Research Trends and Conclusions: Management Labour & Employment 2008
Richard Woolley -
Richard Woolley takes a closer look at the current issues facing management labour & employment lawyers.
In November 2008 the International Labour Organization (ILO) met in Geneva to assess the impact of the credit crisis on employment. The global statistics are compelling. Official figures placed UK unemployment at 5.7 per cent in September 2008: its highest level since the early 1990s. Meanwhile, overall EU unemployment rose to 7.5 per cent, with Spain and Slovakia recording the highest regional percentage figures, at 11.9 per cent and 10 per cent, respectively. The US unemployment rate rose to a 14-year high of 6.5 per cent in October, when the number of job losses for 2008 exceeded 1.2 million.
The credit crunch has made restructurings and mass lay-offs inevitable. While the banks (most famously Lehman Brothers and Bear Stearns) sustained the worst initial casualties, other industries have more recently faced major culls. In October 2008 Ebay announced a 10 per cent reduction of its workforce, when its shares were trading at an almost six-year low. BT's cut of an estimated 10,000 jobs after poor second quarter earnings also made the headlines. Meanwhile, there were lay-offs at Volvo in Europe and the US, and a halt in US domestic services and 9,500 job cuts at DHL. November brought worse news, most notably at Citigroup, and with almost every sector experiencing difficulties, redundancies will continue to rise. Even law firms are being downsized. The contraction in the global workforce is being mirrored in law firms around the world, many of whom are also acting to trim their numbers.
Conversely, this downturn is increasing the workload for labour and employment practitioners. Whether in and advisory or defence capacity, employment lawyers are witnessing an uptick in their workload as companies seek to prevent, or at least limit the cost of, litigation stemming from downsizing. "Because discrimination settlements in the UK are uncapped," says Paul Callaghan of Taylor Wessing LLP in London "there has been a significant rise in discrimination claims against former employers." Tough EU directives, coupled with the UK Equality Bill, aiming to prevent workplace discrimination on the grounds or race, age, gender, sexual orientation and religion have upped demand among employers for the drafting of comprehensive dismissal programmes, which won't leave the company open to discrimination claims as the downturn forces it to shed staff.
"The perception among clients of how much legal advice is necessary in unemployment cases has become more sophisticated since the credit crunch began" says Dorothy Henderson of Travers Smith. As group redundancies increase, risk-management becomes more complex, and, Henderson argues, outside counsel must take a more active role in client training. "Tribunals criticise employers when their managers haven't handled matters properly," she says, and such mistakes can be costly: the Daily Telegraph reported employment tribunal payouts topped £32 million in unfair dismissal claims in the 2006-2007 period alone.
Similar trends are visible in the US according to Paul Grossman of Paul Hastings Janofsky & Walker LLP in Los Angeles. "We are seeing a lot of class actions, and a lot of demand for drafting voluntary severance programmes followed by involuntary lay-offs." In a financial crisis, when bankruptcy induces sudden mass redundancies, such programmes can be difficult to arrive at.
Legislative changes, such as the possible removal of caps on discrimination verdicts and tougher laws on discrimination against parties on the grounds of sexual orientation, may leave more employers open to such claims if the proper protocols aren't adequately met. "We have a very interesting year ahead," Grossman continues, "with a lot more litigation."
As stocks continue to depreciate, this too is fuelling litigation in the US. Allen Fagin of Proskauer Rose LLP in New York highlights the increase in employee stock-drop cases going to court under the Employee Relations Income Security Act (ERISA). Here employees who invest in employer stock with their pension plan assets suffer losses when when the company's value slides, and bring suits against their employers or their plan fiduciaries for breach of fiduciary duty when there is a shortfall. This happened with the numerous accusations of stock fraud during the Enron scandal, and could expose many companies to similar accusations in the current climate.
Grossman also predicts a rise in wage-and-hour class actions in the US in 2009. Under the Fair Labour Standards Act (FLSA), employees can demand compensation if they have not been paid overtime for hours worked in excess of 40 per week or if they have not been provided with adequate rest breaks. The awards can be high, number of boutiques in the US focusing exclusively on wage-and-hour work is increasing. In summer 2008, for example, a judgment of $6.5 million was awarded against Wal-Mart in a wage-and-hour class action for failing to provide rest breaks for employees, a ruling that came close on the heels of decisions awarding $172 million and $78 million against the company after similar cases in 2005 and 2006.
It is, however, President-elect Obama's widely publicised backing of the Employee Free Choice Act (EFCA) that is considered by many to be the most pressing issue facing US labour and employment law in 2009. Stewart Manela of Arent Fox LLP in Washington, DC, explains that, if enacted, the EFCA would be "the most significant change in US labour law since the 1950s", though, according to Grossman, "if passed in its present form there will be serious constitutional issues." The act makes it easier for employees to establish unions while imposing penalties on companies seen to be wilfully obstructing the formation of labour organisations. However in "streamlining union certification" as the 2007 text of the act phrases it, and dispensing with a secret ballot in favour of public authorisation cards among employees, some see potential for coercion within workforces in order to attain a pro-union majority. Gary Siniscalco and Michael Delikat of Orrick Herrington & Sutcliffe LLP report in more detail in the following article.
For lawyers representing multinationals, the challenges generated by the credit crunch become harder to manage. London-based Peter Talibart of Norton Rose (in an article co-authored with associate Emma Sinclair) illustrates the pressure clients, employees and investors put on international companies to implement global employment policies. "Of primary importance among these standards are the core labour standards of the ILO," they say, but they add that there are often notable differences in regulation and emphasis from one country to another. Disciplinary and grievance procedures, for example, differ in the UK, which is a heavily regulated environment, from the US, where disciplinary terminations can occur without notice. Erika Collins of Paul Hastings in New York notes similar regional discrepancies in age discrimination law: the Chinese Law on Protection for the Aged does not directly prohibit employment discrimination, similarly in India there are few restrictions on age discrimination in governmental and public sector employment, and none in the private sector. As such "companies are recentralising their legal and HR functions" to ensure the coordination of employment policies between jurisdictions.
In the 2007 case of Duarte v Black & Decker, the UK High Court declared that the Black & Decker's restrictive covenants (governed by Maryland state law) were not enforceable in the UK, despite the claimant employee operating in England. The covenants, drafted to last for two years post-termination, did not feature in a UK employment contract but rather the company's US senior management bonus plan, and as such contravened, and were overturned by, the existence in English law of a 12 month cap on the period of restraint for employees. As part of this ruling the judge cited article 16 of the Rome Convention, which requires the consideration of local policy in corporate decision-making, as Christopher Walter of Paul Hastings in London says in a recent Law.com article "as soon as the dispute is located in the local court, employers will know that local legal standards will be applied when determining the dispute."
For employment lawyers (like many of the nominees in this edition) who are counselling multinationals through the credit crunch, an increased awareness of the differences in employment regulations from one jurisdiction to another is becoming central to effective risk management. Even so the overwhelming sentiment among the lawyers we consulted was that significant lay-offs and resultant lawsuits will continue well into 2009, and companies caught in this trade-off between profit protection and liability are looking to employment lawyers to provide a much-needed safety net.