cbupdateshead.jpg

Labor and Employment Law Newsletter
June/July 1999

Articles:


Regulation Through Litigation Has Just Begun

So concludes an article by Robert Reich, formerly Secretary of Labor. Reich is no friend of business. The assumption business will do bad things unless the government acts through regulation or litigation to intervene permeates his thinking. Reich is not alone. This way of thinking dominates the current federal administration and much of mainstream America. Reich argues the trend away from governmental regulation has been and will continue to be replaced by litigation. Reich is right.

In the last issue we noted government efforts to enact social change through control of the workplace take two forms. The first is creation of individual rights to be asserted in the courts by enterprising plaintiffs' lawyers. The second is direct government regulation. The second is far from dead, but the first is easier for the government for several reasons. This essay focuses on regulation through litigation of individual rights and how employers can avoid being the test case.

You have seen the trend. The regulatory agenda and the rights created: Stop social segregation of races by prohibiting employment discrimination because of race. Expand the workforce and increase the tax base by advancing the economic interests of women in the same way. Have employers pay transition costs from corporate downsizing by prohibiting discrimination based on age. Spread the work around as much as possible with federal overtime regulations not much changed since 1938. Reduce government obligations to care for the physically and mentally disabled by requiring reasonable accommodation in the workplace. Ease the pressure on Social Security with tax incentives for retirement income and then regulate private pensions. Create tax incentives for employer paid medical insurance and then mandate more benefits and specify procedures. Impose federal requirements on leave of absence policies. Require government contractors and everyone doing business with them to develop and implement affirmative action plans. Enact federal ideas of workplace safety and health minimum standards. Control the borders by requiring employers to determine who is legally eligible to work. Is there no end?

Well, no, there is not. Clinton and Gore want to expand the Family and Medical Leave Act. Efforts continue for prohibition of discrimination on the basis of sexual orientation. Bill Bradley says he will consider forcing union recognition on card checks alone, eliminating secret ballot elections. Clinton and Gore propose greater benefits, paid for through employer provided insurance, for mental health treatments. You get the idea.

All of these rights created by the government are intended to be enforced in the courts by lawyers counting on the fee shifting provisions requiring the employer to pay their fees if they win any part of the lawsuit. Of course, neither they nor their clients are required to pay the employers' fees if they lose. So what have we seen? Groups of lawyers find plaintiffs and fund lawsuits as an investment — they know they can get settlements in many by threat of publicity and the costs of defense. If they get big settlements the return on investment is good and the next target is selected. All this is done while wrapping oneself in the mantle of the "public interest," which is easy because corporations are assumed to be bad and opposition to their bad practices is assumed to be good.

Many corporations have responded to all this with programs and policies to promote business ethics. Initiatives come forth from headquarters encouraging diversity, fighting conflicts of interest, mandating family friendly work practices, establishing internal ombudsmen, creating hotlines for reporting wrongdoing and other well intentioned steps sincerely intended to improve and maintain a good corporate citizen from top to bottom. But in the field, on the shop floor, in the sales office and in the financial suites, a different force is at work. This powerful force pushes for improving the next quarters' results by increasing production without expanding capital investment or the workforce, reducing costs by a percentage mandated from above or by the customer. This force produces fear in the hearts of individual managers that their bonus, if not the job itself, depends more on improved financial results than good corporate citizenship. Often this is the reality at the ground level. When the messages from headquarters conflict, the financial message wins and the good citizenship message produces anger and frustration.

So what? Why is this message in these pages? Because outside audits and investigations have a place in the program. The investigations generally are protected by the attorney client privilege. Having someone from outside the company offers some sense of protection from retaliation and of some degree of anonymity. It also has the very real advantage of bringing a fresh set of eyes and ears to the workplace. A careful review of workplace conditions and practices identifies potential problems which could lead to litigation, whether by an individual or as a class action. No review can avoid every lawsuit. But the act of doing a thorough review with meaningful follow up shows the managers and employees the company means what it says and says what it means.

Regulation through litigation is inefficient and sloppy. Litigation is expensive, results are uncertain, bad publicity is likely and management is distracted from business. If a careful review of workplace practices and policies prevent one lawsuit, then the time and money has repaid itself four or five times over at a minimum. More importantly it is doing the right thing. We tell our counterparts, the plaintiffs' lawyers, the union organizers, the bureaucrats, that we can do more for the employees than can they for one simple reason - we have the best interests of the company at heart and the company is the employees. We mean it. Turn to the Board of Directors and ask - do you?


Overtime - Pay 'Em Now or Pay 'Em Later

The booming U.S. economy has created enormous wealth and the lowest unemployment in a generation, yet many workers are being shortchanged a share of the winnings where it counts most - in their paychecks. Employers, seeking more productivity and to lessen labor costs by controlling headcount, are underpaying for overtime by hundreds of millions of dollars annually. The incentives not to hire new employees are strong given the cost of benefits and the difficulty recruiting in the current labor market. The ramifications are becoming costly as employees from all types of industry are bringing successful class action law suits against their employers in an attempt to get their share of the winnings.

