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While it may be a new economy, many technology-sector companies are finding out the hard way that some old laws still apply. As job losses and workforce reductions mount throughout the industry, increasing numbers of downsized dot-com employees are resorting to a time-honored, American-as-apple-pie strategy for redressing grievances against their former employers — litigation. For many employers, the concept is far from novel. Any seasoned veteran of human resource wars can tell you that any employee termination — even in times of relative economic difficulty — presents some risk of a suit. But, among technology companies, those risks are proving somewhat greater. Many are relatively new ventures, formed amidst the sanguinity of a bull market that would put the streets of Pamplona to shame. Owing largely to a belief that the sky was, in fact, the limit, many of these companies grew quickly. Employees remained steadfastly loyal, in anticipation of continued growth, an eventual IPO and a huge payday. As fortunes shifted, the situation changed. Throughout all segments of the technology industry, companies are eliminating jobs and reducing head counts. In many cases, these workforce reductions are planned and executed by younger managers who have never soldiered through an economic downturn and, thus, have never had to play the role of “corporate grim reaper.” This relative inexperience in dealing with layoffs — coupled, in some cases, with a lack of familiarity with applicable employment laws — has led many employers to decisions that have come back to haunt them. Growing numbers of laid-off tech-sector employees are hitting their former bosses with suits and administrative claims. Discussion of possible claims can be found in Internet chat rooms and on Web sites frequented by technology company employees. The nature of the claims asserted is as rich and varied as the range of targeted employers. Those companies that have merely trimmed their head counts by choosing smaller numbers of individual employees for layoff or reduction see garden-variety employment discrimination claims under state or federal civil rights laws (e.g., Title VII, the Americans With Disabilities Act or the Texas Commission on Human Rights Act). Companies that have met with total or near-total financial meltdowns and slashed entire groups of employees see claims for fraudulent misrepresentation (e.g., as to financial performance or value of stock options) or failure to keep promises regarding compensation. Those that have shut their doors with little or no notice fight claims for back wages or payment for accrued vacation time under the Texas Payday Act, and in some cases, for failure to provide required notice under the Workers’ Adjustment and Retraining Notification Act. And the specter of liability for unpaid overtime wages under the Fair Labor Standards Act casts a lengthy shadow across the entire technology sector. INCREASING DANGERS The danger for high-tech sector employers is two-fold. Potential liability for money damages in the event of a jury verdict or court order is one thing, but for companies that already may be feeling the strain of limited capital, the legal fees incurred in defense of employee claims pose an added danger. No solution is perfect. Employment litigation is, to some extent, an unavoidable cost of doing business. Nonetheless, it is possible for employers to craft an across-the-board strategy for minimizing the risk of employment litigation. In most cases, the decisions that give rise to employment litigation are not the product of any malevolent intent so much as the inadvertent result of poor planning, inartful communication or simple ignorance of the law. The critical components of a prevention strategy are familiarizing management with applicable laws, carefully planning for reductions or terminations and then properly communicating the decision to impacted employees. Initially, employers should take steps to ensure that they are in compliance with all applicable federal and state employment laws. Just to provide a few examples — if employees are working more than 40 hours per week, make certain that they are either being paid time-and-a-half for the overtime worked or that they are properly classified as exempt from the overtime wage requirements of the Fair Labor Standards Act. Employee handbooks should be reviewed to ensure they contain no language that creates an implied contract of employment. The anti-harassment/anti-discrimination policy should contain clear directions for reporting workplace conduct in violation of civil rights statutes. Employers who don’t want to pay for vacation time upon separation should state specifically that vacation time is not treated as compensation. If it becomes necessary to reduce the workforce, terminations should be planned carefully. Management should document thoroughly all issues (e.g., productivity, performance concerns) that lead to the selection of one employee over another for example, and make certain that nobody is selected because of a protected characteristic. When possible, employers should consider offering some additional amount of severance pay — beyond what may ordinarily be owed under company policy — in exchange for a release of all claims, particularly when terminating employees in protected classifications. Finally, when carrying out terminations, management should proceed with care and caution. Termination meetings should be planned in advance. Managers should follow some sort of script, to ensure that the reason for the termination is clearly communicated and prevent any potentially damaging comments during the meeting. When possible, employees’ final payroll checks and all appropriate paperwork relating to employee benefits or severance packages should be prepared in advance. If releases are offered, they should be presented in the termination meeting. Above all, employers must be consistent in the application of criteria or policies for selecting employees for layoff, and in the procedures for carrying out those terminations. These steps are just a starting point. Precise needs and strategies will vary from one employer to the next. And following each one is no guarantee that an employer will not face litigation from a disenchanted former employee. But if that event comes to pass, the steps taken to ensure a fair process that is sensitive to the affected employees will improve the employer’s posture in any litigation that may come.

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