Layoffs Yield More Work For Employment Lawyers
May 20, 2009
Well before the National Bureau of Economic Research made it official late last year, concluding that the U.S. has been in a recession since December 2007, labor and employment lawyer David L. Lee was making his own declarations about the state of the economy.
”I was going around, in late 2007, saying the economy is tanked and we just don’t know it yet,” he said.
For Lee — who represents employees in claims of discrimination, harassment, retaliation, and wrongful discharge, and in disputes over pay and employee benefits — the early indicator of a nation in an economic downturn came in the form of an upswing in the number of potential clients turning up at his Chicago office.
”The people who call my office are like the canaries in the coal mine — bad stuff happens to them first,” Lee said. ”In about late 2007 the intakes I had just totally and dramatically shifted. All of a sudden people who, as far as I could tell, were really good employees were being fired for weird, suspicious reasons much, much more than had been true for many years.”
While plenty of practice areas are taking a hit from the worst economic downturn in decades, business is up for many lawyers whose practices focus on labor and employment law — an area where the legal work on both sides is shedding light on the depths of the current recession.
”Right now it is, absolutely, a volatile area,” said Joseph A. Gagliardo, managing partner of the Chicago management-side labor and employment firm of Laner Muchin Dombrow Becker Levin and Tominberg. ”When times are bad, and there are reductions in force and increased claims, we get busier.”
Weighing in on layoffs
On the employer side, much of the rise in business for Gagliardo and other lawyers who represent management has been coming from cash-strapped corporate clients seeking advice on how to reduce their workforces without leaving the door open to litigation.
”The ball really started rolling toward the middle of the last quarter of last year, and it has steadily increased,” Gagliardo said. ”We get calls just about every day [from clients] seeking advice about layoffs.”
Most of those calls are coming at the front end of company discussions about the layoff process, he added.
”It’s really a far more complicated process,” Gagliardo said. ”There has to be a review of policies, operational needs and goals, and their criteria for layoffs. Then, the impact of those criteria and then, deciding whether those criteria make sense.”
The counseling work of management-side lawyers typically starts with an early analysis of the reasons for the anticipated layoffs.
”Is it because they’re actually cash-strapped and need to reduce to save funds? Is it that they need to streamline their operations in order to not only save money, but to operate?” Gagliardo said. ”One of the first questions is: Why do you really need to lay people off?”
As part of the process, lawyers may advise companies on alternatives to staff reductions as a way to cut expenses.
”First, you talk to the employer and listen to what the economic conditions are. Maybe you can make alternative suggestions like, everybody cutting back on their hours. Maybe you can make a suggestion to change some employee benefits offered, but everybody keeps their jobs,” said Thomas Y. Mandler, a partner at Hinshaw & Culbertson who has focused his practice on advising management on labor and employment law matters for more than 35 years.
When an employer is set on proceeding with layoffs or terminations, Gagliardo said, management-side lawyers weigh in with an analysis of the makeup of a company’s existing workforce compared to how the workforce would look after layoffs — keeping an eye out for the possibility of a ”disparate impact” of the layoffs on a protected group, such as people of a common age, gender, or race.
”Where companies have gotten into trouble is where the selection criteria is subjective and vague,” Gagliardo said.
He pointed out the many legal requirements businesses need to wade through as part of the layoff process.
The types of lawsuits that can arise in connection with reductions in force are typically based on claims that employees were selected because of their race, color, religion, sex, or national origin, in violation of Title VII of the Civil Rights Act; disability, in violation of the Americans with Disabilities Act; or age, in violation of the Age Discrimination in Employment Act.
Litigation can also surface when an employer relies on absenteeism that was authorized by the Family Medical Leave Act; fails to promptly pay final compensation in accordance with wage and hour laws; or fails to comply with the requirements of the Worker Adjustment and Retraining Notification (WARN) Act.
Under the WARN Act, employers are required to provide written notice at least 60 days in advance of covered plant closings and mass layoffs. The idea is to allow workers time to seek alternative jobs or to enter skills training programs.
‘Unprecedented economic situation’
For some lawyers, the greater volume of counseling work related to layoffs nowadays is coupled with a demand for a quick turnaround.
”It can be as little as 24 hours — maybe even less. It’ll come out of a major business meeting, that we need to act quickly. They know they need legal advice before they just start cutting people,” said David J. Rowland, managing partner of the Chicago office of Seyfarth Shaw, where his management-side labor and employment practice focuses on litigation and workplace counseling.
”We literally have task forces of people who are ready to go, and are expert in this area, so we can get on top of it.
”In this economy, the difference has been, a lot of them are coming to us late only because the employers are having to make difficult and quick decisions about staffing. They’re saying: ‘Look — I’ve got to cut staff or I’m not going to be in business tomorrow.”’
