Too big to care
How companies get employment matters so very wrong + a checklist to avoid their mistakes
Every time there is a collapse of some part of the financial markets, we see the headline “too big to fail.” But, as I continue to witness an unprecedented decline in how companies handle employment matters, I am forced to wonder, are they just “too big to care?”
In the past few months, I have been left slack jawed about how many companies have displayed highly suspect practices related to large layoffs. I am reminded about how often new leaders and founders “learn” what is acceptable from those around them.
If we continue to show well-respected companies forgetting simple concepts like respect and compliance, are we teaching the next generation of leaders to do the same?
To prove my point, if you were training your human resources team on layoffs, would you model the expectations after any of the following?
By video call:
Memos and texts notifications, often sent at night:
Zoom’s CEO sent a memo that included this statement: If you are a US-based employee who is impacted, you will receive an email to your Zoom and personal inboxes in the next 30 minutes that reads [IMPACTED] Departing Zoom: What You Need to Know. Non-US employees will be notified following local requirements. For those Zoomies waking up to this news or reading this after normal work hours, I am sorry you are finding out this way but we felt it was best to notify all impacted Zoomies as soon as possible.
And “robot boy” from Meta said the following in his “Meta’s Year of Efficiency” manifesto, which is sure to really enhance morale and shareholder value as the unknown guillotine gets polished: “With less hiring, I’ve made the difficult decision to further reduce the size of our recruiting team. We will let recruiting team members know tomorrow whether they’re impacted. We expect to announce restructurings and layoffs in our tech groups in late April, and then our business groups in late May. In a small number of cases, it may take through the end of the year to complete these changes.”
Finally, there is Twitter. After this….
And this…Musk is yet again laying staff off “still trying to trim costs while loading up the remaining skeleton crew — about 1,800 people, compared with 7,500 before he took over — with a grueling amount of work.”
Are recent EEOC cases against big name companies another indicator that they are too big to care?
And if that isn’t enough, consider the Equal Employment Opportunity Commission (EEOC). The EEOC’s primary responsibility is:
The U.S. Equal Employment Opportunity Commission (EEOC) is responsible for enforcing federal laws that make it illegal to discriminate against a job applicant or an employee because of the person's race, color, religion, sex (including pregnancy and related conditions, gender identity, and sexual orientation), national origin, age (40 or older), disability or genetic information. They also investigate charges of discrimination against employers who are covered by the law. Their role is to fairly and accurately assess the allegations in the charge and then make a finding. If they find that discrimination has occurred, they will try to settle the charge.
In reality, the EEOC only files litigation against alleged “wrongdoers” in about 0.1% - 0.2% of the charges it sees (yes, that’s 1/10th of 1%, not a typo), and arguably only the most egregious offenses with the most objective evidence.1 According to the EEOC website, they only file a lawsuit when it’s needed “to protect the rights of individuals and the interests of the public,” and file lawsuits based on the “strength of the evidence, the issues in the case, and the wider impact the lawsuit could have on the EEOC's efforts to combat workplace discrimination.”
However, just reviewing the recent (click each for shocking details) EEOC cases against “big name” publicly traded companies like Walmart, Otis Elevator, Exxon Mobil, McDonalds (franchisee), United Parcel Service (UPS), Circle K, RedRobin, Walgreens, Tractor Supply and more, I am left with this question: how did the human resource teams, executives, and directors allow things to get so far?
As publicly traded companies, these organizations would be required to have a hotline or similar mechanism to report incidents, a robust compliance program, lawyers, and likely have layers of executives who are “informed” and have the opportunity to address otherwise high risk employment situations. Not to mention reporting to insurance carriers, insurance claims for the situations themselves, and a predominantly independent board (a requirement of both the New York Stock Exchange and NASDAQ) who I would assume get notice of high risk employment situations as part of the full Board agenda, or a committee like compensation or human capital.
Usually, there is a lot of internal visibility for EEOC claims. Are these boards surprised? I don’t know how they could be. Yet, here these companies are, being sued by the EEOC in a very public way that I would normally argue impacts their brand and value to an unacceptable level. And by all appearances, no one did anything about it when they could.
