L&S Consultancy

Economic Recovery Gaining Traction

admin — Sun, 15 Aug 2010 22:56:53 +0000

Implications for the Human Resource Management Function

By Charles P. Leo, PhD and Jeffrey Schieberl, JD

Graziadio Business Review 2010 Volume 13 Issue 3

Many economists and business commentators are beginning to agree that the latter part of 2010 will make it the “rebound year.”[1][2]

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Businesses Must Plan for Post-Recession Growth and Sustainability

It is widely reported that the economic recovery from one of the most severe recessions in United States memory is beginning to gain traction. The authors firmly believe that it is crucial for business owners, executives, managers and Human Resource professionals to prepare for this imminent economic recovery. The Federal Reserve Chairman, Ben Bernanke, recently reported on June 7, 2010, through the Associated Press[3] that he sees signs that the economy will gain traction and not fall back into a “double-dip” recession. Bernanke reported that the economy grew at a rate of 3 percent during the first quarter of this year.

The current economic mindset, however, is resulting in employee layoffs, the termination of employee benefit programs, and the elimination of training programs and leadership development efforts. Businesses should therefore begin to transition to a system that facilitates stabilization and again allows for the kind of sustainable organizational growth that can ensure the viability of any organization. This article will address issues associated with employee training, employee benefits, management development, and litigation management.

The Mindset of the Post-Recession Workplace: Survival and Sustainability

The post-recession workplace will require a return to adequate talent management, competitive employee benefits, provisions for essential employee training programs, and continued leadership development in order to both develop and maintain important job core competencies. The pace and complexity of companies’ environmental, economic, and strategic planning changes will have to be hastened in the post-recession jobs marketplace.

The Human Resources (HR) function, in particular, must play a critical role in efforts to effectively align companies with the realities of recovery. HR must provide guidance to company leaders in their efforts to successfully respond to inevitable challenges.

There is no question that over the past few years, the economic downturn has caused companies to rethink their business strategies and HR practices. While the authors of this article believe that many of the organizational changes that have been implemented will likely remain intact after the economy rebounds, new mindsets, ways of thinking, and strategies will be essential.

Re-Doubling Communication Efforts

Keep in mind that “perceptions” among employees play a very significant role in a weak economy. It is extremely important for leaders and HR professionals to maintain and encourage frequent, candid, and proactive communication. Handling the “people side” of things is more important now than ever.

Equally important is maintaining esprit de corp, not only among the employees in an organization, but among all of the appropriate stakeholders (whose perceptions are also very important).

The Role of HR Leaders: Stepping Up in the Post-Recession Recovery Period

The current recession provides an excellent opportunity for HR professionals to be effectively proactive, stepping up and contributing to their organizations strategically. HR managers and directors in today’s business climate should be involved in every step of not only the strategic planning for their organization, but also in the actual strategic implementation process.

Litigation Management

HR professionals should consider consulting with legal counsel about new trends in compliance requirements and business regulations.

After two successive years (2008 and 2009) of reporting declines in the number of lawsuits and regulatory proceedings, in 2010, senior corporate counsel began to anticipate an increase in lawsuits and government problems. This is probably because employees are emboldened to pursue their grievances by a recovering economic climate.

In the midst of a recession, business organizations often find that the number of lawsuits decline. Even government probes will often be fewer in number. Repercussions from the recession are the most frequently cited reasons for expected increases in litigation and business regulation at the local, state, and federal levels.[4]

In one annual survey monitoring litigation trends, about 40 percent of the more than 400 participants who represented 276 U.S. companies and 125 companies in the U.K., experienced increases in the number of wage and hour, multi-plaintiff labor, and employment law cases brought to court during 2009.[5] Among the most numerous types of litigation were disputes predicated upon wage and hour laws.[6] Employees generally alleged underpayment for overtime, meals, and rest times.

Another absolutely critical area to examine is the appropriate classification of employees. Retailers who often rely on part-time and/or seasonal workers have the most significant risk of being named as defendants in these types of claims. As a practical litigation mitigation measure, it is therefore imperative that HR professionals revisit their compensation policies and practices, the appropriate classification of their employees, and all current local, state, and federal compliance laws circa the current year, 2010.

Other critical areas of complex legal compliance in the economic recovery period will pertain to general employment discrimination cases, right to privacy issues, possible ERISA (Employee Retirement Income Security Act of 1974) violations, as well as disability claims and age discrimination issues. Viable mitigation measures for these types of disputes include well-conceived, drafted policies that have been effectively communicated to all employees and incorporated into the employer’s employee development programs and training regimen. Other employment-based claims that will pose significant concern to companies in terms of their possible financial risk are claims predicated upon sexual orientation discrimination, sexual harassment issues, violations of the Family Medical Leave Act, and disputes deriving from non-compete agreements.[7]

It is also crucial that HR professionals and business owners carefully review and update all employee policy manuals and handbooks to be current with 2010 employment-related laws and regulations.

The current stages of the recession recovery period should spur HR professionals to closely monitor federal, state, and local legislative agendas. There will almost certainly be pending legislation that will directly impact companies’ new strategic plans. For example, the health care reform legislation may directly impact the cost of doing business in the future and may necessitate a careful review of employee benefits.

Likewise, HR professionals and managers should consider consulting with legal counsel about developing trends in litigation and business regulation. Specific areas of liability that have the potential to impact the cost of doing business and new strategic plans include products liability, employment law, and tax law. Specific areas of business regulation that have the potential to impact the cost of doing business and new strategic plans include wage and hour policies, workers‘ compensation, and environmental rules and regulations.

Lastly, in an effort to reduce costs, a company’s long-term strategic planning should not overlook the need to review dispute resolution strategies. Perhaps adopting alternative dispute resolution policies, e.g., arbitration relative to employer/employee disputes, as well as standard form contracts, could dramatically reduce the costs associated with the resolution of such disputes.

Think Beyond Merely Being Defensive and Reactive: Lead

By identifying and planning post-recession strategies and HR-specific programs, sustainable organizations are more likely to succeed and even prosper, while those that adopt only a short-term reactive perspective are more likely to struggle or fail. Sustainability demands a balance between short- and long-term thinking.

In difficult times, sustainable businesses actually seek out opportunities for the future. They utilize best practices to appropriately manage and guide current resources, and they also prudently invest in longer-term human and capital resources.

Overly conservative companies that do not embrace a longer-term, sustainability-based perspective as a core value are more likely to run the risk of surviving only in the short run and thereby, from a weakened position.

Another appropriate role for leaders and HR professionals at this time is to enhance the current organizational culture with a sub-culture of “looking for new opportunities.” Against the backdrop of our current business climate, enhancing “effective leadership in a recession” is absolutely critical for organizational survival and sustainability.

Concluding Remarks: Survive and Thrive

Truly sustainable organizations do not fear the ups and downs of the economy. In fact, sustainable and progressive organizations prepare for just these highs and lows. They realize that the current economic challenges are certainly significant, but nevertheless temporary. They view the economy as resilient in the long run and they make sure that they are adequately positioned to prosper when the turnaround inevitably comes. By maintaining a longer-term focus on the organization’s critical factors for success, they are better positioned to survive and thrive.

Specific Recommendations for Human Resource Managers and Professionals

It is essential to be in on all strategic planning meetings.
Assume an active role in facilitating full discussions.
Keep the conversations grounded and positive.
Balance short-term with long-term perspectives (i.e., through scenario planning).
Be a driving force in shaping clear commitments to new strategic plans.
Give thorough attention not only to key planning strategies, but also to specific implementation strategies throughout the organization.
Be proactive: Take a significant and very active role in supporting all managers and leaders.