Although he could not provide figures, Rowland speculated that the firm’s labor and employment practice is setting workload records in the area of counseling on reductions in force and workplace restructuring, as the economic meltdown drives the nation’s unemployment rate to escalating levels.
”It’s an unprecedented economic situation, so we have more clients than we normally would who are seeking advice,” Rowland said.
In February, the nationwide unemployment rate rose to 8.1 percent, the worst rate in a quarter century. In March, the nation’s jobless rate increased to 8.5 percent.
In Illinois, the unemployment rate by March had climbed from 8.6 percent to 9.1 percent, the highest level since November 1985.
While the economic crisis has impacted the legal profession, with law firms resorting to layoffs of their own, the Chicago office of Littler Mendelson, a management-side firm, hired three lawyers in a matter of three weeks in late February and into March, said Fred Schwartz, the office’s managing shareholder.
”Nobody wants to see our clients suffer, and we certainly will welcome the day when our clients are feeling better economically,” Schwartz said. ”But, in the meantime, we’re busy handling pretty much soup-to-nuts employment issues: layoffs, furloughs, reductions in force, reduced work hours, reduced pay, reduced benefits — all the bad stuff.”
Hiring has also been on the rise at The Law offices of David L. Lee, where the volume of calls from terminated employees or those in fear of losing their jobs has nearly doubled since fall 2007, Lee said.
Rising work-related claims
Management-side lawyers are gearing up for a potential shift in the work that has been taking up much of their time in the last several months — from advising clients on layoffs to managing litigation.
They pointed out the likelihood of a continued rise in workplace discrimination claims filed with the Equal Employment Opportunity Commission, and a high potential for more litigation on the horizon.
According to a report released recently by the EEOC, workplace discrimination charge filings with the federal agency soared to an unprecedented level of 95,402 during its 2008 fiscal year, which ended September 30. The number of charges filed, which includes multiple claims asserted, reflects a 15 percent increase over 2007.
”Those charges — some, not all of them — turn into federal lawsuits. That’s the breeding ground for increased litigation,” Littler’s Schwartz said.
All major categories of charge filings in the private sector increased in 2008, according to EEOC data, with charges based on age and retaliation seeing the largest annual increases, and allegations based on race, sex, and retaliation continuing as the most frequently filed charges.
The EEOC received 32,690 retaliation claims in 2008, an increase of nearly 23 percent over 2007. Claims of age discrimination rose by nearly 29 percent, to 24,582.
”What that [data on age discrimination claims] tells me is that, as the workforce is being reduced there’s probably an effort to cut people who make higher earnings, and those tend to be people who are older,” Gagliardo said. ”As a result, you can see that there’s been a significant spike in age discrimination claims.”
Gagliardo, a management-side lawyer for more than 30 years, echoed the sentiment that bad economic conditions typically become a recipe for increases in employment-related claims and, eventually, litigation.
”When the economy is good, even when people are losing their jobs, if they’re able to quickly get another job, oftentimes those people will not file employment-related claims,” Gagliardo said. ”But when the economy is rough and people can’t get jobs, that normally results in them filing claims.”
That’s the usual trend, Gagliardo said, when terminations or layoffs do not come with severance package offers, another area where management-side lawyers can play a critical role.
”There’s a lot of pressure on an individual employee in this economy if a severance package is being offered to simply take it. It’s something to feed the family with,” Rowland said. ”In some sense, the work on the release [of legal claims in exchange for severance pay] is the most important thing, because many employees will take it, and if you’ve done it well you’re not going to have litigation. That’s going to, maybe, temper some of the litigation.”
Lawyers who represent employees said more of their work today deals with those severance offers.
”We’re doing a lot more severance negotiations than I’ve done in the past,” said Eugene K. Hollander, a Chicago plaintiff lawyer who focuses on employment-related cases. ”Five to 10 years ago if an employee was terminated, unless they were a member of management, it wouldn’t be that common.”
In a severance negotiation, ”if I think they have a good-faith basis for a claim, I’ll initiate contact with the employer to try to negotiate a better package,” said Hollander, of The Law Offices of Eugene K. Hollander.
Sometimes, Hollander conceded, ”the best option is to take what you can in this economy and go with it. If they litigate, the offer is off the table.
”The client’s got to weigh the options,” he said. ”Clients are always concerned about risking what’s on the table, for the uncertainty of litigation.”
Litigation landscape
While plaintiff employment lawyers in Chicago are seeing an uptick in the number of people coming to them to explore the possibility of a claim against an employer, many of them said they are proceeding with caution when it comes to litigation stemming from reductions in force.
”Even though our intakes are up and we’re talking to more people, we’re taking fewer cases. We’re being much, much more careful about the cases we accept because of the employers’ viability and ability to pay,” said plaintiff employment lawyer Douglas Werman of Werman Law Office. ”We’re apprehensive to put in a huge amount of out-of-pocket expenses if the company doesn’t have a realistic ability to pay a judgment.”
