HOWARD C. HAY : ‘Why Me?’ Layoff Syndrome : Termination Is Among Employment-Law Issues of ‘90s

During more than 20 years practicing employment law, Howard C. Hay, managing partner in the Costa Mesa office of Paul, Hastings, Janofsky & Walker, has seen major changes in his field.

In the early 1970s, when Hay joined the firm, the area of law he practiced was called “labor law” because it dealt primarily with laws governing the relationship between unions and industry.

Back then, he said, corporate lawyers in his field were concerned primarily with helping employers negotiate with unions or avoid union organizing efforts.

But by 1975, Hay said, state and federal anti-discrimination laws became an important focus. And in the 1980s the legal area of wrongful termination developed, as well as concerns about how to legally implement employee drug testing.

In an interview with Times staff writer Leslie Berkman, Hay said that in recent years he has frequently been consulted by Orange County employers who want to know how to avoid lawsuits when they fire unproductive workers or conduct large-scale layoffs before relocating their manufacturing facilities.

A native of Portland, Me., Hay, 46, graduated from Duke University and the University of Michigan Law School. After graduation he served as a law clerk for a U.S. Court of Appeals judge in Boston, then worked for the National Labor Relations Board before joining Paul, Hastings in 1971.

The current recession has magnified the legal risks associated with employee terminations, Hay said. Even if hundreds of employees are losing their jobs, the individual worker wants to know: “Why me?”

Q. What are the major labor law issues that employers face this year?

A. There is no doubt a concern about the possibility of more layoffs, although I believe most of them were accomplished in 1990. The layoffs are occurring not so much for individual performance reasons as for general economic reasons. Also there are layoffs related to acquisitions and relocations. And new federal civil rights legislation that failed to be enacted last year is expected to pass this year.

Q. How would the new legislation affect Orange County employers?

A. Under legislation that has been proposed, claims of discrimination on the basis of race, sex and national origin could be tried by juries in federal courts rather than by judges as happens now. Also, punitive damages and damages for emotional distress would be specifically authorized in those cases.

These and other proposed changes in federal civil rights laws are already available in state courts in California. So such new legislation would probably have less impact on California than any other state. Nonetheless, more use of these remedies can be expected with greater public awareness of them.

Q. Are minorities and women adequately represented in Orange County business?

A. From my experience in Orange County the discrimination issues are not nearly as prevalent here as in other parts of the country, and I am not sure why. I think it is because Orange County businesses are basically newer and tend to be more conscious of the need for non-discriminatory hiring and promotion practices. The majority of litigation we get in Orange County tends to do with allegations that terminations were not done fairly or for a good reason.

Q. Aren’t there new laws to prohibit discrimination against older workers in conducting layoffs?

A. It is already law that you cannot discriminate against anyone over the age of 40. When such people are laid off, employers protect themselves against litigation by asking them to sign releases in which the employees who are leaving agree that, in return for a generous severance pay package, they will not sue on grounds of age discrimination.

However, in October, 1990, the law changed to specify what is required to ensure that the signing of such releases is both voluntary and informed. Now the employer has to give older workers at least 21 days to decide if they want to accept such a deal; in group layoffs, they have 45 days to decide. Also, the employer must tell an employee that he should see a lawyer before signing. And if the employee signs such an agreement, he has an additional seven days to change his mind.

Q. Is this change in the law important to employers?

A. Yes. In the last two months I have worked on 10 termination agreements that included releases from future litigation. Having older workers sign releases has become much more common during the 1980s and continues to be more common, particularly for long-service employees over 50. But it isn’t always the right approach. If a company is offering only two to four weeks of severance pay, my recommendation is that they don’t in return ask a person to sign such a release. That request is more likely instead to stimulate litigation.

My general advice has been if you as an employer are offering a few weeks’ extra severance, just do it and don’t ask for a release. On the other hand, if you are giving someone three to six months’ additional pay at the management level, that can be worth $25,000 or $50,000, and it gives him motivation to sign a release.

Q. When companies have to make staff cutbacks for economic reasons, do they purposely avoid laying off minorities and others who have special federal protection?

