Legal Trends: Crisis Management for HR

By Jeffrey I. Pasek Aug 1, 2002
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HR Magazine, August 2002Crisis Management For HR

A host of potential legal complications await employers and HR professionals who don't plan ahead for a dark day.

hen disaster strikes your business, there will always be significant human resource issues to address—often very quickly. In the aftermath of any disaster, business leaders must decide whether and how to move forward.

Such decisions must necessarily involve employees, who are a critical component of any recovery plan. If you fail to manage employees well and meet their needs, your other recovery efforts may be futile. Even if you decide that a facility or the entire business cannot reopen, it will be essential to respond to employee concerns to avoid or minimize legal liability.

Sound disaster planning requires that human resource issues be recognized as being of prime importance, and adequate attention must be given to these issues both in the preventive and remedial aspects of any disaster prevention and recovery plan.

In such situations, it should be your goal to:

  • Comply with local, state and federal laws and regulations.
  • Meet employees’ needs at a time of crisis.
  • Preserve the human capital necessary to enable the company to recover from the incident and resume productive operations.

By understanding some of the fundamental issues that need to be addressed in a post-emergency incident response, you can devise preventive steps that can maximize the chances your business will be able to recover.

Interruptions of the Normal Work Routine

Any casualty event will disrupt your employees’ ability to conduct their normal work activities. For example, if there has been a fire or explosion, employees may not have an office or a factory to return to. In the event of a natural disaster such as a flood or hurricane, they may be unable to access the work site for a considerable period of time. In the event of bioterrorism or a disabling cyber attack, there may be no way for employees to use the facility or access the information necessary for them to do any meaningful work.

The first thing you may need to do after a disaster is let employees know that they should not report to work. This may not be a simple process. And federal, state and local efforts to protect employees from surprise plant shutdowns may complicate your task.

At the federal level, the Worker Adjustment and Retraining Notification Act (WARN) requires covered employers to provide 60 days advance notice of a plant closing or mass layoff. Even a temporary plant shutdown may be covered if it results in an employment loss to 50 or more employees during any 30-day period. Besides notifying employees, companies also must notify state or local officials. Failure to do so can expose employers to government fines and an obligation to continue to pay wages and benefits to the affected employees.

At a time when husbanding corporate resources may be critical, having a WARN exposure may further drain those resources and even prevent a company from being able to reopen.

WARN does provide exceptions to the 60-day notice requirement—if the plant closing or mass layoff is due to a form of natural disaster, such as a flood or earthquake, or if it is caused by “business circumstances that were not reasonably foreseeable as of the time notice would have been required.” However, these exceptions are very narrowly construed.

Some companies have concluded they have not had to worry about WARN because they believed they fell within these exceptions. But the statute states that even when there is a justifiable reason for giving less than 60 days advance notice, employers “shall give as much notice as is practicable and at that time shall give a brief statement of the basis for reducing the notification period.” In several reported cases, employers have been liable for the full 60 days of wages and benefits because they failed to meet this requirement.

Could your business meet the reduced notice standard if it no longer had access to its employment records in either hard copy or electronic form? To whom would the notices be sent?

In addition, WARN is not the only source of an employer’s obligation in this area. State and local laws in many jurisdictions provide enhanced notice requirements and remedial provisions. In addition, collective bargaining agreements also may obligate employers to provide certain notices before the obligation to pay wages can be suspended.

Meeting Union Bargaining Obligations

In a unionized setting, employers may not be free to respond unilaterally to all of the concerns that must be addressed immediately after a disaster. Under some contracts, unions share governance with employers over such issues as wages, hours and other terms and conditions of employment. Depending on what the union contract says about the issue, the company may be required to begin immediate negotiations with the union representative.

Even if a union contract allows an employer to take unilateral action in laying off employees, transferring production, relocating bargaining unit work, etc., employers are still required to negotiate in good faith with their union counterparts over the effects these decisions will have on bargaining unit employees. Failure to engage in so-called “effects bargaining” may subject the company to sanctions by the National Labor Relations Board—including being ordered to reopen a plant, under certain circumstances.

Meeting Employee Needs

When a disaster strikes, employees still must be paid. At such times, they may need the money more than ever. Paying accrued wages when due is more than a contractual obligation of the employer; many state laws make it a criminal violation for an employer to fail to pay wages when due. Some of these laws also grant employees liquidated damages, statutory penalties or attorney’s fees.

