of employees who suffered actual employment loss. The company did not contest that all 150 employees reasonably expected employment loss from the impending closing, but argued that due to the voluntary departures, only 30 employees actually suffered employment loss. Since a plant closing must impose employment loss on at least 50 employees in order to meet the statutory definition, the company argued that a plant closing under the WARN Act had not occurred. The appeals court saw it differently. “[E]mployees who actually retire, are discharged, or leave for reasons unrelated to [a] shutdown do not count as “employment loss” when determining that there has been a plant closing. However, unless there is some evidence of imminent departure for reasons other than the shutdown, it is unreasonable to conclude that employees voluntarily departed after receiving notice of the upcoming closure.” “An examination of the basic purposes of the WARN Act further confirms this understanding. … [T]he WARN Act … protects a worker from being told on payday that the plant is closing that afternoon and his stream of income is shut off, though he has to buy groceries for his family that weekend and make a mortgage payment the next week.” Therefore, “it makes perfect sense to require the company to pay the worker for 60 work days,” in order for the worker’s “stream of income [to] continue[ ] to flow for 60 days after he knows the plant will shut down, so he has two months to look for a new job, perhaps in a new town if the plant shutdown decimated employment in his town.” The court also notes that employers can invoke several statutory exceptions to the notice requirements and that if “voluntary departure” had the broad meaning that the employer said it did, these exceptions would be rendered largely superfluous.

A 52-year-old employee with 34 years on the job was terminated by Boeing during a RIF. Under the “Redeployment Selection Process (RSP)” used by the company, the supervisor compared the performance of employees on nine criteria, rating them on each criterion with a 1-5 scale. The 52-year-old was given a cumulative score of 17, while a 36-year-old co-worker was scored 39. The younger co-worker was retained. In a regular performance appraisal conducted earlier that year by the same supervisor, the older worker was described as “doing a great job.” Complaints about the older worker’s performance in her filing duties that had been mentioned previously but never adversely affected her performace ratings, were highlighted in the RSP. There was also evidence that the supervisor unilaterally decided to eliminate from the final scores the one criterion on which the older worker had received a perfect score. The older worker sued, challenging her termination in this RIF. (See, Cotter v. Boeing, 2007 U.S. Dist. LEXIS 45995 (E.D. Pa.).

The plaintiff alleged age discrimination (disparate treatment) in violation of the ADEA and state law. The court denied the employer’s request for summary judgment. The court pointed to the “highly subjective” nature of the RIF criteria and to the fact that the same supervisor had rated the plaintiff’s performance much more highly earlier in the year. Concerns about the plaintiff’s performance of her filing duties had been raised before, but were not previously deemed important enough to affect her overall performance ratings. But in the RIF context, they were one of the grounds for her low overall performance rating. Additionally, the decision to eliminate from the ratings the one criterion on which the plaintiff had scored highly could be viewed as an effort to manipulate the scores to obtain a desired outcome. Thus, despite Boeing’s assertion of a neutral performance assessment as the lawful basis for its downsizing decision, the court decided that there was sufficient evidence for a jury to find that the performance assessment was a pretext for age discrimination.

A woman worked at a hospital as a benefits coordinator. She had no patient care responsibilities or direct contact with patients. A number of years ago, her daughter had a sever reaction to a flu shot and was subsequently diagnosed with multiple sclerosis. The daughter eventually died from problems with the medication that she took for her condition. Any relationship between flu shots and developing multiple sclerosis is a disputed matter, but a neurologist who treated the daughter said that the disease could have been triggered by the vaccination. The woman never received a flu shot during over twenty years of employment at the hospital. However, the hospital decided to change its policy and require that all hospital employees get a flu shot each year. Only employees who had specific allergies and known adverse reactions to flu shots were exempted from the requirement. Her doctor strongly advised her to not get a shot and wrote a letter in support of that position. However, the woman’s request for an exemption was denied. She was terminated after refusing to get a flu shot. She filed for unemployment insurance and the hospital contested her claim. What should the court decide? Why? (See AnMed Health v. South Carolina Department of Employment and Workforce, 743 S.E.2d 854 (South Carolina Court of Appeals, 2013).

The court should decide that the employer did not prove it fired her for cause. She had a perfectly valid reason for not wanting to get a flu shot, and given her lack of contact with patients, the need for it was questionable at best. Their actions were not reasonable.

