Employment and Labor Relations Lawyer & Attorney : Porter Wright's Employer Law Report : Employment Litigation, Non-Compete, Trade Secrets

Unfortunately, my law partner Mike Underwood was correct when he predicted in his February 1, 2008 post  “Building a Model for a Defensible Reduction-in-Force,” that economic challenges in the current economy may result in more reductions in force. The Federal Bureau of Labor Statistics report for May showed 67 dismissals of groups of 50 or more employees in Ohio. This figure was nearly double the amount of such terminations in May ’07, when the Bureau reported 34 dismissals of 50 or more. Overall, Ohio unemployment claims have more than doubled to 7,621 from 3,350 a year ago, earning Ohio the dubious ranking of having among the top 10 highest volumes of claims in the United States.

Mike’s February post described some key steps to keep in mind when faced with downsizing decisions. Here are few more:

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It may seem odd to include a statement in an employment application or offer that limits the time that an employee has to file legal claims that may arise later in the employment relationship. Recent case law, however, suggests that it is something that all employers should consider and decide if it is appropriate for their business and their employees.

In the last three years, a line of case law has developed in Ohio and the Sixth Circuit that allows employers to limit the time period by which employees must bring claims arising from their employment. The cases all involved employers that included in their employment applications a provision stating that, by signing the application and subsequently accepting employment, the employee agreed to bring all claims arising out of the employment relationship within a certain period of time—a time period that is shorter than statutory limits. Some of the applications stated that any claims had to be filed within a period of time as short as six months.

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Economic challenges in the current economy may result in business strategies that include reductions-in-force. It is very common after a reduction-in-force for legal claims to be pursued by terminated employees, sometimes as multiple-plaintiff lawsuits. Possible claims include allegations that the reason for selection of a person to be terminated was illegal (i.e., age, race, sex, medical condition, use of FMLA, whistleblower, etc.). A successful defense requires showing not just that there were legitimate reasons to reduce the workforce but also the specific legitimate reason that the complaining employee was selected for termination. Not having a carefully planned and documented approach to the decision-making can result in time-consuming and expensive litigation. Also, a well-planned and documented approach to the reduction-in-force will promote reasoned, careful, and sound business decisions, which support the Company’s overall objective for reducing costs and improving efficiency.

Here is a brief outline of steps that should be included in any plan for implementation of a reduction-in-force:

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If your business model includes extensive use of independent contractors, you’re going to want to pay attention to the Ninth Circuit's decision in NLRB v. Friendly Cab Company, Inc., Case No. No. 05-73813 (9^th Cir., January 8, 2008). In the latest attack on the independent-contractor business model, the Ninth Circuit upheld an NLRB finding that the taxi drivers who leased cabs from Friendly Cab were not independent contractors but, in fact, were employees. The NLRB reached this conclusion despite the fact that, after making lease payments, the drivers kept all of their fares. Ordinarily, this factor – that the risk of profit or loss falls on the worker -- creates a "strong inference" of independent contractor status because the purported employer would have no incentive to control the means and manner of the drivers' performance. Nevertheless, the court deferred to the NLRB's conclusion that this inference was rebutted by other evidence that Friendly Cab, in fact, exerted significant control over the drivers and, as a result, found that Friendly Cab was obligated to meet and bargain with the drivers’ union.

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 From FedEx Corporation’s most recent 10Q filing comes the following:

“On December 20, 2007, the Internal Revenue Service (“IRS”) informed us that its audit team had concluded an audit for the 2002 calendar year regarding the classification of owner-operators at FedEx Ground. The IRS has tentatively concluded, subject to further discussion with us, that FedEx Ground’s pick-up-and-delivery owner-operators should be reclassified as employees for federal employment tax purposes. The IRS has indicated that it anticipates assessing tax and penalties of $319 million plus interest for 2002. Similar issues are under audit by the IRS for calendar years 2004 through 2006. We believe that we have strong defenses to the IRS’s tentative assessment and will vigorously defend our position, as we continue to believe that FedEx Ground’s owner-operators are independent contractors. Given the preliminary status of this matter, we cannot yet determine the amount or a reasonable range of potential loss. However, we do not believe that any loss is probable.”

With the IRS on its back and multiple class actions to defend, FedEx’s experience demonstrates the need for companies to consider very carefully their independent contractor arrangements to ensure that workers are properly classified. Given the IRS’s recent emphasis on this area, we suspect this is just the tip of a very large iceberg.

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