Moreover, the majority of these laws extend liability to the corporate officers who have the authority to pay the wages. While coping with the other aspects of a disaster, the last thing a CEO needs is to be arrested on a criminal violation for not paying employees.

Benefit plan administration also needs to be maintained during a disaster. Health claims, life insurance claims and disability claims need to be processed and resolved. In the aftermath of Sept. 11, there were many families of World Trade Center employees who were unable to resolve benefit issues. Fortunately, emergency relief funds helped tide many families over the immediate period of shock. It is far from clear that such disaster funds will be available in the future.

If a disaster involves particularly traumatic events, such as an incident of workplace violence or a natural disaster in which co-workers’ lives are lost, survivors may need counseling services. Security, biohazard or other personal protective measures may need to be put into effect. It is legally essential to offer employees a safe and healthy workplace, and it is necessary on a practical level that employees have the psychological comfort of knowing that it is safe to come to work.

Government Investigators

If workplace deaths are involved, the Occupational Safety and Health Administration (OSHA) must be called within eight hours so that an investigation can be launched. In addition, other investigations may be initiated by local law enforcement, the Environmental Protection Agency, the Chemical Safety Board or a host of other agencies.

When disaster strikes, a team of company representatives must be ready to:

  • Meet with OSHA or other agencies.
  • Guide the inspection process.
  • Oversee responses to government requests to inspect facilities and documents and to interview employees.

This is a particularly important issue because OSHA can impose enormous fines and even refer matters for criminal prosecution.

Intellectual Property Concerns

A fire, flood, explosion or other disaster may mean that large numbers of outsiders suddenly have a legal right to enter your premises. As a result, the security of trade secrets or confidential proprietary information may be compromised.

Therefore, access and information security controls need to be imposed. Centralized coordination must be used to control document production, and access to witnesses and pertinent physical evidence. Individuals who are given access to the site may need to sign releases or agreements to protect proprietary information. If not already in existence, restrictions will need to be implemented—even on law enforcement agencies—concerning duplication of confidential documents or photographing sensitive equipment or installations.

Safeguard Employee Assets

Most companies have elaborate security arrangements to protect their plant property and equipment. But every night, when the employees go home, they may carry with them the company’s most valuable resource—its intangible property.

As our country has shifted from heavy industry to a knowledge-based economy, the value of a company’s trade secrets has grown. Unfortunately, many businesses fall short in their efforts to protect themselves and their intangible property. This can be best accomplished by identifying trade secrets and other confidential information and designing a program to prevent employees from using this information for their own benefit or that of the competition.

In the immediate aftermath of a disaster, employees naturally will worry whether they will have jobs to go back to, or whether those jobs will be secure. At such times, they are particularly vulnerable to overtures from your competition. It will not help your efforts to rebuild a plant if all of your customers have been pirated away with the sales force.

The only effective way to prevent this is to identify key employees and lock them in with binding agreements prohibiting them from working for the competition for a period of time after their employment ends. These agreements can be combined with confidentiality and no-solicitation agreements to safeguard the kind of non-balance sheet assets that will never be covered by an insurance policy.

Preventive Planning

A review of the foregoing post-disaster checklist reveals that there are many steps than can be taken in advance to prepare for a crisis. These actions will allow corporate executives to concentrate on other important issues, confident that they have already acted to reduce their risk of liability and satisfied the immediate needs of one critical stakeholder group: the employees.

Among the items that should be considered in advance of a crisis:

  • Prepare a plan to reach your employees in time of crisis when normal channels of communication and access to records may not be available.

  • Arrange contingency plans to meet payroll obligations and to ensure that benefit plan claims can be processed and resolved.

  • Check with your Employee Assistance Plan provider to ensure that crisis counseling services are available if needed.

  • Develop a plan to respond to reasonably anticipated events, such as an incident of workplace violence, so that internal players know their roles and outside providers—such as security consultants and legal advisors—understand in advance what will be required of them.

  • Protect your intellectual and human capital, not only in the form of trade secrets, but also by preventing employees from deserting en masse to your competitors.

Jeffrey I. Pasek is the chair of the Labor and Employment Law Department and a member of the Crisis Response and Management Group of Cozen O’Connor in Philadelphia.

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