An employee worked for a pest control company. He quit to go to work for another exterminator. The former employee had signed a noncompetition agreement stating that “The Employee will not engage directly or indirectly or concern himself/herself in any manner whatsoever in the carrying on or conducting [of] the business of exterminating, pest control, termite control and/or fumigation services as an owner, agent, servant, representative, or employee, and/or as a member of a partnership and/or as an officer, director or stockholder of any corporation, or in any manner whatsoever, in any city, cities, county or counties in the state(s) in which the Employee works and/or in which the Employee was assigned during the two (2) years next preceding the termination of the Employment Agreement and for a period of two (2) years from and after the date upon which he/she shall cease for any reason whatsoever to be an Employee of this company.” The former employer sued the former employee for breach of contract and the new employer for interfering with a contractual relationship. What should the court decide? Why? (See Home Paramount Pest Control Companies v. Shaffer, 282 Va. 412 (2011).

The court should decide that the noncompete was overbroad and unenforceable. The question was one of law, so the court reviewed it de novo, recounting that under Virginia law, noncompetes are enforceable if narrowly drawn, not unduly burdensome on the employee’s ability earn a living, nor against public policy. The three factors consider the function, geographic scope and duration elements of the restriction, considering them together rather than as three separate and distinct issues. The court found this policy to be overly broad, and burdensome on the employee’s ability earn a living, and so unenforceable. In particular it prohibited former employees from working for competitors in any capacity, even if not in pest control application.

PRACTICAL CONSIDERATIONS

What are some feasible alternatives to downsizing? If downsizing must occur, what criteria should be used to select those individuals who will be downsized?

Employers have many alternatives to terminating employees. These range from finding non-labor cost savings elsewhere in the operation (e.g., less expensive materials, less money spent on advertising) to elimination of overtime, job sharing, cuts in hours, reductions in pay, transfers, retraining for new skills that remain in demand, ending the use of contractors and temps, early retirement incentives, attrition, and furloughs. The criteria used to select employees for downsizing should be established before the fact and be as objective as possible. Seniority is an objective criterion that is favored as the basis for selection in unionized workplaces and that is required by most collective bargaining agreements. Measures of performance are the criteria most frequently cited by non-union employers.

Should employers use noncompetition agreements or other restrictive covenants? If so, under what circumstances? What should an employer do if someone that the employer wants to hire is a party to a restrictive covenant with a previous employer?

Many employers feel that in an economy where specialized knowledge and customer relationships are increasingly the key assets of a business, it is essential to use restrictive covenants to keep these key assets from precipitously walking out the door and being deployed by competitors. Employers should be able to point to specific business interests that require protection, including confidential information and trade secrets and client relationships. The covenants must be supported by consideration and be no broader than necessary in terms of the time, geographic area, and scope of activities to which they apply.

Employers should be aware of the fact that persons they are seeking to hire are potentially subject to restrictive covenants. If an agreement exists but it is believed to not be enforceable because it is overly broad or for some other reason, the new employer can go to court to try to obtain a declaratory judgment ruling that the prospective employee is not bound by the agreement. Alternatively, the new employer can try to negotiate with the former employer and buy out the agreement for a price. One concern that employers have with helping new employees get out from under restrictive covenants is that those employers often have their own restrictive covenants that they want their employees to enter into and respect. Indeed, the employer that hires an employee despite a restrictive covenant will often turn around and expect that employee to sign a new restrictive covenant with the new employer.

End of chapter questions

1.) A wholesale grocery warehouse and distributor terminated two hundred employees in a mass layoff. The company had been experiencing financial problems for many months. Its largest customer was United Supermarkets, which accounted for about forty percent of its orders and which had been a customer for more than thirty years. On January 8, 2004, United notified the wholesaler that it would be placing more orders with alternative suppliers due to a problem that the wholesaler was having in filling United’s orders in a timely fashion, but that it hoped to continue to do business with the wholesaler. On January 15, 2004, United informed that wholesaler that it would no longer be United’s primary supplier. Discussions with the wholesaler’s bank and business consultants on January 20, 2004 led to a decision to lay employees off. Employees received notice in their January 22, 2004 paychecks. The terminations occurred days later. Did the employer violated the WARN Act? Why or why not? (Gross v. Hale-Halsell Co., 554 F.3d 870 [10th Cir. 2009])

The appeals court affirmed the lower court’s grant of summary judgment to the employer on the employees’ WARN Act claim. The decision rested on the unforeseeable business circumstances exception to the WARN Act’s advance notification requirement. An “important indicator of a business circumstance that is not reasonably foreseeable is that the circumstance is caused by some sudden, dramatic, and unexpected action or condition outside the employer’s control.” It is the probability – and not merely the possibility – that a mass layoff or plant closing will occur that triggers the obligation to notify. The event causing the mass layoff in this case was the loss of the company’s largest customer. The employer was aware of the customer’s growing dissatisfaction, but it had been a long-time customer and it continued to profess a desire to continue to do business with the employer. Knowledge of customer dissatisfaction does not trigger the WARN Act’s requirements.

