No one can predict where the U.S. economy will be a year from now, but signs point to a slow-down in both the U.S. and global economy. If the U.S. experiences a recession similar to the 2007 to 2009 period, we can expect a significant contraction in GDP, and more specifically, a decline in employment. This is relevant because employment-related litigation often is counter-cyclical: it goes up when the economy goes down. Laid-off and terminated workers have more incentive to sue when they can't find new jobs right away. Lay-offs can give creative plaintiffs' attorneys insight into possible systemic problems which can serve as vehicles for class or collective actions.
What can an employer do now to insulate itself from these recession-related risks? Here are a few ideas:
l Update your Employee Handbook. Too often, employers have policies and procedures set forth in their Handbooks and internal guidelines that they do not follow themselves. If you no longer follow a particular policy or process, take it out of your Handbook, particularly if the policy or process involves employee discipline, payroll practices, leave process and/or employee terminations. In most states a handbook isn't legally binding, but it's not helpful to have policies that aren't practiced.
l Audit your own records. Make certain that your internal data collection process is consistent, particularly across HR database systems. Don't be the employer who sent a COBRA notice to the wrong address but sent the letter of termination and Separation Notice to the right one. If you use multiple database systems, make sure they communicate with each other to avoid such pitfalls.
l Make sure your notices are up to date. An incorrect COBRA or FMLA notice can expose an employer to statutory penalties. Are yours up-to-date? A surprising number of employers never updated their FMLA notices and procedures after the 2009 regulation changes. Are your COBRA notices correct? The last several years have seen a significant increase in COBRA class action litigation related to faulty COBRA notices.
l Update ERISA-governed benefit plans. Will your benefit plans meet the needs of a workforce that might need greater access to funds due to economic stress? Do you allow distributions upon termination of employment? (There are good arguments for and against allowing such distributions.) Do you allow for loans and/or hardship withdrawals? The IRS has proposed changes to the hardship distribution rules – stay tuned. Also, have your disability-related plans been updated to reflect the 2018 DOL regulatory changes?
l Be aware of "disparate impact" claims. "Disparate impact" refers to a statistically significant adverse impact on some protected group of a facially neutral policy or practice. If you must lay off employees, check the demographics to be sure the affected employees aren't predominantly over 40, or female, African-American, or otherwise members of a protected group.
l Build a plan for unemployment claims. Do you have in place a procedure for responding to your State's unemployment compensation hearing process? These proceedings can be a goldmine for a plaintiffs' attorneys. An ill-prepared supervisor or HR representative testifies under oath, and what they say can be turned against the employer.
l Watch out for WARN. In a worse-case scenario of a mass layoff or facility closing, remember that the Worker Adjustment and Retraining Notification Act (WARN) may apply, requiring advance notice of certain mass layoffs or closings.
l Stay out of court by choosing arbitration. Consider requiring new or existing employees to sign an arbitration agreement, waiver of class/collective participation, choice of laws, and/or choice of forum agreements. Recent court decisions have upheld such agreements, allowing confidential resolution of individual claims instead of wholesale litigation. This is a complex issue, and no one choice is correct for every employer, but such agreements can help control future legal claims by terminated workers.
As Ben Franklin so famously put it, "an ounce of prevention is worth a pound of cure." Start recession-proofing your employment policies and practices today.