Whether it's the 35,000 cases the Labor Department handles annually or the thousands of cases handled by small claims courts and state agencies, or even federal courts, in most instances the key issue in these cases boils down to the 40-hour work week. The 40-hour standard work week has been in effect since the 1938 enactment of the Fair Labor Standards Act, which encouraged employers at the height of the Great Depression to hire from the unemployed rather than have to pay existing employees time and-a-half for every hour worked over 40. The problem is fairly straight forward. Overtime laws were enacted when there were no medical or retirement benefits and when employee empowerment was not even a glimmer in an executive's eye. The law simply has not kept pace with the changes in the economy.

Professionals, executives and certain administrative employees are exempt from this overtime provision. However, it is important to note that no matter what an employee's status, an employee's pay cannot fall below the federal minimum wage - currently $5.15 an hour. If an employee works enough hours to drive his or her hourly rate below $5.15, than a violation has occurred.

Employees from all types of industry and with varying backgrounds are among one million Americans who have been awarded back pay as a result of 165,000 cases in which the Labor Department found wage and hour violations in the past five years. The Labor Department assessed more than $85 million in civil penalties against employers. Even more, tens of thousands of employees have opted to claim back pay through the state and federal court systems.

One of the most publicized cases involving overtime violations was filed and recently settled against Shoney's restaurants. A class of 1,000 assistant mangers and mangers from Shoney's filed a class action lawsuit against the employer where the employees claimed that they worked as many as 100 hours a week washing dishes, cooking, and prepping without overtime in an effort to hold down labor costs.

This case and two other related lawsuits against Shoney's recently settled for an unprecedented $18 million. This agreement is similar to the $13 million settlement the Krystal hamburger chain of Chattanooga, TN. reached with 7,000 of its employees to settle a class action lawsuit where employees there claimed they had been denied overtime benefits.

Finally, while most violators of overtime violations were traditionally in industries where turnover is high, (fast-food restaurants, retail and grocery stores, hotels and motels, building maintenance and construction,) the financial services industry has recently entered the ranks. For instance, five current loan officers and assistant branch managers have filed a class action lawsuit against The Money Store and its owner, First Union Corp. The plaintiffs allege that their employer violated California state law by failing to pay required overtime wages to hundreds of finance employees who had worked 60 to 70 hours per week, but received a salary based on only 40 hours.

As the settlements mentioned above in the Shoney's and Krystal cases indicate, failure to pay overtime can expose a company to a substantial amount of liability. The Labor Department thinks so and has added an additional 30 investigators per state to investigate these types of violations.
 
The recent activity in this area should no doubt serve as a wake-up call to employers in all types of industries. As companies continue to look for ways to better position themselves in today's competitive marketplace and with employees becoming harder to find, the possibility that an employer may go astray of its federal and state wage and hour laws is real. Given this all too common scenario, employers need to closely examine their current wage and reporting structures to ensure compliance.


The INS - Your Newest Neighbor

In October 1999 the Immigration and Naturalization Service will open a new type of office at various locations in the Southeastern United States. We know of plans to open offices in Kentucky, Tennessee,

North Carolina, South Carolina, Arkansas and Georgia. These offices will be staffed with agents charged with enforcement only, with the specific charge to "block employer's access to illegal workers." Employers in any industry identified by INS as a good target need to prepare for increased enforcement activity.

No one really knows how many illegal immigrants are in the United States. Some reasoned estimates put the number at 5 million, some at 8 million. By definition there is no way to know. The reason for this mass immigration is much the same as it was when this country was founded. These good people are leaving their homelands for economic, religious and educational opportunities as well as political asylum. Without question, the main draw is economic opportunity.

Of course, this causes domestic tensions between employees and employers. Employees want labor supply to stay low to increase relative wage rates. Employers want to expand their supply to slow the rate of increase. Given the current labor force situation in this country, the tension is great.

Prior to the enactment of IRCA, enforcement of immigration laws amounted to simply rounding up and deporting illegal aliens. It was unlawful to be here, but it was not unlawful for an employer to seek out employees who were illegally in this country. This lead to widespread abuses and was widely considered to be a bit hypocritical because everyone knew what was going on and everyone looked away.

IRCA was an attempt to place enforcement responsibilities on the employers. The I-9 form was introduced and employers are required to verify the employment authorization of every person hired, not just immigrants, by examining documentation as specified in the regulation. Enforcement can be through random or lead driven inspections. Here is a summary of how the process works.

The INS routinely searches for entities they suspect are good candidates for hiring illegal aliens. Currently these are construction, food processing, agriculture, textiles and apparel, and hotels and restaurants. They choose companies from such industries more or less randomly to just "pop in" and inspect their records.