The plaintiffs disputed whether the loss of its largest customer was, in fact, the cause of the layoff or whether other financial problems already existed that contributed to the layoffs. However, the court said “we can find no evidence in this record to support the claim that United’s withdrawal was not the ultimate “straw that broke the camel’s back.” Although the largest customer’s withdrawal effected no actual change in the volume of business being transacted between the two companies, the fact remained that the decision to shut down came in the immediate wake of United’s withdrawal. The employer had been suffering from financial troubles for months, but the decision to lay off employees only came when it received the withdrawal letter. The plaintiffs also contended that, even if the full 60 days advance notice was not required, should have provided notice sooner than it actually did. The court dismissed this argument, saying that “HHC behaved in a commercially reasonable way when it failed to foresee United’s withdrawal in the sixty days leading up to the January 15 letter. HHC then took three business days to discuss the matter with its financial advisers and lawyers, and acted quickly in light of the devastating news. We do not think HHC violated the WARN Act’s notice requirements, nor did it act unreasonably, in taking just three business days to determine whether ‘it could survive the carnage.’” 

2.) Nine employees were part of a mass layoff that included all of a lumber plant’s 130 unionized employees. The layoff began on September 26, 2006. In October 2006, the nine employees were briefly called back to work. They worked for less than a week and then were laid off again on October 17, 2006. The employees were eventually recalled to work on April 16, 2007. Would these nine employees be “affected employees” entitled to WARN Act remedies? Why or why not? (United Steel, Paper&Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union v. Ainsworth Engineered (USA), 2008 U.S. Dist. LEXIS 91541 [D. Minn.])

The district court granted summary judgment to the employer on the union’s WARN Act claim. The issue was whether the nine employees had suffered employment loss as a result of the layoff. Under one prong of the definition of employment loss is the requirement that a layoff must last for more than six months. Did the brief reinstatement of these employees effectively re-set the clock such that when they returned to work in April they had not been laid off for more than six months? A DOL analysis of a related situation clarified that when an employee was laid off, recalled within thirty days, and then laid off again, only the second layoff would be considered in determining whether the layoff was of sufficient duration (i.e., exceeding six months) to qualify as an employment loss. The union argued that the October recalls in this case lasted only seven days and that such short-duration recalls should be disregarded for purposes of determining whether the layoff exceeded six months. The court, however, said that “[a]lthough USW argues generally that employers should not be allowed to evade the WARN Act by simply recalling employees who, but for a brief recall, suffered what is in effect an employment loss, there have been no allegations that (1) Ainsworth did not have a business reason for the October recalls, (2) there was not actual, legitimate work that needed to be done, or (3) Ainsworth otherwise acted in bad faith. The Court agrees there are situations in which a recall should be disregarded because it was too brief and was implemented with the purpose of attempting to evade the WARN Act, but that is not the case here.”

Nor was the union successful in arguing that the layoffs of the nine employees qualified as employment loss under the “more than fifty percent reduction in working hours” prong. The court said that while the hours of the nine employees were reduced by more than half for the six month period, that part of the definition of employment loss applied only when employees had not been actually laid off, but instead remained on the job with greatly reduced hours. “The Court agrees with Ainsworth that reading the statute in the manner that USW urges (that is, to allow for an employment loss on the basis of a reduction in hours even though the employer explicitly announced a layoff rather than a reduction in hours) would render category (B)[the layoff of six months or more criterion] nugatory. … As a practical matter, when an employee is laid off for a period in excess of six months, he experiences a one-hundred percent reduction in work hours in each month of that six-month period. Thus, … there simply would be no need for category (B) since every layoff that exceeds six months also results in a reduction in work hours of more than fifty percent in each month of a six-month period. Additionally, … a layoff would constitute an employment loss under category (C) [the fifty percent reduction in hours criterion] the moment it exceeds five and one-half months because, at that point, the employee would have experienced a reduction in work hours of more than fifty percent in each month of a six-month period. Had Congress intended the WARN Act to operate in such a fashion, there would have been no need to distinguish between the circumstances implicating category (B) and those implicating category (C).”