[1] Leonhardt, David, “Judging Stimulus by Job Data Beginning to Reveal Success,” The New York Times, February 18, 2010, OpEd.”

[2] David Wessels, “Business Recovery and Reorganization After an Economic Recession,” The Wall Street Journal, February 14, 2010, OpEd.”

[3] Ben S. Bernanke, The New York Times, Business News: Federal Reserve Statistical Release Data, June 7, 2010.

[4] http://www.fulbright.com/images/publications/6th.LitTrendsreport 2009.pdf.

[5] Ibid.

[6] http://www.fulbright/com/images/publications/6th.LitTrendsReport 2008.pdf.

[7] Ibid.

About the Author(s)

Charles P. Leo, PhD, earned his BS in psychology from the University of California at Berkeley and earned his MBA in labor economics at UCLA. He also earned his PhD degree in organizational psychology from UCLA. He has more than 30 years of executive-level business experience in the areas of human resource management, employment law, strategic planning, and organizational development. Leo has held significant consulting assignments with more than 250 organizations throughout the country in both the private and public sector. The majority of those assignments were multi-year engagements. He has simultaneously served as an adjunct professor of management at Pepperdine University for more than 25 years, and is currently a full-time practitioner faculty member in the Applied Behavioral Science department at the Graziadio School of Business and Management. Leo has published numerous articles in both academic and professional journals. He is a member of PIHRA (Professionals in Human Resources Association) and the APA (American Psychological Association) and has provided consulting advice to companies including TRW, Bank of America, the California Department of Transportation, Zenith Insurance Company, Warner Bros. Studios, Toyota Motor Company, and the U.S. Social Security Administration.

Jeffrey Schieberl, JD, has several years of senior management experience. He has served as president/CEO of a California corporation, vice president of Law/Government Relations of another California corporation, gubernatorial appointee to an Interstate Energy Commission and as executive director of an industry association. Dr. Schieberl has been a member of the Pepperdine University practitioner faculty for more than fifteen years. He earned his BA degree at the University of Southern California, received his MBA degree from Pepperdine University, and was granted a JD degree by Southwestern University School of Law.

Issue: 2010 Volume 13 Issue 3

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It’s Employers’ Duty to Stand by War Veterans

admin — Fri, 08 Aug 2008 22:57:32 +0000

Los Angeles Business Journal

By JEFFREY SCHIEBERL and CHARLES P. LEO

In mid-March, news outlets reported that by the end of this summer, 32,000 of the 172,000 active duty soldiers stationed in Iraq are likely to return to the United States. This is good news for the active duty soldiers returning home to their families.

Many are coming home to Southern California. Department of Defense data show that the U.S. Army alone recruits more than 3,500 enlistees each year from Southern California. In fact, among the top 100 counties ranked by number of Army recruits, Los Angeles County is No. 3.

Overall, within the next two years, employers face potentially the largest re-employment of reservist “citizen soldiers” in our nation’s history.

But in our opinion, many Los Angeles companies aren’t prepared. Many need to add resources and special considerations to accommodate these returnees’ re-entry into the work force.

Federal protection

Anyone who has been absent from work due to “service in the uniformed services” is protected by the Uniformed Services Employment and Re-Employment Rights Act of 1994, Americans With Disabilities Act and the Veterans Benefits Improvement Act. As a business owner, you must be prepared to address the impact of these laws on your company when military employees return from service in Iraq and Afghanistan.

California has committed more than 3,400 National Guard and Reserve personnel as of January 2007 to the conflicts in the Middle East. More than 390,000 members of the nation’s Guard and Reserves have already been released from service since Sept. 11, 2001. An estimated one in five veterans discharged from active duty between 2002 and 2005 has significant military service-connected disabilities, a number that undoubtedly has increased since then.

When these men and women come home they face considerable struggles in their efforts to resume their lives as they were prior to fulfilling their commitment to serve their country. Their battle is far from over, and it should not be fought in California’s workplaces.

Under most circumstances, the employer must reinstate the employee within two weeks of notification that their service is over. In addition, the re-employed veteran must be provided job protection by the employer for a minimum of 180 days up to a maximum of one year.

Should a veteran return to work with any type of physical disability, employers will be required in a timely manner to modify workplace access and bathroom facilities, provide new desks or make other “reasonable accommodations” to enable the employee to still perform the “core” content of the job for which they are qualified.

Equal treatment

Employers will be required to possibly retrain or modify the employee’s work schedule, and to make appropriate medical treatment possible should a veteran return to work suffering from post-traumatic stress problems or any other form of psychological disability. At every level, the returning veteran employee must be given the same employment benefits and privileges as those given to all other employees.

By and large, employers want to treat returning veterans fairly. However, few clearly know of, much less understand, California and federal requirements. This is particularly the case with small to midsized businesses in which the legal and financial business obligations can prove most challenging. However, many Los Angeles business managers will need to gain knowledge of, conceive and implement a reintegration plan on a greater scale than they likely expect. A sense of right and wrong, not to mention the law, requires it.

Jeffrey Schieberl and Charles P. Leo are professors at Pepperdine University’s Graziadio School of Business and Management and are principals at L&S Human Resource and Employment Law Consultancy Group.

Harassment Prevention Training 2008

admin — Tue, 08 Jul 2008 22:56:12 +0000

By adopting a clear anti-harassment policy and process for handling complaints, an employer may be able to fend off or reduce a costly judgment.

By Jeffrey Schieberl, JD and Charles P. Leo, PhD

Graziadio Business Review 2008 Volume 11 Issue 1

In 2008, according to the California Fair Employment and Housing Commission, employers can expect more audits as the commission demands increased proof of compliance with AB 1825, California’s harassment prevention training law.

Because of California’s influence on national law, the implications of this new imperative for employers and businesses may rapidly expand and impact similar laws throughout the country, as well as impact global employers doing business in California. This article explores the type of training employers must provide on harassment, as required by statutory law, to assert an affirmative defense against workplace-based discrimination and harassment claims, and offers examples of court cases.

(Photo: kneafsey Background)

Harassment is a serious issue for management in any business organization. It can negatively impact employee morale, damage careers, and harm the bottom line. It can also contribute to high absenteeism, reduced productivity, and increased employee turnover.

Managers must view all harassment complaints seriously since they can be held personally liable and sued individually for mishandling a complaint. Harassment is inappropriate anti-social behavior and it is the responsibility of the employer and every employee to make sure that harassment is never tolerated in the workplace.

AB 1825 (California Government Code Section 12950.1) mandated that employers doing business in California with 50 or more employees (including part-time employees, temporary employees, and independent contractors) provide harassment prevention training to all supervisors.

The original legislation, which was enacted in 2005 and became effective on January 1, 2006, required two hours of training for all supervisors every two years. The required training must be provided once again commencing January 1, 2008. Additionally, all new employees hired as supervisors, or who have become supervisors during this two-year period, must also be given two hours of harassment prevention training.

In an effort to provide clarity to employers on the law’s requirements, as well as update practical guidelines for compliance, the California Fair Employment and Housing Commission (FEHC) implemented regulations on how to conduct harassment training, effective August 17, 2007.

In conjunction with that updated set of laws, California’s Office of Administrative Law approved new regulations concerning the AB 1825 law. The major emphasis of the latest regulations is to clarify the harassment policies and training requirements.