The Human Touch
Generally speaking, the best rules of thumb for employment matters are to treat the individual with respect, communicate specifically and accurately, and give employees written confirmation of key details as not everyone can process complex information at the same time they receive life-altering news. In addition, be cautious of layoffs altogether, because they can destroy trust in the marketplace and with remaining employees, may not improve profitability and could negatively impact share price.
But if a layoff is the only choice, I am still a proponent of the personal delivery of information (face to face if possible, or over Zoom on a one-on-one basis) even for those large layoffs that companies argue are just “too big to coordinate” to that level. It should be possible no matter the size because: “if managers interact directly with their workers in everyday business, there’s no reason to believe that would suddenly be impossible when it’s time to lay them off.”
Culture grows from the seed of respect. Allow your strong culture and a respect for everyone in your organization to be your brand and differentiator (especially in a world where companies seem to care less and less about their employment reputation).
Most Missed Gotchas - A Checklist for Employers and the Board Members When Relating to a Reductions in Force (RIFs)
What is a reduction in force (RIF)? A reduction in force is a company’s efforts to permanently decrease the total headcount by terminating one or more employees with no intention of refilling those positions (either company-wide or within a designated department or team). It is also referred to as a mass layoff.
With RIFs playing out in the media, as well as what may be a new era in “copycat” layoffs that cloak other intentions by hiding behind more well-publicized RIFs, it’s important to review some of the most likely “gotchas” that company’s face during a mass layoff.
Run the RIF like a project: from a well-orchestrated project plan, to a detailed communication strategy with supporting documentation to cover the most critical issues, to a risk mitigation plan, to a crisis plan, facility operational and safety plans (such as McDonalds approach of closing all corporate offices during their recent layoff process, even though this decision was controversial), and even defined selection criteria (aka “requirements”) for employees targeted for layoff, these should all be part of the strategy. In addition, test draft results for potential discrimination, just like you would a software rollout. Verify that there is no hidden trend in the targeted employees for layoff, including a higher likelihood of protected classes being more significantly impacted. And, if you are one of the “98% of human resources leaders say they’ll rely at least partly on software programs, or algorithms, to decide whom to cut if they have to conduct layoffs in an anticipated recession in 2023,” make sure you understand how those algorithms work and whether they could potentially enable discrimination.
For example, in a recent statement by McDonalds: “[We] engaged in a rigorous and comprehensive planning process for the reorganization that we are confident was conducted in a fair and non-discriminatory manner.” Can you say the same for yours?
Understand Worker Adjustment and Retraining Notification (WARN) rules. WARN is a federal rule outlining, among other things, the paid notice required before workers can be laid off, usually 60 days, and it is triggered by (1) locations impacted, (2) employee counts (total employees and impacted employees in specific locations) and (3) timing of layoffs. In addition, many states have their own WARN laws that are often more rigorous than the federal standard.
For example, do not do this: What's the WARN Act and Why Is Twitter Being Sued for Violating It. The penalties are severe.
Careful with replacements or staffing with independent contractors. Some companies use reductions in force to de facto fire people that they might not otherwise feel comfortable firing. Where they get into trouble is when they replace someone “RIF’d” with a new employee doing the same or very similar role shortly after the RIF is complete and - even more dangerous, if that person is younger (under 40) or triggers some other protected class.
Misclassification claims and issues are on the rise once again. If a company replaces a RIF’d employee with an independent contractor shortly after the RIF to continue performing the needed duties of the RIF’d employee, that independent contractor is likely to be determined an employee by any of the governing agencies, creating additional liabilities beyond improper layoff penalties or discrimination.
In a temporary downturn where you think you will still need the roles on an ongoing basis, furloughs and in-company reassignments, underpinned by effective performance management, may be a better option.
Consistent severance expectations. While paying severance is not legally required as long as notice periods are met (unless you have a policy that requires a pre-set amount of severance pay),2 remember that part above about communication planning and supporting documentation? Honor what you promise. If you tell someone that they will receive a certain level of severance, and then don’t provide it (like our favorite Twitter guy), those employees may have detrimental reliance and other contract or quasi-contract claims.