3.) A salesperson in his 50s had a profitable account taken away from him and turned over to a 33-year-old salesperson. The supervisor who made this decision told the employee that he was “too old” to work on the account because most of the buyers were young people who liked to mountain bike. The supervisor referred to the employee as “the old man” at sales meetings and asked other attendees at the meeting whether “the old guy” could make it up the stairs. The company ran into financial problems and terminated 67 employees over a two-year period. Another 24 employees who voluntarily left during this period were not replaced. The company never had any formal plan for the execution of a RIF. The salesperson was terminated during this two-year period at age 57. He was given no reason for his termination, although the company now says that it was part of the RIF. The salesperson was told by another employee that the employee had heard his supervisor tell another manager that he needed to “set up a younger sales force.” The salesperson sued. What should the court decide? Why? (Blair v. Henry Filters, 505 F.3d 517 [6th Cir. 2007])

The appeals court reversed the lower court’s grant of summary judgment to the employer on the plaintiff’s disparate treatment claim under the ADEA and state law. The court considered the statements made and concluded that while they were admissible, they did not constitute direct evidence of age discrimination in his termination. The statement about being “too old” related specifically to removal of the account from the plaintiff rather than to his termination. The other statements were not specific to the making of employment decisions or in some cases to the plaintiff himself. However, all of the statements were circumstantial evidence of a discriminatory motive. The employer attempted to argue that the supervisor was not involved with the decision to terminate the plaintiff. The court observed that “the admissible evidence is sufficient to create a genuine issue of material fact regarding whether Tsolis [the supervisor] participated in the decision to terminate Blair. More specifically, the evidence indicates that Tsolis (1) referred to himself as “the Terminator,” (2) threatened to fire salespeople, (3) participated in personnel decisions, and (4) stated that he had terminated people himself, and also that (5) Tsolis’s superiors never indicated that he lacked the authority to terminate salespeople. This evidence, at minimum, creates a genuine issue of material fact whether Tsolis had authority over personnel matters involving salespeople generally. Additionally, the record contains admissible evidence that Tsolis (1) was Blair’s direct supervisor, (2) notified Blair that he would be discharged, and (3) signed Blair’s termination letter. This evidence would permit a reasonable fact-finder to conclude that Tsolis was a decision maker regarding (or that he otherwise influenced) Blair’s termination specifically.” In considering whether there was evidence that the employer’s claim of a RIF was pretext, the court concluded that “Blair has offered sufficient circumstantial evidence to create a genuine issue of material fact that Henry Filter singled out Blair for discharge on the basis of his age. Moreover, Henry Filters’s lack of an objective plan for the reduction-in-force creates a genuine issue of material fact regarding whether this explanation is credible. We have previously indicated that “a lack of evidence regarding a company’s objective plan to carry out a reduction in force” is a “factor[] that might indicate that an alleged reduction in force is pretextual.”

4.) A 59 year-old employee was terminated after thirty-five years on the job. The company cited financial problems as the reason for the termination. Two other sales employees, a 57 year-old and a 48year-old, were also terminated. The 59 year-old’s duties were absorbed by a 41 year-old existing employee. For several months prior to his termination, the 59 year-old was repeatedly asked about his retirement plans by company managers. The 59 year-old sued for age discrimination. What should the court decide? Why? (Goodpaster v. Materials Handling Equipment Corp., 2010 U.S. Dist. LEXIS 114474 [N.D. Ind.])

The court denied the employer’s motion for partial summary judgment on the plaintiff’s age discrimination claim under the ADEA. The court characterized the circumstances of this case as a “mini-RIF.” In such cases, a single employee is discharged and his position is not filled. However, the employee’s responsibilities are assumed by other members of the existing workforce. “To establish a prima facie case in the mini-RIF context, a plaintiff must demonstrate: (1) she is a member of a protected class; (2) she was meeting her employers’ legitimate performance expectations; (3) she suffered an adverse employment action; and (4) her duties were absorbed by employees not in the protected class. In mini-RIF cases, the Court of Appeals for the Seventh Circuit has “dispensed with the requirement that the plaintiff show ‘similarly situated’ employees who were treated more favorably.” Rather, “because the fired employee’s duties are absorbed by other workers and the employee was ‘”replaced,” not eliminated,’ [the Court of Appeals for the Seventh Circuit] only require[s] that a plaintiff demonstrate that his duties were absorbed by employees who were not members of the protected class.”