The most common type of inspections, however, are lead driven. When a disgruntled employee or an upset customer reports your business to the INS for possible violation of IRCA, they will target specific areas and really put your records "under the microscope".

Generally an employer should receive three days' notice prior to inspection. However, the inspection notice may not be in writing, but an INS agent may appear at the premises of the employer, inform the employer that it may take three days to produce the requested I-9 records and suggest immediate review "just to get it over with." We recommend against immediate agreement to an inspection of your records. Contact your attorney immediately and make them aware of the inspection date and time. Do not let the agent take original documentation from your location. Be sure to get the name, telephone number and business card of the lead INS agent and pass this information to counsel.

If, after the inspection, there are violations that are technical or procedure errors, the employer will have 10 days in which to correct these violations.

An internal audit of all I-9 documentation for all employees to ensure compliance with IRCA may be a good idea, especially for employers in the target industries, along with a review of I-9 policies and procedures. For more information, contact your usual CB&S attorney or contact, by phone or e-mail, Zan Blue or Craig Moore in the Nashville office.


Unions Unite and Expand

For years, the UAW, IAM and USWA have pledged to "unite the membership and resources of our three great unions into a new, two-million-member strong union by the year 2000." Such an integration, the unions announced in their 1995 "Unity Declaration," requires the creation of "a new union of a new era." As we near the year 2000, the impact of the Unity Declaration is just now being realized. The unions are finally drawing together as a national entity to organize workers and influence national and international politics.

Since 1995, the framework of the "new union of a new era" has continued to evolve and final plans for the integrated structure have not been revealed. The unions began joint organizing efforts as early as March 1996, announcing the formation of "Unification Organizing Comm-ittees" or "UOCs." In mid-1998, the unions boasted the UOCs had won elections for more than 1,500 workers in the target areas of Illinois and Missouri alone. In 1997, Advisory, Finance and Con- stitutional Committees were created to advise the UAW, IAM and USWA presidents on unification issues.

Despite the growth and expansion of the "unification," results of the joint effort had not been seen on a national scale until earlier this year. On February 21-24, 1999, more than 3,000 member- delegates of the UAW, IAM, and USWA met for the first-ever "Unification Legislative Con-ference" in Washington, DC. The event focused on issues such as strengthening social security and medicare, trade and economic issues and worker and human rights. The opening address was given by President Bill Clinton, who told the crowd, "I was proud to stop every piece of anti-labor legislation sent to me by Congress." The union delegates learned about "key" union issues and spent the final day of the conference lobbying for these "key issues" on Capitol Hill. The unions declared the conference "a mighty new political movement" and the "genesis of the re-awakening of America's workers."

There is evidence this renewed national attention for the labor unification efforts may expand to international efforts. In October 1997 and February 1998, the leaders of the three unification unions met with top representatives of the 2.9 million-member German metalworkers union, IG Metall. Closer to home, in early 1998, the UAW/IAM/ USWA announced "cross-border alliances" with Mexico unions "to help workers. . . protect and improve their living standards to avoid exploitation by the same multinational companies for whom they work." Such efforts show a concerted effort on the part of the unification unions to create allies outside of the United States' borders.

There is also some indication that union unification efforts will not end with the integration of the UAW, IAM and Steelworkers. Shortly after James P. Hoffa was sworn in as General President of the Teamsters in March 1999, Hoffa and UAW President Yokich made a surprising joint appearance in Detroit, promising an alliance between the two unions to rebuild the labor movement.  "They make the cars, and we deliver the cars. What could be better than that?" Hoffa said. "Have us working together. That's what we need. . . [Yokich] is one of us. When we need help, he'll be there." Both Yokich and Hoffa, who may be the first UAW and Teamsters' presidents to stand on the same stage together, promised each other support and teamwork to accomplish the unions' common goals.

What all this cooperation and affection between previously rival labor organizations will mean for employers remains unclear. The corporate reorganization of the union is sure to have consequences.

The movement of the UAW, IAM and USWA from 700,000 members each to a combined 2 million plus is sure to cause growth and expansion problems. Despite the unions' promise that the consolidation is not a corporate merger, the pains of progress and compromise will undoubtedly affect the unions' organizing endeavors. The irony of a massive multi-million corporate structure representing the interests of individual employees probably will not be lost on employees the structure seeks to organize.

On the other hand, a combined union which claims its unification forces are 3.5 million members strong cannot be taken lightly. If indeed the "dream" of a unified union can be reached, warring labor factions may no longer be an asset to employers attempting to defeat a union campaign. Instead, employers may find themselves face-to-face with labor organizations stronger and more resourceful than ever. This merger, if it finally comes off, may be the revitalizing force the unions have been searching for these many years.


Reason Prevails

Amidst much fanfare and gnashing of teeth among those representing the interests of disabled individuals, the U.S. Supreme Court has ruled that the determination of whether someone is substantially limited in a major life activity should be made by examining how they actually live -- taking into account any corrective measures which may have been adopted.