Saturday, October 31, 2009
EMPLOYMENT LAW TIP SHEET
THE GREAT RECESSION – RESHAPING THE WORLD OF WORK
This edition of the Tip Sheet is devoted to this single topic – looking at an economy that has been in recession so long (22 months and counting) that American companies and their employees are changing the way they deal with and rely on each other. We take a look at three areas: (1) the emerging new relationship between employers and employees, (2) the impact reform legislation is having on job creation and hiring, and (3) how prolonged layoffs have changed employee attitudes towards work.
THE NEW DEAL
The post World War II model of benevolent companies taking care of loyal workers through lifetime health care and company funded retirement plans has been fading for years, but the current economic downturn has put a nail in the coffin and may even be spreading dirt over the top. Here are some examples:
- Consulting firm Watson Wyatt reports that over 65% of big companies have cut health insurance benefits in this recession and do not plan to restore them.
- Yet, Hewitt Associates reports that the amount of dollars companies are spending on health care continues to rise.
- Consequently, employees are paying more for health care. In addition, many companies are going to high deductible plans where employees pay the first $3,000 of medical bills each year, but even so, employees are still being asked to pay a larger share of monthly premiums.
- The move from traditional company sponsored pension plans with guaranteed monthly benefits to 401(k) plans was created by Congress’ passage of ERISA. Under the universal law of unintended consequences, when Congress made it more burdensome for companies to create and maintain pension plans, employers shifted to less costly 401(k) plans where employees contribute to and manage their own retirement accounts – with no guaranteed benefits.
- The recession has caused companies to cancel or suspend their matching contributions to 401(k) plans. For example, Ford Motor Company dropped all pension plans for salaried employees hired after 2003 and has made 401(k) contributions in only two of the last eight years. Even AARP has suspended 401(k) contributions for its employees and has no immediate plans to resume.
LAYOFFS v. BENEFIT CUTS
- One small company (Hero Arts, Inc.) called its 100 employees together to discuss whether to cut benefits or have layoffs. The employees suggested suspending 401(k) contributions to save jobs, which has worked so far.
- By contrast, when a similarly sized company (Autodesk, Inc.) offered its employees this choice, the employees opted for layoffs in order to keep benefits in place for those who remained.
- While employees don’t like these developments, they appear to be accepting them better than might be expected. It could be that employees are unwilling to speak out now and are waiting for better economic times. Perhaps employees no longer expect their employer to take care of them and understand that they must protect their own interests – hence the new “shift to thrift” that many families have adopted to deal with tough economic times. At the same time, these employees have lost much of their sense of loyalty to and identity with their employer.
HOW LEGISLATION LIKE CLIMATE CHANGE AND HEALTH CARE REFORMS AFFECT HIRING
There have been some hopeful economic signs recently. Despite this, many employers, particularly smaller companies, are reluctant to hire until they know more about what health care and climate change reforms will cost them. The October 27 Wall Street Journal featured a lead article based on interviews of small business owners from Oregon to Georgia – the people who have historically been responsible for at least 60% of job creation.
These interviews confirmed that a geographically and economically diverse group of small business owners shared the same view: Even though the economy shows some positive prospects, there is a widespread belief that legislation being considered by Congress – primarily climate change and health care reforms – will add significant new burdens on businesses in the form of higher costs for energy and employee health care. In light of those anticipated developments, it would not be prudent to hire more employees at this time. Even companies that have held steady or done better during the recession (auto parts sellers whose business has improved as people hang onto older vehicles) are reluctant to expand in light of their fear of the unknown. That reluctance tends to extend the recession even further.
PROLONGED LAYOFFS – IS LESS SOMETIMES BETTER?
The Bureau of Labor Statistics reported in September that the average layoff in this recession has lasted 6.5 months – much longer than in previous downturns. What happens when employees spend that much time away from the world of work? Do they come back with different attitudes?
- Again, the WSJ reports:
- Many laid off workers have used their “down” time to reconnect with family and friends and to increase personal health and fitness activities such as regular workouts.
- Laid off employees and their families have adjusted their spending habits to cut back.
- Although some who have found new jobs reported that they quickly returned to a “go-go” lifestyle, most said that the layoff experience has caused them to be more committed to a better work/life balance – that family, friends, and personal health have become higher priorities than work or wealth.
Some economists believe that the U.S. is facing a decade long slump similar to the one that hit Japan during the 1990s. The extended Japanese recession caused employers and employees in that country to change their relationship and expectations – no more lifetime employment and no more lifetime loyalty. The trends reported in this Tip Sheet hint that U.S. workers may be developing more European attitudes towards work, including:
- Life is more important than work.
- I can do without some of the things I thought I needed.
- I cannot rely on any company to take care of me.
PRACTICE GROUP SPOTLIGHT
Maynard Cooper represents public and private companies, governmental entities, and individuals before state and federal courts and arbitration panels throughout Alabama and the United States. We have a broad litigation practice that touches on virtually every area of the law. The firm regularly performs litigation services in antitrust and trade regulation, appellate and post-verdict practice, class action, complex litigation, environmental litigation and regulatory compliance, insurance sales practice litigation, intellectual property and technology, labor and employment, product liability, and securities litigation. Several of the firm’s litigation practice groups are national in scope, including our insurance sales practice, labor and employment, and securities litigation practices, in which Maynard Cooper attorneys have arbitrated and tried cases across the country. Our litigators have a proven track record of success in the courtroom. The goal of our litigators is to win, whether through trial, arbitration, or an alternative method of dispute resolution. We provide cost-efficient service by staffing cases appropriately, utilizing innovative litigation support technology, communicating with our clients, and always evaluating the risks of litigation and employing alternative means of dispute resolution when needed.
Disclaimer regarding legal advice - The information in this newsletter should not be construed as legal advice. This information is not intended to create or constitute an attorney-client relationship. For more information or an explanation about the matters discussed in this newsletter, please contact an attorney in this practice group.
IRS Circular 230 Disclosure - To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.