A prima facie case was established, as the 59 year-old plaintiff’s duties were absorbed by a substantially younger employee (a 41 year-old). The employer offered the non-discriminatory explanation for the termination that the company was struggling financially and was compelled to restructure its sales positions. Regarding evidence of pretext and discriminatory motive, “[t]he Court is unable to conclude that managements’ retirement questions were innocent and did not express Defendant’s intent to rid itself of Plaintiff because of his age. Likewise, Plaintiff’s unchallenged contentions that the retirement questions were ongoing, at least to some extent, since the summer of 2007 may allow a jury to conclude that Defendant’s managers consistently—and improperly—tried to coerce the Plaintiff into an early retirement.” The court also noted that the plaintiff claimed that at the time of his termination, he was given no explanation for why he was being let go. Chris Fisher—the manager who both replaced him and told him he had been fired—said nothing about the company’s financial situation or that the company was unhappy with the plaintiff’s job performance. “This silence is especially dubious when coupled with Chris Fisher’s statements made two months earlier that Plaintiff’s southern group was still a successful sales unit.” The plaintiff was a successful salesman who served the company well for several decades. “In effect, Defendant’s initial silence casts doubt on its subsequent explanations.” One of those subsequent explanations, raised first in a legal brief seeking dismissal of the claim, was that the younger Fisher was maintained due to nepotism. While that might be a non-discriminatory motive, “a jury could reasonably find that its failure to come forward with this explanation earlier makes it not credible.”

5.) A company wished to reduce the size of its workforce through an early retirement offer. From past experience, it realized that employees were reluctant to accept such offers because they assumed that a more generous offer would be forthcoming in the future. The company addressed this matter in the Summary Plan Description that it issued to employees for its early retirement program. The SPD stated that if any future early retirement plans were offered, “the benefits would not be as good as those contained in this plan.” Four years later, the company adopted another early retirement plan that had more generous benefits than the previous plan. A group of employees who left under the earlier plan sued. (McCall v. Burlington Northern/Santa Fe Co., 237 F.3d 506 (5th Cir. 2000); cert. denied, 122 S. Ct. 57 [2001])

The appeals court affirmed a grant of summary judgment for the defendants. The plaintiffs raised a number of issues under ERISA. The court held that the more generous plan that was ultimately offered was not under “serious consideration” at the time that the statements were made in the SPD and that they were truthful at the time at which they were made. Thus, the employer did not breach its fiduciary duty under ERISA by making a material misrepresentation to employees. Nor did the employer violate ERISA by denying promised benefits. The court refused to interpret the pledge that future benefits would not be superior to those being offered as a promise to also provide any improved benefits to persons covered under the old plan. Lastly, a claim that the employer used its misrepresentation to induce employees to retire and thereby interfered with the attainment of benefits in violation of Section 510 of ERISA also failed. Since the court had already decided that there was no misrepresentation in the statements that were made, the Section 510 claim had no basis either.

6.) A 55-year old vice president learned that his business unit was being eliminated. The company gave him and other employees the option of accepting an “enhanced” severance package. However, to obtain the more generous severance pay, the vice president had to sign a release waiving legal claims stemming from his employment or the termination of his employment. The vice president continued working in a temporary capacity for almost a year after he signed the separation agreement and waiver of legal claims Although statements were made to the effect that the company would try to find another permanent position for him, nothing materialized and the vice president eventually ceased to do any work for the company. The former vide president sued, alleging age discrimination in the company’s failure to re-hire him for a permanent position. The company maintains that he waived his right to take legal action by having signed the separation agreement and waiver. Is the waiver of legal claims valid in this case? Why or why not?

The appeals court affirmed the lower court’s grant of summary judgment to the employer. The separation agreement was valid and barred the employee from taking legal action against the employer. Although a waiver cannot be used to prospectively waive claims that arise from circumstances subsequent to the execution of the agreement, his legal claims related to the company’s failure to find another permanent position for him and to re-hire him were viewed by the court as stemming from his termination. Since he had waived any legal claims related to the termination, he was unable to sue.

7.) A store held a July 4 barbecue for its employees. There were leftovers. The manager in charge said that he wanted the unused hot dogs and hamburgers to be placed in a break room freezer so that they could be used for a planned Labor Day barbecue. The next day, a store employee ate two of the leftover hotdogs which apparently had been placed in the break room refrigerator rather than the freezer. The manager reviewed a surveillance video and identified the employee as the “suspected hotdog thief.” The manager confronted the employee and he admitted to eating the hot dogs. It was not clear whether the employee had heard the manager’s order to have the food placed in the freezer for future use, although the manager believed that he did The employee was presented with the option of signing a statement admitting guilt or “spending the night in jail.” The employee signed the statement and was promptly terminated for theft of company property. He filed for unemployment insurance and his claim was contested. Is this employee eligible for unemployment insurance? Why or why not? (See Koewler v. Review Board of the Indiana Department of Workforce Development, 951 N.E.2d 272 (Indiana Court of Appeals, 2011).