Global Impact

It is frequently said that as California goes, so goes the rest of the country, especially in terms of progressive employment laws and regulations. Because of California’s influence on national law, the implications of this new imperative for employers and businesses may rapidly expand and impact similar laws throughout the country, as well as impact global employers doing business in California.

AB 1825 has profound implications regarding the work environment and workplace relationships throughout the country and throughout the global business community.

If employers wish to be shielded from potential significant liabilities created by AB 1825 and other such laws, they must establish immediate and comprehensive training priorities.

Statistics

When engaged in mitigation planning relative to potential legal liability risks, employers often allocate their limited training resources on a prioritized basis. Often, the potential legal liability risks posed by harassment claims are perceived to be fewer than those of other potential claims, such as product liability. As a result, some employers allocate few if any resources to harassment training. Such a strategy is ill-advised.

However, harassment claims (even if only “alleged” claims) can be costly-one of the largest awards was for $34 million dollars. The employer, Mitsubishi Motor Manufacturing of America, Inc., settled claims relative to the actions of its employees, including some with no supervisory responsibilities.

In fiscal year 2006, the U.S. Equal Employment Opportunity Commission (EEOC) received over 13,000 charges of harassment. The EEOC resolved 12,936 of those harassment charges and recovered over $50 million dollars in monetary benefits for the claimants as well as other aggrieved individuals. (These settlement figures do not include significant monetary benefits awarded in litigated matters.)[1]

New Regulations Provide Clarity

(Photo: J.C. Fedels)
Under the new regulations implemented by the California Fair Employment and Housing Commission (FEHC) and California’s Office of Administrative Law, employers should have a deeper understanding of how to comply with AB 1825. As such, the authors have listed the most significant provisions from these regulations below:

Employers now have two options for ensuring their supervisors are trained every two years: (1) An employer may track its training for each supervisor by measuring two years from the date of the individual supervisor’s training; or (2) an employer can designate a “training year” by which the employer trains some or all of its supervisors and then retrains them by the end of the next two years, as required by law.
It remains critically important for the employer to have clear policies that address how to report and respond to any complaints.
An employer must conduct an investigation of each complaint of harassment.
The mandatory training must provide a definition of what constitutes unlawful harassment and a review of the different types of harassment as provided in the Fair Employment and Housing Act (FEHA) and Title VII of the Federal Civil Rights Act of 1964.
Those being trained must be advised that employers cannot use any employee claims as a basis for firing, disciplining, or refusing to promote the employee, or other employees that might be included in an investigative process, who assert a claim.
Those being trained must be provided with an understanding of the remedies that may be available to a victim of harassment.
An employer must effectively communicate the consequences of harassment to those provided training.
The harassment prevention training, as required by the original AB 1825 law, must be conducted by qualified professionals who have formal education, training, and experience in this field.
The training must still be “interactive,” as required by the original AB 1825 law, and no less than two hours in length. If an employer opts to provide e-learning programs, the two-hour requirement is still applicable.
Strategies to prevent workplace harassment as well as the need for confidentiality in the harassment complaint process must be part of the employer-provided training.
The training must afford those being trained an opportunity to pose questions and to be provided with answers to their questions.

Cases

The U.S. Supreme Court provides employers with an affirmative defense against certain workplace-based discrimination and harassment claims only[2] if employees and supervisors are trained with regard to what constitutes unlawful harassment and how to prevent it. Merely having an anti-harassment or sexual harassment policy is not enough.

The importance of employer-provided training was made clear in Mathis v. Phillips Chevrolet, Inc.[3] In this case, punitive damages were awarded to the plaintiff because the employer failed to provide any workplace harassment training. The court stated, “leaving managers with hiring authority in ignorance of the basic features of the discrimination laws is an ‘extraordinary mistake’ for a company to make, and a jury can find that such an extraordinary mistake amounts to reckless indifference.”

A court in Romano v. U-Haul International[4] held that a written policy against workplace discrimination alone will not serve to prevent the award of punitive damages to the plaintiff. The employer, U-Haul International, was unable to provide evidence that they had “an active mechanism for renewing employees’ awareness of the policies through…specific education programs.”

However, if an employer adopts and communicates a well-defined policy prohibiting workplace harassment and provides its employees with meaningful harassment and discrimination prevention training, then it may successfully assert the affirmative defense that the U.S. Supreme Court established in 1998.

In Bryant v. Aiken Regional Medical Center, Inc.[5], an appellate court actually reversed a lower court’s punitive damage award and held that despite a manager’s unlawful conduct, the employer demonstrated “good faith efforts” to comply with workplace harassment and discrimination laws by issuing a clearly defined policy and providing employees with harassment and discrimination prevention training.

New AB 1825 Emphasis in 2008

While monitoring was more low-key in the beginning phases of AB 1825, the FEHC says that, effective 2008, it will be conducting more audits and demanding greater proof of compliance. This new phase is referred to as the “second training cycle.”

Prior to August 2007, employers who made a good faith effort to follow the AB 1825 requirements were able to use their training practices and workplace policies to reduce major liabilities. Effective January 1, 2008, “good faith efforts” will no longer suffice. Failure to provide the required training will result in the agency issuing binding orders backed by court enforcement. Employers in California must not only be in compliance with the appropriate laws and regulations, but must make every effort to assure that their policies and training programs are, in fact, effective.[6]

From a purely pragmatic perspective, employers are beginning to realize that preventive “anti-harassment” training for all supervisors and managers demonstrates a concern for preventing harassment in the first place.

Under the new and stronger harassment prevention laws, just having the correctly worded “policy statement” and conducting the mandated two-hour training program may not be enough to protect the company and managers from significant lawsuits. For example, the new regulations require that all employees must understand how to report harassment situations. Also, it must now be communicated to all employees that reporting any instances of harassment is not only a right, but that there is a duty to report any such instances to management. It is, therefore, important that employers understand that harassment prevention policies constitute not only a “legal issue,” but have also become practical, day-to-day employee, behavioral, and corporate culture issues.

Conclusion

Under certain circumstances, an employer may be held legally responsible for harassment committed by an employee or a supervisor even if executives or supervisors did not know (and would not reasonably have known) about the incident. By adopting a clear anti-harassment policy and a sound process for investigating and dealing with complaints, an employer may be able to fend off or reduce a costly judgment. Failure to provide the required training will almost always be used as “evidence” of an employer’s failure to take all reasonable steps to prevent harassment and may in some instances provide the basis for imposition of punitive damages.

[1] U.S. Equal Employment Opportunity Commission. Sexual Harassment, http://www.eeoc.gov/types/sexual_harassment.html.(no longer accessible)

[2] Burlington Indus., Inc. v. Ellerth, 188 S. Ct. 2257 (1998); Faragher v. City of Boca Raton, 118 S. Ct. 2275 (1998); See Equal Employment Opportunity Commission. Enforcement Guidance: Vicarious Employer Liability for Unlawful Harassment by Supervisors, http://www.eeoc.gov/policy/docs/harassment.html.

[3] 269 F.3d 771 (7th Cir. 2001).

[4] 233 F.3d 655 (1st Cir. 2000).

[5] 333 F.3d 536 (4th Cir. 2003), cert. denied, 2004.

[6] California Government Code Sec. 7288.0; California Government Code Sec. 12926(r).

About the Author(s)

Issue: 2008 Volume 11 Issue 1

The Employers’ Legal Obligations to Employees in the Military

admin — Mon, 14 May 2007 22:55:01 +0000

Hiring the citizen soldier has great benefits but there are also strict laws governing their treatment that every employer needs to know.

