Hotel Bel-Air Gets Labor Gocha When Offering Severance
A National Labor Relations Board (NLRB) decision that nails Hotel Bel-Air (Hotel) for offering severance packages to unionized workers highlights one of a range of potentially costly missteps that businesses conducting reductions in force or other re-engineering risk if they fail to properly understand and manage legal requirements when designing and implementing the change.
Since labor and other workforce- related risks are long standing, some businesses, their leaders and consultants may be tempted to assume that prior experience means these are handled. The fact specific nature of the risks and changing rules and enforcement, however, makes it it critical not to be over-confident. Legal and operational mismanagement of these risks can disrupt achievement of the purpose of the change and add significant added expense and exposure for the business and its management. Proper use of qualified legal counsel as part of the process is important both to help identify and properly manage risk and to leverage attorney-client privilege to help shield sensitive communications in the planning and implementation of these activities from discovery.
Employer’s Obligations To Negotiate & Deal With Union
While labor-management exposures always have merited careful management, the Obama Administration’s ongoing efforts to strengthen and support labor through its appointments, regulations and other activism, labor-management exposures make it particularly important that business not overlook these risks. See e.g. Labor Risks Rising For Employers Despite NLRB Loss Of Arizona Secret Ballot Challenge : HR Article by Ms. Cynthia Marcotte Stamer . This means that businesses dealing with union organized workforces must exercise extra care to understand and manage their collective bargaining and other labor responsibilities when implementing severance or other workforce changes.
Once a union is recognized as the certified representative of employees in a workplace, the National Labor Relations Act (NLRA) generally prohibits the employer from unilaterally changing term and conditions of employment or from going around the union to bargain directly with employees over layoffs, the effects of layoffs and other material terms and conditions of employment. As part of this responsibility, the NLRA and other federal and state laws generally require that employers provide notification to the union of planned reductions in force, plant closings or other operational changes that might impact the workforce and bargain in good faith with the union before conducting layoffs, or offering or making in work rules, compensation, severance or other benefits or other terms or conditions of employment.
In general, an employer’s duty to bargain with a union generally also continues to apply when the collective bargaining agreement between the union and the employer expires unless and until the parties reach agreement or impasse. While negotiations continue, the employer’s obligation to refrain from making unilateral changes generally encompasses a duty to refrain from implementation unless and until an overall impasse has been reached on bargaining for the agreement as a whole. See Pleasantview Nursing Home, 335 NLRB 96 (2001) citing Bottom Line Enterprises, 302 NLRB 373 (1991). The NLRB considers negotiations to be in progress, and will not find a genuine impasse to exist, until the parties are warranted in assuming that further bargaining would be “futile” or that there is “no realistic possibility that continuation of discussion . . . would be fruitful.” Saint-Gobain Abrasives, Inc., 343 NLRB 542 556 (2004).
Because the existence of impasse is a factual determination that depends on a variety of factors, including the contemporaneous understanding of the parties as to the state of negotiations, the good faith of the parties, the importance of the disputed issues, the parties’ bargaining history, and the length of their negotiations, Taft Broadcasting Co., 163 NLRB 475, 478 (1967), parties to the negotiation often do not necessarily agree when they have reached impasse. As the September 28 decision by the NLRB against the Hotel shows, employers that act unilaterally based on an overly optimistic determination of impasse suffer significant financial and other operational and legal risks for engaging in unfair labor practices in violation of Section 8 of the NLRA.
NLRB Nails Hotel Bel-Air For Failing To Bargain, Offering Severance Around Union
In its September 28, 2012 Bel-Air Hotel Decision, the NLRB ruled the Hotel engaged in unfair labor practices in violation of the NLRA when it offered severance packages to laid off workers in return for the workers’ waiver of recall rights without bargaining to impasse with the union representing its workers, UNITE HERE Local 11 (Union), about the effects of the temporary shutdown.
The NLRB also ruled the Hotel engaged in unlawful direct dealing by contacting the employees about severance packages without going through the Union even though the Hotel’s contract with the union had expired when the Hotel contacted the laid off union employees to make the severance offers. As a result, the NLRB ordered the Hotel to rescind the waiver and release forms signed by the Union members and to meet and bargain with the Union on these terms.
The NLRB order against the Hotel resulted from unfair labor practice charges that the Union filed against the Hotel after the Hotel offered severance packages directly to workers in exchange for the workers’ waiver of their recall rights while the workers were laid off during the Hotel’s temporary closure for renovations in 2009. The NLRB ruled that the Hotel had a duty to continue to bargain even after laying off all of the covered workers while the Hotel shut down after 9 months of negotiations between the Union and Hotel failed to produce an agreement about layoff, severance and other layoff terms. Although the Hotel had made a final last offer and negotiations had ended, the Union claimed and the NLRB agreed the Hotel remained obligated to negotiate with the Union and prohibited the Hotel from acting unilaterally.
The NLRB ordered the Hotel to rescind the waivers obtained from workers under the severance package and bargain with the Union over layoff terms even though by the time the order was issued, renovations were complete and the Hotel back in operation. See more details at NLRB’s Nailing of Bel Air Hotel Reminder RIFs, Other Reengineering & Transactions Impacting Workforce Requirement Proper Risk Management. This means that the Hotel will have to work through issues about how to find positions for employees, if any, who originally agreed to waive their rehire rights who now wish to be rehired, as well as engage in expensive bargaining and the implementation of the terms of any resulting collective bargaining agreement.
Union Duties One of Many Potential HR RIF & Deal Traps
Collective bargaining responsibilities like those that resulted in the NLRB order against the Hotel are only one of many potential labor, human resources and benefits-related traps that businesses need to negotiate carefully when planning and executing layoffs or other workforce restructurings in connection with cost or other restructurings, business transactions or other activities impacting the workforce.