Yes, the employee is eligible for unemployment insurance. There is nothing in the record to suggest he knowingly took company property (the hot dogs), which is required for a finding of theft, discharge for cause, and ineligibility for unemployment insurance benefits.

8.) An employee worked for an agency that provides services to disabled persons in their homes. As employees sometimes needed to transport their clients to medical appointments and other places, the agency required that it service providers have “reliable transportation.” The employee had a working vehicle when she was hired, but it eventually died. She then borrowed her mother’s car to get to work, but the car was damaged in an accident and rendered inoperable. The woman, who was paid $9/hr, said that she could not afford to either get a new car or have her old car repaired at that time. The agency gave her two months to arrange reliable transportation. When she failed to do so, she was fired. The employee filed for unemployment compensation and the agency contested her claim. What should the court decide? Why? (See Bell Socialization Services v. Unemployment Compensation Board of Review, 74 A.3d 1146 (Pennsylvania Commonwealth Court, 2013).

The employer’s assertion that the employee engaged in “willful conduct” without “cause or justification” was not upheld on appeal. The employee had valid reasons for her failure to procure a vehicle, including the facts that her auto breakdown was unforeseen, and she earned only $9/hour.

9.) An employee of a financial information services company located in performed her work by “telecommuting” from . The employee had a home office in her residence, was provided with a second telephone line and computer equipment by her employer, and was given access to the company’s mainframe computer located in . The employee was required to be available during normal business hours and she maintained daily contact with her supervisor in . At some point, the employer decided to end the telecommuting arrangement. The employee was offered employment at the office, which she declined. She initially filed for unemployment insurance in . The employer contested this claim on the grounds that she had voluntarily left her job. Subsequently, she was informed that she might be eligible for unemployment insurance (with higher weekly payments) in . Her claim for benefits in was again contested by the employer, this time on the grounds that she had not been employed in . What should the court decide regarding her eligibility for unemployment benefits and from which state any benefits should come? Why? (Allen v. Commissioner of Labor, 794 N.E. 2d 18 [Ct. App. N.Y. 2003])

The New York State Court of Appeals affirmed the lower court’s decision that an employee who regularly performs work at her out of state residence via an electronic link to her employer’s workplace in is ineligible for state unemployment insurance benefits. law requires that when work is performed both within and without the state (beyond incidental work involving occasional travel), that the relevant criteria are localization of the work, location of the base of operations, source of direction or control, and employee residence. These criteria are applied in successive fashion. In this case, it was sufficient to consider only the localization criterion. “We hold that physical presence determines localization for purposes of interpreting and applying [the unemployment insurance statute] to an interstate telecommuter. Because claimant was regularly physically present in when she worked for her employer in , her work was localized in one state – .”

This decision did not address the underlying question of eligibility for unemployment insurance from any state. However, had previously denied benefits to the plaintiff (they also “helpfully” suggested that she might be eligible for benefits from instead) on the grounds that she had voluntarily quit her job without good cause. The disqualification seems questionable. While an offer of continued employment was made, it was the employer that decided to terminate her employment in and make it no longer possible to telecommute. Acceptance of the alternative position would have required re-location to another state. Under these circumstances, it can be argued that her unemployment was for good cause attributable to the actions of her employer.

10.) A senior executive for a company based in New York, had world-wide responsibility for one of its brands and North American responsibility for another. He resigned to take a position in California with a competitor. When the executive was originally hired, he had signed a noncompetition agreement. The agreement barred him from working for a competitor anywhere in the world for a 12-month period after leaving employment. The executive sought to obtain an order from a Calfornia court finding that the agreement was not enforceable under California law. His former employer maintained that the agreement was enforceable and that New York law applied. Which state’s law is the relevant law in this case? Should the appropriate court enforce this agreement? (Estee Lauder v. Batra, 430 F. Supp.2d 158 [S.D.N.Y. 2006])