By Jeffrey Schieberl, JD and Charles P. Leo, PhD

Graziadio Business Review 2007 Volume 10 Issue 3

The citizen soldier brings many assets to the work place: they tend to follow instructions and respect authority; they have leadership skills and work well in organizations. Some have service-acquired skills that translate well in the business community such as computer skills. With these many talents provided to the employer come responsibilities.

(Photo: SX70)
This article is intended to bring to the attention of employers the legal obligations they have to employees who have been called to active military duty or who are members of the United States National Guard or Reserves. For example, what obligations, if any, does an employer have to re-employ a veteran in the position they held prior to being called to active duty? What if doing so displaces another employee or results in hardship for the employer?

While there are benefits in having a citizen soldier as an employee, employers must be prepared to address these difficult questions along with several others that flow from the Uniformed Services Employment and Re-Employment Rights Act of 1994 (USERRA).[1] Unlike some other federal laws that apply only if the employer has a certain number of employees, USERRA applies to all employers.

If you are wondering if these challenges will present themselves to your business organization, consider what the Pentagon has reported: As of August 2005 more than 141,000 members of the United States National Guard and Reserve military forces have been deployed to Iraq and Afghanistan. Currently those forces comprise more than 35 percent of all U.S. military forces actively serving in the region.

The magnitude of this issue is clearly reflected in the U.S. Department of Labor Statistics. There are over 2.6 million people in the U.S. Military.[2] Since September 11, 2001, more than 390,000 members of the National Guard and Reserve have already been released from active duty. This is the largest deployment of “citizen soldiers” since World War II.[3] In addition, the U.S. Bureau of Labor Statistics has reported that approximately one in five veterans discharged from active duty between 2002 and 2005 had significant military service-connected disabilities.[4]

Employers usually try to treat returning veterans fairly but lack clear guidance from state and federal governments regarding USERRA requirements.[5] This is particularly the case with smaller to mid-size business organizations.

This article will discuss the re-employment rights of the returning veteran as well as the concomitant requirements of the employer. The authors will provide an overview of the Department of Labor’s Final Regulations interpreting USERRA, which can be accessed directly at http://www.dol.gov/vets/regs/fedreg/final. Most importantly, the authors will offer practical, viable options to the employer in order to maximize the utilization of the citizen soldier and to ensure USERRA compliance.

Leaves of Absence Policies

In the United States, Leaves of Absence policies relate to Pregnancy Disability Leave, Family Medical Leave, Disability Leave, Sick Leave, Jury Duty Leave, Workers’ Compensation Leave, State Disability Leave, and Military Leaves of Absence. When employees serve in the military during their employment, the company is required to either hold their jobs open or re-employ them in similar positions when they return from their military duties.

The Veterans’ Benefits Improvement Act, enacted by Congress in 2004, requires all employers to provide a notice of rights under USERRA to all persons entitled to military leave of absence rights and benefits. Virtually anyone who has been absent from work due to “service in the uniformed services” is protected by these laws. Military service includes: initial duty for training (e.g. basic training), inactive duty training (e.g. weekend type training), active duty training (the typical two-week summer camp training), and actual military service (active duty).

Military leaves of absence may be almost any length, with a maximum cumulative leave of five years. When the employee’s service is over, they must provide notice of intent to return to their employer. Under most circumstances, the employer must re-employ the employee.

Once the veteran has been re-employed in their job, they cannot be fired for one year, except for cause, regardless of the period of their active duty. USERRA requires employers to “promptly re-employ” an eligible returning veteran in an “appropriate position.” In most cases this must occur within two weeks of the veteran reporting back to work.

The definition of “Employer” as set forth in USERRA is not the same as in other federal statutes: It includes “individual supervisors and managers” who have been delegated control over employment opportunities. These individuals may in fact be held personally liable as an “employer” under USERRA. However, entities to which an employer has delegated administrative functions-such as for an employee benefits plan-are not included in USERRA’s definition of “employer.”[6]

Spousal Rights

Interestingly, the state of New York has gone a step further by not only protecting the employment of military personnel but also in granting certain rights to their spouses. On August 16, 2006, the New York State Legislature enacted a statute requiring private and public employers to provide up to 10 days of unpaid leave to employees whose spouses are on leave from the U.S. Armed Forces, National Guard, or Reserves, while deployed during a period of war. This law applies both to full-time and part-time employees.[7]

Seniority, Status, Pay, Promotion, and Pensions

(Photo: ilbusca)
Federal law also prohibits taking discriminatory action against any military reservists by requiring them to use their vacation time when deployed or in training for any branch of the U.S. military. It should also be noted that when a veteran is available to return to work, they are entitled to all seniority-based benefits held prior to being ordered to active duty and any other benefits that they would have earned had the employee not served in the military.

Many employers are unaware that USERRA requires that re-employment of returning service members must be in the same seniority, status, and pay that the employee would have achieved if they had not been called to active duty and remained continuously employed with their employer. Not only must the employer award the returning veteran any pay increases and promotions they would have received, but these must be applied retroactively-effective as of the date they would have been made had the employee not been required to report to active duty.

Practically speaking, many service personnel are reluctant to make an issue of “return to an appropriate position,” and tend-if they wish to have long-term employment at the business-to not complain. There is a concern that complaining too much may affect long-term relationships with the business for a short-term benefit.

There are also issues regarding whether a promotion was based upon a test. Thus if a proficiency examination were part of the promotion process, the returning service member may not qualify for the promotion. Without such testing, the theory is that the service member is on an elevator. When he steps off the elevator for military service, the elevator continues. Upon return to the business, the service member is entitled to be at the elevator’s new level.

USERRA also affords protection to re-employed service members relative to pension benefits. Military leave must be treated as service with the employer for pension vesting and benefit accrual purposes; the employer cannot treat them as if they had a break in service.

Veterans Returning from War with Various Types of Disabilities

Some employers are privately reluctant to hire people who have any disabilities. They assume that an applicant with a disability will not be able to fully handle a particular job. With regard to U.S. military veterans returning home from the Iraq and Afghanistan wars, this assumption is not only inaccurate; in most cases it is also illegal. The U.S. federal government and many individual state governments have laws prohibiting discrimination based on disabilities.

In 1990 the U.S. Congress passed the Americans with Disabilities Act (ADA), which is administered by the Equal Employment Opportunity Commission (EEOC). This federal law prohibits employers of 15 or more employees, in both the private and public sector, from discriminating against qualified individuals with disabilities in hiring and employment decisions. If a person is qualified to do the work, or to do it once reasonable accommodations are made, employers must treat that person the same as all other applicants and employees.[8]

To have a qualified disability protected by the ADA laws and regulations, a person must have a physical or mental impairment that substantially limits one or more life activities. Under the ADA, “life activities” include: walking, speaking, seeing, hearing, sitting, standing, lifting, and performing manual tasks. The idea of a “reasonable accommodation” means that employers have the responsibility to make some changes to help a disabled person do a job.[9]

For example, if a veteran returns to work with any type of leg injury that affects their ability to walk, employers will be required in a very timely manner to provide accommodations in their workplace. Some examples would include, but not be limited to: ensuring accessibility to existing facilities used by employees such as exits, entrances, and restrooms; acquiring new workplace stations that accommodate the disabled veteran; and modifying equipment or other required work-related devices for the veteran’s use.

Other employer requirements may include modifying the work schedule to enable the employee to perform the “core” content of the job for which they are qualified. Employers must keep in mind that these requirements for “reasonable accommodation” also apply to company-sponsored training programs and social events.