Hollander said he, too, has become ”far choosier” about litigation related to layoffs.
”Most of the time there is no insurance coverage for these claims — most employers don’t have those policies,” Hollander said. ”What makes employment litigation difficult, in part, is that when you sue an employer they’re paying out of their coffers to defend it, and to settle — if they decide to settle.
”There are some employers that have asserted the best defense of all — they’ve gone out of business.”
The current economic climate is making for a more challenging environment for plaintiff employment lawyers, Werman said, especially when the legal work relates to individual employee terminations.
”It’s hard to claim that an employee was selected for termination because of their age, when 50, or 75, or 100 of their employees are laid off at the same time,” Werman said. ”It does not mean it’s not happening, it’s just easier for an employer to mask improper motives when it’s part of a larger reduction in force.”
But lawyers like Werman said they are anticipating a change in that litigation landscape.
”I actually believe there are a tremendous number of opportunities being created, because I feel like we’re identifying a lot of employers who have suspect employment practices,” Werman said. ”Although the market might not bear litigation against them now, it will a year or two years from now. We’re kind of going slow on them because we’re waiting to see how the market is going to change.”
One type of employment-related litigation that is seeing a continued surge is class and collective actions based on disputes over unpaid overtime wages, lawyers from both sides said.
”It’s in vogue,” Seyfarth Shaw’s Rowland said. ”When the economy contracts, people are looking for a way to save themselves in one shape or form.”
Hollander sees overtime wage claims, which can be brought in circuit court under the Illinois Minimum Wage Law, or in federal court under the Fair Labor Standards Act, as a ”very, very powerful remedy for plaintiffs and plaintiff attorneys to litigate.”
”It’s just a hotbed of litigation. We see everything from small employers to very large employers being hit on this,” Hollander said. ”There’s a lot of that litigation going on.”
Here’s how Hollander summed up the difference between litigating a discrimination case and an overtime wage claim: ”Typically, in a discrimination case you have to show a motive and intent that the employer intended to discriminate against someone because they were in a protected class,” he said. ”In a wage and hour case, all you have to show is that the employee was entitled to the overtime, was not exempt, and didn’t get paid. Even if the employer acted in good faith, that’s irrelevant to liability. If the employee is not exempt and if the employer is covered, they have to pay.”
Werman, who estimated that about 95 percent of his practice in recent years involves the representation of employees in wage and hour cases, said he sees another potential growth area in employment-related litigation coming in the form of filings under the Employee Retirement Income Security Act — ”cases related to the improper termination or reduction of employee benefits, such as health insurance, pension, or profit sharing.”
Along with more employees becoming adversely affected in their jobs as a result of the economic climate, a new Democratic administration and Congress that profess an interest in pro-employee legislation and regulation is creating a ”perfect storm” of activity for management-side lawyers, Rowland said.
He pointed out that the first bill President Barack Obama signed into law was the Ledbetter Fair Pay Act, which extended the time limits for filing pay discrimination claims.
”That is pushing more business to labor and employment lawyers,” Rowland said.
And, management-side lawyers have kept busy preparing clients for the potential passage of the Employee Free Choice Act, which, they say, could result in fundamental changes to the rules in labor-management relations. The proposed legislation was introduced in March in the U.S. Senate.
Unhappy clients
Judging from their workloads, longtime labor and employment lawyers on both sides can speak from experience about how the current recession compares to others.
”So far, the pattern is typical of recessions, but it’s much more intense. Based on my business, this is a much worse recession,” said Lee, who has been through several economic downturns in his 25 years of representing employees. ”I’m not an economist, but if I were the Department of Labor, I would do a survey of labor and employment lawyers as part of their economic forecast.”
Along with more employment-related claims, more severance agreements, and more people exploring whether they have claims against their employers, Hollander is seeing a greater impact on people in senior management positions.
”It used to be lower wage people and middle managers being terminated,” Hollander said. ”Now, I’m seeing it all across the board — from presidents of companies to everyone down the chain.”
As the slumping economy keeps the work flowing for labor and employment lawyers, ”we’re busy, but it’s not a great thing,” Rowland conceded. ”Our clients are hurting. Having clients suffer in the economy is never a good thing for us, either. I’d rather be helping them with hiring than with laying people off.”
James C. Franczek, Jr., a management-side lawyer, and founding partner and president of Franczek Radelet & Rose, put it this way: ”The calls are of such a depressing nature that you don’t want to take joy out of such a dismal situation. But, certainly for employment lawyers, when you have an economy such as this, the work that is generated is going to be definitely more than if you’re an M & A lawyer.”
”It does generate work for labor and employment lawyers. But, by the same token, law firms are still subjected to the same economic constraints as other businesses,” said Franczek, who has worked through numerous recessions in his nearly 40 years in practice. ”Our clients, if they’re going out of business, that’s not a good thing for a law firm.”
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