The court decided that New York law should govern the case and issued a preliminary injunction ordering the employee to not violate the non-competition agreement. Acknowledging that California law is hostile to non-competition agreements and will not enforce them absent an issue of trade secret misappropriation which had not yet been shown, “it is concluded that California’s interest in this dispute is not materially greater than that of New York and that therefore, New York law shall apply.” In issuing the injunction, the court credited evidence that the employer was likely to suffer irreparable harm due to the disclosure of valuable trade secrets before a decision on the merits could be rendered. Additionally, it is necessary for the party seeking an injunction to show that there is a substantial likelihood that they will eventually prevail on the merits of their claim. In other words, the employer had to convince the court that the non-compete would most likely be enforceable. “It is concluded that the geographical limitation of the covenant is reasonable under the circumstances. While under some circumstances, such a widespread restriction would be patently unreasonable, on the facts presented, it is not so here, given the scope of Batra’s responsibilities for R+F and Darphin and the international scope of Estee Lauder’s business and the cosmetic industry in general.” * * * Given that Estee Lauder contracted to pay Batra his salary for the duration of the twelve months, the fact that the geographic scope is all-encompassing will not render it overbroad and therefore void. In other words, although, under the contract, Batra essentially is prohibited from working for a competitor of R+F or Darphin anywhere in the world, the concern that the breadth of such a prohibition would make it impossible for him to earn a living is assuaged by the fact that he will continue to earn his salary from Estee Lauder as he contracted to do so. With respect to the durational restriction imposed upon Batra by the Non-compete Agreement, it is concluded that twelve months is not warranted in order to adequately protect Estee Lauder’s interests. * * * More importantly, in Batra’s case, the evidence suggests that, upon announcement of his departure, Batra himself was offered a reduction of his non-compete to four months by Estee Lauder. Therefore, in accordance with the authority to grant partial enforcement, a five-month period of enforcement is deemed reasonable. A five-month period takes into account the four-month period proposed by Estee Lauder upon Batra’s announcement of his departure, plus the transitional period they sought from Batra.”

11.) A mechanical engineer held the position of product manager for a company that manufactures home medical products, including wheelchairs and wheelchair controllers. In this capacity, she developed marketing strategies and was privy to company financial and pricing data. When she was promoted to product manager, she signed confidentiality and noncompetition agreements. Under the terms of these agreements, she was required for three years following termination of her employment to keep confidential any information related to the medical products company’s business and to refrain from working for a competitor anywhere in the United States. The noncompete included a reimbursement clause under which the company promised to pay the employee her existing salary if she was unable to find other work because of the restrictive covenant. The mechanical engineer left the company in July 2003 and subsequently formed a consulting company. Her company provided consulting services to another company that was in the final stages of developing and testing a new type of wheelchair controller. Was the engineer in violation of enforceable confidentiality and noncompetition agreements? (Jacono v. Invacare, 2006 Ohio 1596 [8th App. Dist.])

The appeals court affirmed the decision of the trial court, denying a preliminary injunction to the former employer and declaring the agreement not enforceable. Regarding the former employee’s possession of trade secrets or confidential information, “the trial court found that the knowledge and information Jacono obtained while working at Invacare was public, outdated, or obsolete at the time Invacare sought the injunction. Therefore, Jacono no longer possessed Invacare’s trade secrets or confidential information. * * *  It is common within the industry for competitors to buy the newly released product and disassemble it to determine the product’s design features and technical specifications. This process is known as reverse engineering, a method by which competitors start with the known product and work backward to find the method by which it was developed. Through reverse engineering, the competitor can acquire product information by fair and honest means. Once a product is released, the design, components, and technology are no longer secret. Therefore, any trade secrets that Jacono may have been privy to were no longer secret once the product was released and subject to reverse engineering.” Regarding the breadth of the noncompetition agreement, “the undue burden on Jacono outweighs the interest in having the agreement enforced. Invacare was unable to point to any solid evidence why the agreement should be enforced. The three-year clause is too long for a rapidly changing industry, and we are concerned with the lack of a geographical restraint. We agree with the trial court that Jacono no longer possessed confidential information or trade secrets. Further, the clause would stifle the pre-existing translator skills that Jacono possessed.” The court noted that the agreement provided for payment of a salary to the former employee if she was unable to obtain employment in her field due to the noncompete, but stated that “[w]hile generous, this clause in and of itself does not make the agreement enforceable.”