Board of Directors. RIF situations are heartbreaking. As such, a lot of leaders try to avoid talking about them if they aren’t actively involved in the process. However, Board members, especially those serving on compensation or human capital committees, must dig into the company’s RIF plan as another validation point for potential discrimination and retaliation issues and reputational damage. Directors should understand the selection process, including whether algorithms were used, and what level of testing was conducted to ensure a nondiscriminatory result. Board members should also be kept informed of media coverage and potential reputational damage from the social media posts of impacted employees.
As a board member, do you really know your company’s employment practices outside of RIFs? Do a little exploring before it is too late.
Often times, Boards are hesitant (for good reason) to enter too far into the management of a company. However, they do have responsibilities to protect shareholder value, and even if there are no public shareholders, boards must exercise reasonable care in ensuring that companies are operating in compliance with the law and corporate policies. This can also protect the organization (and the Board) from potential liability.
So rather than ask for repeats of the same old data at each meeting:
Spend some time at your next board meeting reviewing the practices and escalation guidelines of your company’s compliance and investigation program. And ask that this review be done by the individuals who actually manage the day-to-day process and not a senior executive who may not be actively involved or may not want the unflattering details presented to the Board.
Does the program have visible support from the Board?
Is the program allowed and encouraged to operate in an independent fashion, without too much management or executive control?
Are outsiders (usually outside counsel) appropriately engaged for high risk investigations, such as those involving executives?
How do executives react to reports within their organizations? For example, do they get angry and ask for “reporters” to be fired if “good faith” reports do not yield real findings in an investigation (yes, this would be considered retaliation), or are the executives appreciative of the opportunity that an investigation creates to verify their organizations are healthy? If employees feel like they have to prove their case beyond a reasonable doubt to report an issue, they will likely not report at all - and will more likely find somewhere else to work.
Do the staff that are responsible for initiating the reporting process feel safe and protected in sharing the information? If escalations have occurred previously, do Board members react in an open and appreciative fashion without criticism of how or why it was presented, or do they respond in a way that guarantees the person will not report the next issue?
Ask for updates on what the company is reporting to the insurance carrier, often in the form of a bordereaux report. Does it align with the messages shared at Board meetings? Does it align with messaging about the health of the culture or employee engagement survey results? Often, Board members might disregard a single or a small number of reports as “one offs” or the product of “disgruntled” employees. But, they may also be the canary in the coal mine. Assume they are accurate and reflective of events until you are confident they are not.
Invite employees for open private sessions, or even consider having an employee seat on the Board.
Regularly discuss crisis plans and how the Board and leadership will respond to the fast moving rumor related to employment practices. Check out PrepOverCoffee’s recent series related to the impact of fast moving rumors and surviving them.
Consider a review of the use of algorithms and other software driven decisions throughout the employment process (hiring, promotion, predictions about flight risk, etc). There is a good chance your company is using these, and an even better chance they are not adequately auditing them.
Want more for Boards related to employment practices?
Check out EY’s The Board Imperative: Is Your People Strategy Human Enough?
And remember, we all know something else that was too big to care, or sink.
ESPRESSO SHOTS
Like corporate governance? Check out the Substack
and the most recent article:Check out my latest feature on LetHerSpeakUsa.org, Your career is an Easter egg hunt, not a ladder.”
Want to watch a movie about a 1980s video game, Russia, and intellectual property law? I didn’t either. But wow was I wrong. Check out Tetris, for a fascinating look at intellectual property and a fantastic use of Europe’s classic song, The Final Countdown.
Want to sit on your couch smiling from ear to ear? I am not too proud to admit that I watch a lot of “mindless” television that may or may not be aimed at preteens. I just discovered The Mighty Ducks: Game Changers, and it is way more relaxing (and cheaper) than a massage.
Want stats on EEOC claims? Check out their charge statistics or their interactive site here. And for summaries of their cases, visit here.