May 2016, Vol. 243, No. 5
Features
Employment Specialist Offers Advice to Managers
Special to Pipeline & Gas Journal
These are certainly difficult times for the oil and gas industry, and unfortunately there is no quick end in sight for this downturn. Because this is a cyclical industry, hard decisions have to be made by management trying to protect their stressed operations.
Those decisions invariably involve layoffs, and today that is amounting to tens of thousands of hard-working employees, who face the task of retraining, if not survival itself. What are some of the most important decisions employers needs to be aware of in handling these delicate situations, no two of which are the same?
What’s the best strategy for your company? Stephen Roppolo, managing partner of the Houston and San Antonio offices of labor and employment law firm Fisher & Phillips, has extensive experience in the oil and gas industry that has provided him with valuable insight into the looming issues of reductions in force, claims of unpaid overtime, and the enforcement of non-competes – all big factors when companies downsize.
P&GJ: As the oil and gas industry continues to struggle, many employers have made the difficult decision to lay off a portion of their workforce in order to reduce costs to stay alive. What should companies be mindful of when making this decision?
Roppolo: Reductions-in-force (RIFs) can be a good way to reduce costs, but they can be more expensive than doing nothing if they lead to unexpected litigation. In this environment, many employers have held off as long as they can and now recognize that becoming leaner is the best way to weather this storm.
P&GJ: What is the difference between a layoff, a reduction in force and a furlough?
Roppolo: These terms are often used interchangeably, but they have different meanings. A layoff suggests a temporary separation, usually for an indefinite period, in which the employee has an expectation of recall when things improve. A “job elimination” as part of a RIF is a permanent job separation; there is no expectation of recall, though employees are invited to reapply later if positions are available. A furlough is a period of time when an employee is told not to come to work and is not paid. This is sometimes accomplished in fairly large chunks of time (e.g., two weeks), or occasionally for a day here or there until the economic climate improves.
P&GJ: For employers, what are the pros and cons of each as it relates to the oil and gas industry?
Roppolo: Furloughs minimize the “brain drain” that can result from a layoff or RIF, but the cost savings are usually not as significant as more permanent solutions, and they can be unworkable logistically for some businesses. A RIF is usually the most reliable cost-saving mechanism short of selling off assets. In most cases, layoffs are the least desirable method from the employers’ perspective and should be avoided unless they are mandated by a union contract or internal policy.
P&GJ: Is there anything an employer needs to remember about group severance agreements for them to be fully enforceable?
Roppolo: Most employers who pay severance want a release of claims from the departing employee. For these releases to effectively waive age claims when a group of people are let go, they must, among other criteria, include a list of other workers being offered the separation package, along with their ages. In addition, employers should know that most releases do not affect employees’ rights to later bring claims under the Fair Labor Standards Act (FLSA), most notably claims of overtime. Employers cannot secure valid releases of these claims without approval from a court or the Department of Labor (DOL).
P&GJ: Does the WARN Act apply to me?
Roppolo: It might, but only if you have 100 or more full-time employees or part-time equivalents prior to the reduction. Even then, the notice obligations contained in the federal WARN Act are triggered only when there is a “mass layoff” or a “plant closing” as defined by the statute. If you eliminate or layoff fewer than 50 employees from a single site of employment, there are no notice obligations. So a dozen layoffs at one location and a dozen at another generally won’t trigger WARN. If WARN is in play, the employer will have to provide at least 60 days’ notice of the employment loss, unless a handful of very narrow exceptions apply.
P&GJ: It’s been said that discrimination claims rise as the number of reductions increase. How does one avoid discrimination claims based on age, race, etc. when implementing mass layoffs?
Roppolo: The best way to avoid risk of discrimination claims when reducing staff is to decide the selection criteria before choosing who stays and who goes. Many employers just ask supervisors to identify which employees are not essential without identifying the factors that make one employee more essential than the next. It is better to decide the factors and then apply them to the group from which employees will be selected than to choose the people first and reverse-engineer the factors when the decisions are challenged.
In addition to applying non-discriminatory selection criteria based on business factors, it is always a good idea to compare the group selected for the RIF to those who remain to see if a statistical case can be made that improper factors motivated the selection decisions.
P&GJ: Many companies in the industry are getting sued by former workers claiming they are owed overtime pay. Who is at risk?
Roppolo: You may be if you paid your employees a day rate. Many employees were perfectly happy being paid a day rate until the gravy train left the station, and now that they are unemployed, they are more than willing to participate in a collective action alleging that they were not paid overtime. Simply stated, all employees are entitled to overtime when they work more than 40 hours in a work week unless they qualify for an exemption.
Paying an employee a day rate or a salary does not necessarily mean the employee is exempt from overtime. Your employees usually will not qualify for an exemption unless they are in administrative, management or professional roles (professional exemptions require employees to have advanced knowledge in a particular field and typically a college degree). If you believe you have not been paying employees properly, it is best to do an internal audit and begin paying current employees in accordance with guidelines from the DOL in order to reduce your risk of overtime claims.
P&GJ: What do I need to know if I have employees over the age of 40 that will be impacted?
Roppolo: If an employer is offering a severance package to a group of employees whose jobs are being eliminated, and some are over 40, steps must be taken to ensure that any release signed by these employees serves as a valid waiver of age discrimination claims. Older employees must be provided with 21 days to consider whether to accept the proposed severance deal and seven days to change their mind. In addition, it is always a good idea to conduct the same kind of statistical analysis as recommended to avoid discrimination claims to ensure that the job loss event is not affecting older employees at an unusually high rate.
P&GJ: Many of my employees in leadership roles signed non-compete agreements. Do they become void if I lay off these employees?
Roppolo: This depends on the language contained in the agreements themselves and the state in which they are enforced, but most of the time the reason for separation does not affect enforceability. Some employers feel that employees whose positions are being eliminated in the midst of a downturn are not a serious risk to compete anyway, but often employees accept severance packages and decide to set up their own business to directly compete against their former employer. No time is a good time to lose market share, but a downturn is a particularly bad time, so employers should think twice before letting departing workers skate on non-compete obligations.
Though non-competes are not void when you lay off employees, employers often inadvertently nullify their non-compete through language in their severance packages. Severance agreements commonly include a boilerplate provision that states the severance agreement supersedes all prior agreements. This language may affect companies’ rights under earlier non-compete agreements. Employers and their legal counsel should consider this while drafting severance agreements.
P&GJ: Should I consider offering to help laid-off employees retrain to make their post-termination job searches easier?
Roppolo: Some employers make outplacement services part of the severance packages offered to employees selected for a reduction-in-force. These companies can provide job search and retraining assistance to employees who will be on the hunt for new work. They can create goodwill among those being let go, and they can also get the employees in a positive frame of mind, looking forward instead of backward, reducing the risk of litigation.
Stephen J. Roppolo may be reached at sroppolo@laborlawyers.com.
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