Beyond the labor-management relations responsibilities, in structuring and offering severance or implementing other reductions in force, the offering of severance also generally requires businesses properly design and document severance programs and their associated releases. In most instances, the Department of Labor views the offering of severance to a group of employees as an employee benefit plan subject to the plan document, summary plan description, fiduciary responsibility, claims and appeals, and certain other requirements of the Employee Retirement Income Security Act (ERISA). When a business also hopes to secure enforceable waivers of age-related claims, the Older Worker Benefits Protection Act (OWBPA) also requires that the releases be properly drafted and administered to meet each of a series of highly specific technical requirements.
The challenges of proper management of layoffs or other workforce changes also generally extend beyond the technical requirements for presenting and administering severance programs and associated releases. Some examples of other issues and risks that businesses involved in changes impacting their workforce also may need to manage include but are not limited to the need to manage discrimination, federal and state leave, whistleblower and retaliation, and other general employment-related legal risks and responsibilities; to give Worker Adjustment and Retraining Act (WARN) or state law required plant closing or other notifications to workers, unions, government officials, vendors, customers, lenders or other creditors, insurers or others; to disclose, review, modify or terminate contracts, employee benefit plan documents, communications and other materials; to modify fiduciary, officer, board or other assignments and other related insurance, indemnification, bonding and related arrangements; to comply with employee benefit and compensation related plan document, fiduciary responsibility, discrimination, communication, benefit funding or distribution, reporting and disclosure and other ERISA, Internal Revenue Code, securities and other laws and regulations; privacy, trade secret, and other data integration, confidentiality, and information security and management concerns; Sarbanes-Oxley and other securities, accounting or related requirements; system and data integration; and many others.
Businesses and business leaders that improperly manage these or other responsibilities when conducting layoffs, offering severance or planning or implementing other changes impacting the workforce risk significant liability. Not only can this mismanagement undermine the businesses’ ability to realize the financial and operational goals behind the action, it also typically exposes the business and in many instances, its management, to potentially costly liability. Consequently businesses and business leaders anticipating or conducting reductions in the force or other activities that will impact their workforce should seek advice and help from qualified legal counsel experienced with these concerns early to mitigate these exposures.
Because improper handling of these or other responsibilities when conducting reengineering, reductions in force or other activities impacting the workforce often can undermine the businesses’ ability to realize the financial and operational goals behind the action, as well as expose the business to potentially costly liability, businesses anticipating or conducting reductions in the force or other activities that will impact their workforce should seek advice and help from qualified legal counsel experienced with these concerns early to mitigate these concerns.
For purposes of managing this risk, businesses and their leaders should not overlook the importance of the proper involvement of legal counsel. While management and its consulting team often have valuable experience on workforce and labor management relations concerns, participation by qualified legal counsel experienced in the full range of workfoce, labor, compensation and benefits concerns also is important. First, the fact specific nature of the risks and changing rules and enforcement means that prior experience may not fit current plans or risks. Improperly assuming that waivers borrowed from prior arrangements can undermine or even void their enforceability, for instance. Furthermore, proper use of qualified legal counsel as part of the process is important because appropriate use of attorney-client privilege can shield sensitve communications in the planning and implementation of these activities from discovery. Except for communications appropriately conducted in furtherance of the representation provided by engaged legal counsel, the evidentiary protections of attorney-client privilege and work product are not available for risk or other communications with consultants, advisors,internal management (including in many instances, general counsel or other inside counsel). As a result, these unprotected discussions often not only are admissionable as evidence of discriminatory or other improper intent, but also provide highly valuable evidence for use by plaintiff counsel and government investigators and prosecutors.
If you have any questions or need help with these or other workforce management, employee benefits or compensation matters, please do not hesitate to contact the author of this update, Cynthia Marcotte Stamer.
About The Author
Management attorney and consultant Cynthia Marcotte Stamer helps businesses, governments and associations solve problems, develop and implement strategies to manage people, processes, and regulatory exposures to support their business and operational objectives and manage legal, operational and other risks. Board certified in labor and employment law by the Texas Board of Legal Specialization, with more than 25 years human resource and employee benefits experience, Ms. Stamer helps businesses manage their people-related risks and the performance of their internal and external workforce though appropriate human resources, employee benefit, worker’s compensation, insurance, outsourcing and risk management strategies domestically and internationally. Recognized in the International Who’s Who of Professionals and bearing the Martindale Hubble AV-Rating, Ms. Stamer also is a highly regarded author and speaker, who regularly conducts management and other training on a wide range of labor and employment, employee benefit, human resources, internal controls and other related risk management matters. Her writings frequently are published by the American Bar Association (ABA), Aspen Publishers, Bureau of National Affairs, the American Health Lawyers Association, SHRM, World At Work, Government Institutes, Inc., Atlantic Information Services, Employee Benefit News, and many others. For a listing of some of these publications and programs, see here. Her insights on human resources risk management matters also have been quoted in The Wall Street Journal, various publications of The Bureau of National Affairs and Aspen Publishing, the Dallas Morning News, Spencer Publications, Health Leaders, Business Insurance, the Dallas and Houston Business Journals and a host of other publications. Chair of the ABA RPTE Employee Benefit and Other Compensation Committee, a council member of the ABA Joint Committee on Employee Benefits, and the Legislative Chair of the Dallas Human Resources Management Association Government Affairs Committee, she also serves in leadership positions in many human resources, corporate compliance, and other professional and civic organizations. For more details about Ms. Stamer’s experience and other credentials, contact Ms. Stamer, information about workshops and other training, selected publications and other human resources related information, see here or contact Ms. Stamer via telephone at 469.767.8872 or via e-mail to firstname.lastname@example.org.
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