Perhaps the most challenging scenario for an employer is when a returning veteran suffers from post-traumatic stress disorder or other psychological disabilities as a result of their military service. In such a scenario the employer will be required to possibly modify the employee’s work schedule and policies to facilitate appropriate medical treatment and perhaps to provide some degree of accommodation through “job re-training.” The employer must also keep in mind that even though reasonable accommodations must be made to allow the employee the schedule flexibility to see various health care providers, the need for confidentiality in the workplace relative to these matters cannot be overstated. It is imperative that these matters be treated with the highest level of confidentiality.

At every level the returning war veteran employees must be given the same benefits and privileges of employment as those given to all other employees. However, a key point on this subject is that employers will not be required to lower the quality of their work or production standard, but rather to provide accommodations so that the returning veteran-because they have the necessary work knowledge and experience-will again be productive in their work environment

Employers have the right to ask questions such as: Do you need any reasonable accommodations to perform this job? If the answer to this is “yes,” the employer should then ask: What accommodations do you believe you need to satisfactorily perform the job? Employers will be expected to assist returning veterans in assessing whether they will need any type of accommodation in order to meet job requirements and the expected level of performance.

Employees who supervise other workers are required to receive training related to persons with disabilities. Many employers are not clear about these laws or actively attempt to ignore them.

However, even in cases where employers are in the midst of financial difficulties-or even in the case of layoffs-courts have regarded veterans as a special class of employee to whom special rules apply.

In 2006 a U.S. District Court in Colorado ordered Agilent Technologies to pay Lieutenant Colonel Steve Duarte, a Marine Corps Reservist who was deployed to Iraq, $383,761 for terminating him only a few months after he returned from active duty. Agilent viewed the termination as necessary because it was contending with financial difficulties. However, the presiding judge viewed the situation differently. The judge was of the view that, “Col. Duarte paid a steep price for his military deployment during his employment with the company and he deserved better.”[10]

Exceptions

There are essentially only two positions that employers may assert if they wish to be relieved of their obligations under USERRA. First is Impossibility, which may apply to situations such as reductions-in-force. It does not apply to situations where an employer would have to re-assign current employees to re-employ the veteran.[11]

Second is the defense of Undue Hardship. Unlike the defense of Impossibility, an employer may assert the defense of Undue Hardship to justify not having to re-assign an employee from his or her current job to accommodate the war veteran. To prove Undue Hardship an employer must show that the war veteran is unable to perform the job he or she held prior to being called to active duty.[12] The employer must, however, at least make reasonable good faith efforts to re-employ the war veteran in a job that is comparable to the former position in both job responsibilities and compensation.[13]

Advanced Planning

Most military commands will work with the employer to try to avoid a hardship to the business as a consequence of a deployment. There are special offices available at most commands to assist both the soldier and the employer, including the soldier’s individual unit, the superior headquarters judge advocate offices, and the human resources sections.

The employer should work out a plan with the citizen soldier employee in advance regarding notification of when their military duty is expected and for what length of time. If the employee has essential skills needed by the company, the deployment can sometimes be deferred to another date. The military wants its citizen soldiers to have minimal stress resulting from deployment and return to the community.

Conclusion

Many of our citizen soldiers return to work with excellent technical skills in areas such as computer and information technology, project management, and operations efficiency as well as excellent team-building skills, and leadership skill-sets. In terms of personal and professional characteristics, they return with the ability to focus on clearly defined expectations, function well in a results-oriented environment, handle themselves in a complex work environment, and function well in high pressure and stress environments.

In the wake of the wars in Iraq and Afghanistan it is particularly important to recognize the significance of the military’s role in today’s society and to understand the employer’s responsibilities as well as the implications of providing sources of employment for our military veterans returning from war. A good way to ensure that a citizen soldier will be a successful part of your business is to know the guidelines of employment rights in advance.

Can we ask our soldiers to deploy to train or fight our wars, and then not get their jobs back when they return? We all have a responsibility.

Action Steps for Employers

Carefully review the Employee Handbook/Policy Manual to make sure that it is up to date and in compliance with all new state and federal laws.
Review the company’s recruiting and hiring practices to ensure that all activities, policies, and procedures in this important area of employment meet current legal guidelines for the recruiting and hiring of employees.
Establish “job descriptions” for all positions in the company. It is extremely important for employers to clarify the “core requirements” and “essential skill-set and knowledge needs” for each position. Employers should document all “essential job functions” for important job positions accurately and realistically. Employers must stay current, be flexible, and review job descriptions with current and potential employees.
Review all policies related to leaves of absence. These policies should not only be updated and in full compliance with current laws, but employers must make sure that all policies in these areas are applied “consistently” and “equitably” within the organization.
Familiarize yourself with the current laws and regulations pertaining to Military Service Leaves of Absence.
Familiarize yourself with the current laws and regulations covered by the Americans with Disability Act (ADA).
Obtain expert advice regarding the “reasonable accommodations” to be considered for employees or job applicants with any type of disability. Examples of “reasonable accommodations” include (but are not limited to): modifying an employee’s work schedule; providing an interpreter; making all physical facilities accessible; and acquiring accessibility equipment. This reasonable accommodation obligation is an ongoing duty and may arise at any time.
Familiarize yourself with all employee benefits (including health insurance coverage). Returning veterans will be entitled to their benefits in the areas of health insurance, 401K participation, company profit-sharing plans, group term life insurance policies, disability insurance coverage, cafeteria plans, and other employee benefits.
Understand the obligations and the legal rights and entitlements of employees pertaining to “General Notice of COBRA Healthcare Insurance Continuation” coverage.
Review all “Workplace Safety” policies. Ensure compliance with all OSHA (U.S. Occupational Safety and Health Administration) and Cal-OSHA, which requires employers to provide a safe and healthful workplaces for employees. There are severe penalties levied for violation.

Additional References

2007 California Labor Law Digest
Veterans’ Employment and Training Service
U.S. Department of Labor USERRA Advisor. http://www.dol.gov/elaws/userra.htm

[1] Uniformed Services Employment and Re-Employment Rights Act of 1994, 38 U.S.C. ; 4301:4334 (2005).

[2] Heather DePremio. “Article, Essay & Note: The War Within the War: Notice Issues for Veteran Reemployment,” Naval Law Review, 53, (2006): 31.

[3] National Veterans Foundation. “Facts About Veterans: Needs and Solutions,” http://www.nvf.org/?q=facts-about-veterans-needs-and-solutions.

[4] “Veteran says he was forced out of VA job,” Associated Press, May 11, 2006.

[5] Gil A. Abramson. “Commentary: Employers need guidance when soldiers come back to work,” St. Louis Daily Record/St. Louis Countian, February 5, 2006, Commentary Section.

[6] “DOL Finalizes USERRA Regulations Detailing the Reemployment Rights of Military Service Members,” Mondaq Business Briefing, January 10, 2006.

[7] Lauren Malanga Casey, Epstein Becker & Green P.C. “Employers’ Obligations Extend to Military Spouses,” New York Employment Law Letter, (New York, M. Lee Smith Publishers: 2006): Sec. 202-i.

[8] California Chamber of Commerce. “California Chamber of Commerce Employer Guidelines,” California Chamber of Commerce Newsletter, 2007 Business Issues and Legislative Guide, May 14, 2007.

[9] Equal Employment Opportunity Commission. California Chamber of Commerce Newsletter, 2007 Business Issues and Legislative Guide, February 1, 2007, page 2. California Department of Fair Employment and Housing. California Department of Fair Employment Legislative Guide Journal, Significant Litigation Section, (05/14/2007): 41. 38, U.S.C. ; 43 (2007).