A. There is a difference between being sensitive to those groups and specifically providing a preference to those groups because the discrimination laws work both ways. For example, if a company had to lay off 100 workers but said it would not lay off any women or minorities, that would be a slam-dunk violation because you have terminated white males simply because they are white males. The law is clear that you can’t do that. You have to do a layoff in a way so neither females nor males feel that their gender is the reason for their termination.

Q. Do you have older workers who feel they are being terminated not because of their age but because they tend to make more money than their juniors?

A. That actually is one of the issues that comes up. It may be that by laying off one $50,000-a-year person you can save the jobs of two people making $25,000. So somebody could say I want to lay off as few people as possible, so I will lay off the higher-salaried people and keep the others. One could say that seems humane because you would lay off 10 instead of, say, 20. On the other hand, an argument can be made that if the people who are making more are older, in effect it can inadvertently or deliberately work as a form of age discrimination.

Q. So what do you tell your clients to do?

A. As a general proposition, you do not do the selection process (for layoffs) simply based on salary or on prohibited reasons (discriminating against women or minorities). You need a rational and lawful selection process. You have to identify the areas where you have too many employees. You may have a layoff to cut costs or for efficiency if you have 100 people doing a function that really needs only 50. Or you might want to cut excess production capacity because sales are down.

Q. Do employers usually consult you ahead of a layoff?

A. Yes. They need to know what they are required to do. The primary legal risk an employer has is at the point of termination. The more terminations, the more legal risk.

Q. Isn’t it easier in a recession to justify layoffs?

A. In a layoff situation, normally the employee being laid off does not dispute that someone had to be laid off but they ask: “Why me?” The fact that everyone is laying off hundreds still does not deal with the “why me” questions.

Q. Do people sue as much in a recession?

A. We get more lawsuits over terminations based on poor performance than we do on layoffs. In both cases, the person affected may have difficulty getting another job. But if you get terminated for poor performance, that hurts. Some lawsuits are as much driven by emotion and one’s ego as by economic need.

Q. Could the employer simply lie to prevent a lawsuit by saying a person is being terminated not for poor performance but because of a business necessity?

A. The problem with giving a false reason is that it isn’t too long before somebody finds out. Giving a truthful reason is a lot safer than, for instance, telling an employee you are letting him go to cut back and then his learning a month later that his replacement has been hired.

Q. What are the main rules an employer should abide by when conducting layoffs?

A. Companies first must be certain they are not violating statutes that prohibit discrimination and, secondly, make sure they are being consistent with any employee handbook or other written publications they may have.

Q. Are the provisions in handbooks a legal requirement?

A. Yes. A general proposition in California is that if something is in the handbook, it is a legal requirement. For instance, companies are not required to lay off by seniority. But if they put that in a handbook, it becomes a requirement.

Q. Do companies sometimes forget about their employee handbooks?

A. Yes. I would say it is more common that they forget to go look at the handbook than that they deliberately ignore it. I have had lawsuits and trials where the issue basically came down to companies forgetting to check the handbook provisions.

Q. Is an employer better off not having an employee handbook?

A. No. One of my commandments for my clients is that you do have employee handbooks and carefully state the guidelines that you, in fact, intend to follow and can prove that you follow. For example, it makes sense to put down rules about leaves of absence. You will have fewer problems than if you have no policy or a poorly worded one.

Q. Are there any other guidelines for layoffs?

A. Another legal requirement under federal law is that an employer must give 60 days’ notice of any layoff of 50 or more full-time employees in any one location.

And besides the legal requirements, there are things that are wise to do in order to avoid the risk of lawsuits. Risk-avoidance strategy includes consideration of transfer opportunities for employees during plant relocations; intelligent use of employee performance evaluations; severance pay arrangements; getting signed releases of legal claims from older workers who are terminated, and providing employees incentives to stay until a plant is closed. None of these things are required, but they will reduce the legal risk and improve morale.

