In these tough economic times, it’s no surprise that small and mid-size businesses are focusing on their biggest line item cost — employees. Mass layoffs have been running at high levels. So are initial claims for unemployment benefits. In Pima County, the unemployment rate in October was up to 5.8 percent. The Arizona Department of Commmerce is due to issue the November report on Thursday (Dec. 18) and most are expecting the rate to go even higher.

Diligent enforcement of established human resources policies and procedures can offer businesses the best protection against disruptive personnel matters and expensive administrative claims and lawsuits. 

Business owners who believe they can escape claims and lawsuits because of the goodwill equity they have built with their employees are mistaken. EEOC charges of discrimination are at their highest levels in the last five years. Class action Fair Labor Standards Act lawsuits, claiming unpaid overtime or minimum wages, are one of the most common lawsuits filed in federal courts.

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A confluence of factors is causing a boom in employment related lawsuits. Movement within the workforce is limited and former employees who could have found new jobs quickly can’t move on. Current employees are being asked to work  harder, and in some cases with less pay, while their bills go up. These situations are bad for employers because these individuals are more likely to pursue employment related claims. 

Moreover, retaliation charges, where an employee alleges they were harmed because they complained of harassment or discrimination, are at record levels and have doubled since 1992. The U.S. Supreme Court has recently expanded employees’ ability to bring retaliation claims.

Employers looking at reductions in force (RIF) to weather the economic storm should be wary that layoffs have potential legal traps. The 9th Circuit Court of Appeals,  which includes Arizona, recently held that substantial economic evidence of a need for a RIF is not enough to prevent a former employee’s discrimination claim from going forward. Adequate preparation for a RIF will minimize the risk of litigation and should include the following steps:

• Develop a plan that establishes overall staffing needs, identifies where layoffs will occur and outlines criteria for selecting employees. Then, test whether the criteria utilized disproportionately impacts a protected group.

• Document the specific reasons for each particular layoff.

• Consider who will communicate the RIF and draft a script.

• Consider providing severance in exchange for a written release of claims.

• Consider ways to assist former employees in finding new jobs so they can move on and be less likely to pursue claims against the company. 

Employers should also consider turning a critical eye on their employment policies, procedures and practices.  A self-audit should be conducted by a broad base of managers, HR professionals, line employees and an attorney.   Including an attorney in this process provides the company the ability to keep the findings confidential and out of the courthouse should a dispute arise in the future.  A self-audit should include the following, among other factors:

• Legal compliance of the company’s policies, procedures and practices.

• Testing whether the company handled actual events according to its policies, procedures and practices.

• Confirming the company and managers are properly documenting the employment process and employee problems; and

• Gathering information, through interviews, about potential problems that are brewing and the company’s handling of issues.

Employee disputes and lawsuits can quickly torpedo a company.  Employers need to be proactive in dealing with employee problems and problem employees. Don’t wait for the employee to quit, for someone else to act or for a lawsuit to be filed. Creating a plan that includes a self-audit of employment policies and procedures and addresses RIFs, independent contractors and intellectual property will help employers weather this storm. 

Contact Barney Holtzman, an attorney in the Tucson office of Fennemore Craig, at  bholtzman@fclaw.com. Holtzman practices in the areas of labor and employment law, financial services, professional liability and commercial litigation.