[10] “Rehire Veterans,” The Washington Times, March 22, 2006, Editorial Section, at A16. Marcel Quinn. “COMMENT: Uniformed Services Employment and Reemployment Act (USERRA) – Broad in Protections, Inadequate in Scope,” University of Pennsylvania Journal of Labor & Employment Law, 8, (2007): 237.

[11] 38 U.S.C. ; 4312(d) (1994).

[12] 38 U.S.C. ; 4312 (d)(1)(B); 38 U.S.C. ; 4312(d)(2)(B) (1998).

[13] 38 U.S.C. ; 4312(d)(1)(B); 38 U.S.C. ; 4312(d)(2)(B) (1998).

About the Author(s)

Issue: 2007 Volume 10 Issue 3

Alternative Dispute Resolution

admin — Wed, 08 Feb 2006 23:53:56 +0000

Using ADR to Resolve Worker’s Compensation Claims

By Jeffrey Schieberl, JD

Graziadio Business Review 2006 Volume 9 Issue 4

Dispute resolution has traditionally been viewed as a process by which a party either wins or loses. Generally, the resolution of the dispute is externally imposed and is often characterized by at least one of the parties as less than satisfying. The traditional adversarial legal system is not well suited for the resolution of some types of workplace related disputes. This article explores the application of contemporary Alternative Dispute Resolution (ADR) methods to the resolution of worker’s compensation claims, which are usually settled using conventional litigation. ADR can provide the employer as well as the employee tangible benefits that cannot be realized by adherence to a traditional dispute resolution process. It is consequently prudent for a contemporary business manager to become familiar with ADR and its applicability to worker’s compensation claims.

(Photo: Keith Syvinski)

The utilization of ADR tools by the business community continues to increase. A variety of reasons underlie this shift from traditional court litigation of disputes. The most commonly cited reason for the shift is the markedly reduced cost incurred for resolving disputes using ADR. However, the notion of fairness as well as the freedom to fashion unique remedies also serve to distinguish ADR from litigation. Furthermore, ADR provides contesting parties with significantly greater control over the process of dispute resolution as well as determines who will serve as the neutral party in effectively resolving the dispute. This article focuses on the form of ADR known as mediation and its applicability to worker’s compensation claims.

Mediation

The California Evidence Code defines “mediation” as being a proceeding which involves a neutral person(s) who facilitates a mutually acceptable resolution of the dispute by and between the parties to the dispute.[1] Generally the mediator is an individual who employs techniques that allow the parties to readily identify viable means of resolving the dispute.

Of significant interest to those in the business community is the notion of confidentiality as it pertains to mediation. The general rule is that what is said or communicated during a mediation is treated as confidential. This confidentiality means that no participant can repeat what is said in the mediation. Therefore, one must always be cautious when discussing confidential information and be very selective as to what information is permitted to be discussed.

It should also be noted that in mediation the parties to the dispute are very participative. They generally have the opportunity to speak to each other either directly or through the mediator. Such is not the case in court litigation. Consequently, mediation permits the parties to explore the issues in a manner that leads to better understanding and optimizes the likelihood of resolution.

Very importantly, it must be also recognized that unlike the litigation process, mediation allows for more creative solutions to be posed as well as remedies best suited to the parties and the issues at hand. For example, court litigated disputes can be resolved by awarding monetary damages, specific performance, or an injunction. On the other hand, mediation has few limitations as to how the resolution of the dispute is fashioned. It generally allows the parties to resolve the dispute predicated upon any terms that participants may find acceptable. This feature of mediation also increases the likelihood that the parties will be able to reach agreement upon resolution of their dispute.[2]

Worker’s Compensation and Mediation

State administered worker’s compensation systems are essentially social insurance programs in which state law generally mandates employers’ participation. Public policy dictates that workers must be provided medical care for work-related injuries and in some instances for diseases contracted in work environments. Most of the systems also provide injured workers with some form of cash benefits.

State worker’s compensation legislation was first considered early in the twentieth century. It was designed to provide workers with appropriate medical care as well as cash benefits for their work-related injuries and to limit employer liability. Interesting to note is that the legislation incorporated a concept that was uncommon in common law. The notion of “liability without fault” was the centerpiece of state worker’s compensation legislation.[3] This provision allowed the employee to obtain appropriate medical care for work-related injuries without having to establish responsibility on the part of the employer.

Today employers and employees alike are expressing concerns about delays, increasing costs of worker’s compensation programs, and the quality of medical care that such programs provide. The recently authorized ADR-based worker’s compensation systems create not only a dispute resolution system, but also may authorize light-duty work assignments, modified job assignments, return-to-work plans, approved lists of medical providers, and may create safety committees and training programs. However, at the core of these systems are the dispute resolution and medical care components.[4]

According to Levine et al., proponents of ADR-based worker’s compensation claim that this process lower rates of injuries and worker’s compensation claims, improve medical care, minimize friction in dispute resolution, and reduce dispute resolution costs.[5] Opponents of that view point to shortfalls in due process, in access to medical care, and in the distribution to workers of ADR’s cost savings. Evidence pertinent to these conflicting views has tended for the most part to be anecdotal.

Findings regarding worker’s compensation dispute resolution in California since 2002 are mixed. On the one hand, a Rand Corporation evaluation of California’s “traditional” worker’s compensation system flagged three principal complaints: 1) courts were too slow, 2) litigation had become increasingly expensive, and 3) the court procedures were inconsistent throughout the state.[6] The Rand authors attributed these problems to funding and staffing issues rather than to anything inherent in the traditional statutory system.

However, a California Worker’s Compensation Research Institute analysis comparing some 2,200 ADR claims with 9,600 claims under the traditional system called its findings “a sobering and much-needed reality check that, to a great extent, tempers the expectations of significant savings and improved systems efficiencies promised by the [statutorily authorized] expansion of California’s ADR programs.”[7] The authors called for additional research regarding ADR based worker’s compensation systems. However, given the lack of evaluations to date, the inconclusive findings of the few existing studies and the general expansion of ADR programs in other workplace contexts [see, for example, David B. Lipsky et al., Emerging Systems for Managing Workplace Conflict, 2003], it is clear that careful consideration of the issues is warranted. Comprehensive follow-up analyses of California’s experience with these programs would provide a valuable contribution to public policy regarding worker’s compensation and ADR systems in general.

Business Community Concerns

(Photo: Zapa Csitul)
A common concern expressed in the business community regarding ADR-based worker’s compensation systems speaks to the issue of the binding nature of mediated claims. Some take the view that a mediated worker’s compensation claim lacks the binding effect of a litigated claim. This assertion seems to be unfounded. Most often a mediated claim that is properly documented will be deemed by a court to be enforceable. For example, in Florida a claimant appealed a ruling enforcing a mediation agreement that served to settle his entire worker’s compensation claim.[8] The 1st District Court of Appeal affirmed Judge of Compensation Claims John P. Thurman’s ruling that a claimant and an employer/carrier intended to settle a worker’s comp claim by the agreement that they reached during mediation. The court concluded that the settlement was correctly enforced against the claimant.[9] In another matter, (Sponga v. Warrow, 698 So. 2d 621 (Fla. Dist. Ct. App. 1997), the court found that a party’s unilateral mistake in entering into a settlement at a worker’s compensation mediation did not justify rescinding the agreement.[10]

Carve-Out Agreements

In some instances, states have decided to allow unions and management to “carve out” through negotiation a worker’s compensation system that utilizes an ADR-based system administered by the state. In effect the ADR-based worker’s compensation system functions outside of the state statutory system.