Q. Could you explain how some of these risk-avoidance techniques work?

A. For example, the law does not require you to offer someone alternative employment when you close an operation. However, there are situations in which the failure to do that can seem terribly unfair. In one case, an employee had worked in one area for a company for 18 years. At the company’s request, he moved to another area where he worked for just six months before that area had a cutback and didn’t need him. So the employee went out the door instead of back to the department where he had worked satisfactorily for 18 years. A jury awarded the employee $4.7 million, contending that the company had acted unfairly.

Also, the law does not require you to terminate by seniority, but it is something an employer should consider. If two people worked someplace two years and were just a week apart in seniority, a jury won’t require much explanation about why you preferred one over the other. But if one employee has worked for 1 year and the other 20 years, there is no law that says the 20-year person gets the job. But from a fairness point of view, often the 20-year person should be kept and the 1-year person let go. But there could be some compelling reason to the contrary.

Q. What might be such a reason?

A. For example, if the job has changed and requires skills that the 20-year person doesn’t have and the 1-year employee does. There is a general trend in the 1990s toward jobs requiring more technological know-how, particularly computer skills. Often when we are deciding that we need to lay off a person in his 50s and keep somebody in his 30s, on the face of it it doesn’t seem fair. But the answer is that the person in his 30s has skills the person in his 50s hasn’t learned. There are an increasing number of mid-management jobs where having computer skills is a big advantage.

Also, often in a layoff you are consolidating positions and so versatility is a big plus. The more things you can do, the more your job is protected.

Q. Do companies run into any legal risks when they transfer their manufacturing operations from Orange County to other parts of the country to be more cost-effective?

A. There are a lot of risks in that and it is something we have been asked a lot about. A company knows about that kind of change several months in advance. So the first question a client has is how soon do we tell people. We recommend that an employer tell employees in advance that the decision is to close this plant and move it to Oklahoma or wherever.

Then you get into the issue of whether you should let people relocate. It may help you avoid lawsuits and often you would like to retain the skills of your employees.

Q. If you tell employees far in advance that you are going to move, how do you prevent them from leaving to take other jobs while you still need them?

A. A technique we have advised that works very well is an incentive-to-stay program. For instance, a manufacturing facility in Orange County that had decided to move to Texas announced the move six months in advance. While some of the 250 employees could be transferred to Texas, the majority could not. But the employees were told that if they stayed until the company closed its Orange County operation, they would get a bonus of three months’ severance pay. That incentive kept employees on the job.

Q. Aside from termination problems, what kind of employment issues do you deal with?

A. We have worked with a lot of companies in the last three years to put in lawful, intelligent and well-balanced drug-testing programs that typically apply to both job applicants and those already working for our clients.

Q. What kinds of companies are most likely to have drug testing?

A. There are several factors that determine if a company is likely to have drug testing. The safety risk of the jobs involved is the single most important consideration. Next in importance is the opportunity for employees to steal on the job. Companies that worry about this include financial institutions as well as retailers and manufacturers of consumer goods like radios that would have a street value. Other kinds of companies have testing programs primarily as a social statement that they don’t want drug use at their facility, even though they don’t have a safety risk environment or a theft risk.

Q. Is there much litigation now over drug testing of employees?

A. Yes. But this is another area where if the employer gets good advice going in there should be very little litigation. I have probably worked with 50 different companies, and we haven’t had a single lawsuit yet because the rules are clear enough. If you use some common sense and some good legal advice, you can basically solve the problem.

Q. What is the biggest mistake that employers make in this area?

A. I would say there are a couple. One is accusing someone of drug use without sufficient information. Another would be sending employee samples to inept laboratories to test for drugs. It is worth having a quality laboratory do it right because the worst thing is to get a result that is inaccurate.

Q. Legally could an employer terminate a worker for admitted drug use?

A. Yes, assuming that you haven’t made a promise to the contrary. But then you get into the issue of someone who says he smoked a marijuana cigarette on Saturday night and now it is Tuesday or Wednesday. The general rule is that an employer cannot terminate someone for things they do away from work unless the employer can show it is sufficiently related to their job. The burden would be on the employer.