12.) BDI Co. utilizes “digital thermal resin transfer imaging” in its specialty of producing signs and decals advertising car washes for service stations. The founder of the company spent a number of months developing the product. As business grew, he hired two employees who assisted with all phases of the work. The two employees became dissatisfied and joined up with a former employer who was starting a new company. The employees had not been required by BDI to sign non-competition agreements and the company did not have a formal confidentiality policy. The new company used the same imaging process. Within a week, it was able to ship full sign packages to numerous former customers of BDI. BDI sued the former employees. (Business Designs, Inc. v. Midnational Graphics, 2002 App. LEXIS 524)

The trial court’s decision to issue an injunction prohibiting the defendants from using digital thermal resin transfer imaging to create products for certain customers was affirmed. The central issue in the case was misappropriation of trade secrets. The court concluded that the methods used by BDI were trade secrets with independent economic value. The methods were developed following months of research and the new company had generated almost eighty-five percent of her business from former customers of BDI. Although BDI did not maintain non-compete agreements, the court found that its efforts to maintain its trade secrets were “reasonable under the circumstances.” This was because it was such a small company and the two former employees worked side by side with the owner of BDI. The company had never revealed any of its trade secrets to competitors or other third parties.

13.) What do you think about the increasing use of restrictive covenants? Should employers who attempt to enforce these agreements against employees that have been fired have to show that the terminations were for cause?

Despite offering obligatory expressions of how “disfavored” such agreements are, courts (particularly outside of California) have shown an increased willingness to enforce restrictive covenants. At a time when markets are venerated and when employers disavow any responsibility for the continued employment of their employees, restrictions on the ability of employees to sell their services in the labor market seem to be another matter. Legal scholars, such as Katherine Stone, have made a convincing argument for a narrow interpretation of trade secrets and restrictive covenants that takes account of the realities of the contemporary employment relationship and knowledge work. It seems particularly unfair to allow such restrictions on future employment to be imposed on employees who were terminated by their previous employers. Some courts recognize this fact, but many do not.

14.) Is downsizing a sensible business strategy? Should employees be entitled to greater legal protection from downsizing? If so, what form should this protection take?

Downsizing treats human resources as costs to be minimized, rather than as valuable assets to be preserved. It is often short-sighted, disruptive, and ineffective. Nevertheless, it is in most cases legal. Against the backdrop of U.S.-style capitalism and employment at will, it is a real challenge to conceive of substantial legal protections for employees that would not unduly interfere with business decisions or make employers even more reluctant to hire people in the first place. A strengthened social safety net (e.g., an improved unemployment insurance system), a healthier economy, and changes in corporate governance that de-emphasize short-term financial results might have greater potential to protect the interests of employees. Legally-mandated severance pay also deserves consideration, although such an arrangement is clearly contrary to employment at will.

For a change of pace

A large company is planning to downsize. A consultant suggests the following: 1) It makes sense to focus on one of your unionized plants. We suggest that you reduce the 300 employees at that plant to 100. Some of the components that you produce at that plant can be made at your non-union plant. 2) Since you will be terminating 200 employees, I suggest that you terminate 50 employees per week. This way, you won’t have to worry about any legal requirements for providing notice. 3) If you want to be safe, you can send a letter to employees the week before you begin the first wave of terminations telling them that the long-term prospects for the plant are not good. 4) Let the supervisors use their best judgment about who should be retained. They know best. 5) Consider offering an early retirement plan to generate some voluntary turnover, but don’t get people’s hopes up by announcing it before all the details are in place. 6) If you offer an early retirement plan, require that all employees who accept it waive their ADEA rights. 7) Taking early retirement is an important decision, so give employees two weeks to think over the offer.

What are the legal problems with the consultant’s advice? What would be better advice?

1) National Labor Relations Act – unfair labor practice if the motive for the partial plant closing is hostility toward unionization; the employer likely also has an obligation to bargain with the union before transferring the work, since the same work is still being performed for the employer.

2) WARN Act – employment losses over a 90 day period can be aggregated when determining if a mass layoff has occurred. By the end of the second week, 100 employees would have been laid off. Since this is a third of the plant’s workforce, notice would be required.

3) WARN Act – notice is required at least 60 days before a plant closing or mass layoff occurs – not merely a week – and the notice must specifically inform employees about the impending action.

4) Criteria for selecting individual employees for downsizing should be established and these decisions should be carefully reviewed, in order to avoid age or other types of discrimination.

5) ERISA – fiduciary duty – employees must be informed of changes in benefit plans that are under serious consideration

6) This can be done, but waivers of ADEA rights must meet all of the requirements set out in the Older Workers Benefit Protection Act.

7) One of these requirements is that employees must be given at least 45 days to consider group offers of early retirement.