One of the early ADR-based worker’s compensation systems was a “carve-out” program that involved Bechtel and the Pioneer Valley Building and Construction Trades Council. The program was formed through a collective bargaining agreement governing a single large construction project. The Bechtel experience was significant because worker’s compensation costs per hour fell from $2.21 to $0.98. This decline was due to fewer lost time claims, which fell from 11 claims in the eight months before the carve-out to two claims in the following eight months, even as overtime employment increased slightly.[11]

Proponents of carve-out programs expect these programs to reduce the number of disputes and to shorten resolution time by allowing employers and unions to negotiate ADR procedures. These procedures generally begin with an ombudsperson who is expected to attempt to resolve disputes quickly. Disputes that the ombudsperson cannot resolve proceed to mediation, then to arbitration. These ADR procedures are expected to be more efficient than is the state-run statutory system, which involves a lengthy and legalistic procedure for dispute resolution that confuses many workers[12]. Dispute resolution in the California system also costs employees and employers almost one-third of all disputed medical and indemnity benefits. In addition, claim resolution in the statutory system is a long process in California. Half of all permanent disability claims are unresolved three years after a given injury, and 20 percent of the claims remained unresolved five years later.[13]

A controversial component of most carve-out agreements is the exclusion of lawyers from participation at the ombudsperson and mediation stages of the dispute process. If mediation fails, a case can go to arbitration. The joint labor-management committees appoint the mediators and arbitrators who, in practice, are usually former worker’s compensation judges. In the statutory system, workers are represented by a lawyer in 80 percent of injury cases resulting in permanent disability. Many of the employers and union leaders who participate in carve-outs believe that heavy reliance on attorneys and the corresponding excessive disputes are main causes of the high cost of litigation and the delays in claim resolution.

Disputes often require forensic doctors to report on issues related to legal questions, such as whether a given condition is work related, the extent of permanent disability, and the share of the impairment due to prior injuries. Carve-outs allow the parties to negotiate a limited list of medical evaluators whose opinions both sides respect. Numerous statutory and regulatory measures have been adopted in an effort to limit the incentive for parties to choose doctors who evaluate in a partisan manner. Much of the complexity of these regulations is in place to protect injured workers, particularly unrepresented workers who are typically less informed than are insurers regarding the selection of favorable evaluating doctors.

Carve-outs must meet two requirements: 1) They cannot diminish scheduled indemnity benefits to injured workers; and 2) They must make the final step of their dispute resolution system an appeal to the Worker’s Compensation Appeals Board for reconsideration. This board is also the last administrative law step in the standard system. Parties may appeal a Worker’s Compensation Appeals Board ruling to the State Courts of Appeal.

Conclusion

As noted early in this discussion, there is a departure from reliance upon traditional litigation to resolve worker’s compensation based disputes. The underlying reasons for the departure are compelling. A contemporary business organization would be well advised to become acquainted with the reasons driving the reforms considered in this discussion.

ADR-based worker’s compensation systems are gaining acceptance among state administrators. According to the International Association of Industrial Accident Boards and Commissions (IAIABC), approximately two dozen states are currently utilizing some form of ADR to resolve worker’s compensation claims. It seems likely that in the future, more states will implement ADR-based worker’s compensation systems or modify existing systems to comply with recommendations made by the IAIABC. Each state will have to contend with the issues differently. Some states may be able to integrate changes into their administrative rules. Other states may have to implement changes through legislation.[14]

ADR experts advocate the use of mediation as the first step in dispute resolution. If that method is unsuccessful, then they advocate the parties initiate arbitration. Litigation today is viewed as the least attractive option when there is a need to resolve a dispute.

An employer should give serious consideration to adopting an ADR-based worker’s compensation system. If employees are unionized, then such a system must be negotiated with the union. If employees are not unionized, then generally negotiation is not necessary. Use of an ADR-based worker’s compensation system can potentially yield significant cost savings and improvement in employee morale.

[1] California Evidence Code Section 1115.

[2] “Difference Between Mediation, Arbitration ADR Procedures,” San Fernando Valley Business Journal, 19 June 2006.

[3] Report of the National Commission on State Workmen’s Compensation Laws. 1972.

[4] John H. Lewis, 1972, “Improving Worker’s Compensation through Collective Bargaining,” John Burton’s Workers’ Compensation Monitor, November/December 1994; Ellyn Moscowitz and Victor J. Van Bourg, “Carve-Outs and the Privatization of Worker’s Compensation in Collective Bargaining Agreements,” Syracuse Law Review, 46:1, 1995.

[5] David I. Levine, Frank W. Neuhauser, Richard Reuben, Jeffrey S. Petersen, and Cristian Echeverria, Economics and Social Security and Substandard Working Conditions: Carve-Outs in Worker’s Compensation: An Analysis of the Experience in the California Construction Industry. (Kalamazoo Mich.: W.E. Upjohn Institute for Employment Research, 2002), 175.

[6] Nicholas M. Pace, et al., Improving Dispute Resolution for California Injured Workers, 2003.

[7] Alex Swedlow and Laura B. Gardner, California Worker’s Compensation Alternative Dispute Resolution System: Attorney Involvement Rates and Claims Costs, 2004, p. 8.

[8] Florida Worker’s Compensation Law Bulletin, 12, no. 22 (March 8, 2006).

[9] Calderon, Roberto v. J. B. Nurseries, Inc., 12 FLWCLB 267 Fla. 1st Dist. Ct. App. 2006.

[10] Sponga v. Warrow, 698 So. 2d 621 (Fla. Dist. Ct. App. 1997).

[11] Extracted from correspondence.

[12] Sum, J., and Stock, L. Navigating the workers compensation system. Berkeley: University of California 1997).

[13] Ibid.

[14] Meg Fletcher, Business Insurance, Chicago, January 16, 1989, 23, no. 3: 13

About the Author(s)

Issue: 2006 Volume 9 Issue 4

What You Need to Know about Attorneys’ Fees

admin — Fri, 09 Sep 2005 22:44:32 +0000

Knowing the types of attorney compensation arrangements may help you negotiate more favorable fees.

By Michael Magasin, JD and Jeffrey Schieberl, JD

Graziadio Business Review 2005 Volume 8 Issue 1

A continuous source of attorney-client frustration is the matter of attorneys’ fees. The purpose of this article is to provide the business person, or for that matter any person, fundamental knowledge based on the authors’ experiences regarding the types of basic arrangements for legal billing and costs, as well as some thoughts about how to select an attorney.

Before entering into any legal representation or fee arrangement, one should have a basic understanding of the types of attorney compensation arrangements. The first step in the process is to select an attorney, but keep in mind that part of the selection process relates to fees and costs. From the perspective of the client, it is imperative that one recognize that all forms of attorney compensation are negotiable.

There are three basic types of attorney compensation arrangements–contingency fee, hourly fee, and flat fee– but there are variations of each arrangement.

Contingency Fee

A contingency fee provides for compensation to the attorney for his or her legal services based on a percentage of the recovery. This type of arrangement is typically used for personal injury matters (negligence actions, such as car or slip-and-fall accidents), but it can be used for other types of matters as well. The fee range can be from 25 percent to 40 percent and may even differ from those figures. The typical fee is 33 1/3 percent of the gross amounts recovered.

The actual contingency fee is a matter of negotiation between the attorney and client. Usually, the fee is related to the likelihood of recovery and the amount of that recovery. Thus, if obtaining a favorable result will be difficult, the fee percentage will usually be higher. Likewise, if the recovery amount is going to be small, the fee percentage will also be higher. If the matter will require significant time and effort and the likely amount recoverable is small, the attorney will probably not undertake the representation.

Other important considerations in the contingency fee arrangement include the amount against which the percentage is determined. “Gross amounts” refers to all amounts that are received. If you have expenses that you want offset from the percentage of the recovery, you should spell those out in the agreement, or the agreement should include terms such as “after expenses are deducted.” Examples of such types of expenses that can be listed are such things as court costs, expert witness fees, copying costs, and investigation costs.

Modified Contingency Fee

(Photo: Melissa Ramirez)

Another way of using the contingency fee arrangement is called the modified contingency. In this situation, an hourly rate is used as well as a contingency fee. The hourly rate is greatly reduced and the percentage is also less, although there can be variations as well as offsets. The modified contingency provides the attorney and the client the opportunity to go forward with a case in which the probability of recovery is not great or the likely amount of recovery is limited. It can also be used when the case may take a substantial period of time to resolve. The attorney may favor this approach because of his or her particular situation. For example, it could be difficult for the attorney to carry the case for a long period of time without receiving compensation. A modified contingency arrangement can also be used as an incentive for the attorney to take a case that he or she might not otherwise take for any of a number of reasons.

Hourly Fee

The hourly rate that attorneys charge depends on a number of factors, including subject area of the case, years of experience of the attorney, complexity of the matter and general overhead of the attorney. It is crucial that the client understand that the hourly rate is negotiable. The more the attorney sees the benefit of handling the matter–whether that benefit takes the form of fee generation, potential client referrals or publicity–the more likely the hourly fee will be adjusted.

How does one determine an appropriate hourly rate? A good way to do so is to visit the attorney’s office. What kind of expenses would be associated with the type of overhead one would relate to that office’s location and its amenities, secretarial and staff support? Differences in cost between one attorney and another could be nothing more than overhead. It is not unusual for an attorney to budget 60 percent of his income for overhead.

Another important factor affecting hourly rates is the potential risk to both the client and the attorney. If the subject area of the case is one of high risk to the attorney, such as exposure to liability, then it is likely that the hourly fee will be greater. Examples of potential risk scenarios include securities, estate planning, tax, and real estate matters. An attorney’s liability insurance rates and the staff needs are greater in such cases.

At the other end of the spectrum of cases having serious implications are criminal cases. Generally, more discretion is provided to the attorney in criminal cases than in other types of legal matters. Thus, liability for error is usually more difficult to establish, and liability insurance–a substantial legal cost–is considerably less in criminal cases. As a consequence, legal fees in criminal cases are usually comparatively less than in other types of cases. Note, however, that there are numerous exceptions. Securities or tax work in the criminal area can be very costly in terms of hourly fees. One should ask whether the hourly fees are charged for travel time from the attorney’s office to court or to meetings. Another important question pertains to whether the attorney charges a minimum billing time. For example, some attorneys bill a minimum of 15 minutes for every task–whether it is making/receiving a telephone call or voicemail message, or sending/retrieving an email message–regardless of the actual time spent on the task.

As one might expect, there are refinements of the hourly rate fee arrangement. One that has particular significance is the equity arrangement. In this situation, the attorney receives a part of the equity in the transaction in exchange for his services. The refinement can also take the form of a reduced hourly fee with an equity interest. Such an arrangement is often utilized in establishing businesses. In such cases, the client wants to keep start-up costs to a minimum and yet requires attorney assistance.

Flat Fee

The remaining standard type of fee arrangement is the flat fee. This type of fee is often used in criminal cases and is also used for standard types of representation, such as incorporation, an estate plan, or the drafting of a will. In the criminal case, the attorney makes a projection of what he thinks the representation will cost. He attempts to obtain a fee for that amount “up front.” Experience has shown that when clients are facing the horrific consequences of a criminal proceeding, they want representation and genuinely believe that they can afford it. However, what typically happens is that the client makes an initial payment and then does not pay the balance.

In small cases, it is not economically worthwhile for the attorney to pursue recovery of the small flat fee. Accordingly, most attorneys in small criminal cases will attempt to get as much of the flat fee upfront as they can, recognizing that they may not get paid anything else.

In the larger fee cases involving corporations or key executives, the collection issue is not as significant. In those situations the client usually pays a substantial retainer at the outset of the case and then is billed hourly for the continued representation. In other types of matters such as estate planning or formation of a corporation, the flat fee or some portion of it is paid at the time that the attorney/client relationship is formed, and the remaining balance is billed either monthly or at the time of completion of the work. It is important to note that in criminal cases, representation of a client may occur for only one incident, whereas in other matters, a long-term relationship in which the client needs continued support is likely. The problem of fee collection is thus a less significant problem in long-term relationships.

Knowing the basic types of fee arrangements, one must also remember that the cost and character of the legal fees are negotiable. Also negotiable, but not to the same extent, are costs incurred by the attorney during the representation. Such costs may include telephone calls, photocopying expenses, expert witness fees, investigator fees, and travel expenses.

Before the First Conference

(Photo: David Di Biase)

So what should a person planning to retain a lawyer do?

Before meeting with the attorney, gather and organize as much data as you can. Try to develop a clear understanding of the issue(s) or matter(s) for which you are seeking legal advice. Ask yourself, “What will the attorney need to know to determine whether to undertake representation?
Organize the material; it saves time, and therefore reduces legal fees. Well organized documentation also makes the attorney more inclined to provide a reduced contingency, hourly rate, or flat fee because the attorney senses that you may be able to assist in the case preparation and that the case may therefore present less difficulty. A chronological approach to the facts helps the attorney to understand what has happened.
If possible, speak to someone who has retained an attorney in a similar matter, and find out what his or her thoughts were about the representation, the legal fees and costs. Attorneys who receive referrals from other attorneys or clients usually do not want to embarrass their referral source. If it is an attorney who referred the case, the new counsel feels additional pressure to do well because it is possible that his or her work may be reviewed by the referring attorney.

If you have followed the previous suggestions, you have prepared for your initial conference with the attorney. What remains is to negotiate your arrangement with the attorney and have that agreement put in writing. In California, a written fee agreement is generally required if it is anticipated that the fees for the legal services will be $1,000 or more. The attorney should also provide the client with a duplicate copy of the fee agreement, and it should be signed by both parties. These are typical requirements of the State Bar Association. (For California, see Business and Professions Code Sections 6147 and 6148). The written agreement will set forth the fee arrangement and the scope of representation.

Read the agreement carefully. If you don’t understand something, ask for clarification. You can even inquire whether the attorney has liability insurance and whether there have been any claims filed against his practice. You can also check with the appropriate State Bar Association to determine whether there have been any complaints or disciplinary actions against the attorney.

Remember that the best way to get a lawyer is by referral from another attorney or from someone the attorney previously represented. Be aware that there may be financial considerations in the referral. Inquire whether there is a referral fee. Such a fee is allowed, but it cannot increase the client’s fee. In our experience, the best attorneys, unless they are contributing to the handling of the matter, generally do not ask for referral fees; they usually just want the referred client to be provided professional, competent services.

This article is intended to provide an overview of the attorney/client fee relationship. It is hoped that this information will provide the reader with new insights. The reader is encouraged to contact the State Bar Association of his or her state for further information and specific requirements in that jurisdiction.

About the Author(s)

Michael Magasin, JD

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Issue: 2005 Volume 8 Issue 1