Tag Archives: layoff

How to Limit Claims Post-Termination

With increasing frequency, I am seeing post-termination claims being filed against employers who otherwise are doing an excellent job providing a safe work environment and comprehensive safety training.

It is impossible to develop statistics on this kind of claim, but anecdotal evidence indicates that there are more of them being filed. A slow economy exacerbates this problem.

It is important that we find strategies that will limit the number of these claims for the following reasons:

  1. They typically are litigated, so they are incredibly expensive.
  2. They are discouraging and disheartening to an employer who has cared about the safety of the workers and treated them well.
  3. The majority of these claims are without substance. “Fraudulent” is a term that should not be used loosely but is very often applicable here.

We never can completely wring fraud and abuse from the workers’ compensation system. Soft-tissue claims are virtually impossible to prove or disprove, so we must rely on the injured worker to be honest. That means employers must do everything possible to influence employees to be honest.

Besides getting the terminated employee to sign a waiver that she is injury-free on her last day, here are a few additional recommendations:

  • After a layoff has been announced, but before the termination has taken place, honor those people who have worked safely and injury-free during their employment with the company. Adding a small gift card is a way to thank them. By recognizing them and thanking them in a public setting, you show your appreciation, and lack of appreciation is one of the primary reasons that people file fraudulent claims.
  • If the soon-to-be laid-off workers are part of a safety team or department, make sure that they are included in any awards or recognition that is given at the end of the measured safety time period.
  • Indicate to the workforce that the company policy is to contest and deny any claims that are filed after a layoff or termination. Don’t just threaten, do it.
  • Gain agreement from your insurance carrier that it will contest any post-termination claim and not simply offer a settlement to have it go away.
  • Contact the physician who is issuing the cumulative trauma report and let him know that you intend to contest his finding. Your insurance carrier should be your ally in exposing repeat offenders.

Remember that an injury that occurs after a layoff has been announced, but before the termination takes place, sets up any post-termination claim as legitimate.

Treating employees well and creating the strongest possible safety culture are the best defenses, but incorporating additional strategies can help prevent a discouraging and expensive post-termination claim.

The Great Recession And My Business

For many closely-held and family business owners, 2008 and 2009 was a stressful period. The volatile market followed by the Great Recession often produced

  • a contraction of business revenue;
  • the loss of profitability;
  • the reduction in value of their companies;
  • the aggressive and often not rapid enough implementation of business and personal cost-cutting measures;
  • the layoffs of far more employees than these companies imagined might be necessary;
  • the reduction of personal asset values;
  • the reduction of owner pay and employee pay levels;
  • the liquidating of owner personal assets to capitalize the business;
  • the development of tenuous relations with their banks;
  • a need to reinvent their business offerings in the marketplace; and,
  • the concern about being able to meet their future financial goals.

Plus, the stress of all the previous mentioned events produced the most burdensome time of our business and personal lives. I, in fact, can say there were several occasions in 2009 when I called to reach a business owner client mid-workday to find that I reached them at home while they were nursing a stiff drink. To compound all this, while most baby boomers do not own businesses, most of our clients who own businesses are baby boomers, and the age in relation to retirement, personal savings, and lifestyle spend factors that make retirement a challenge for most baby boomers are often compounded for our business owners.

I had many a conversation with an owner who confided in me that they built their company, and would build its value again, but they were tired. Because the recession induced exhaustion, they felt that they only had the energy to build it one more time. As a result, they wanted to be very proactive and intentional about planning to maximize the business' value and minimize taxes upon their transition out of the business. It is in this regard that the development of a Business Transition Plan is of paramount importance. The development of a Business Transition Plan involves multiple steps:

  1. Identifying the owner's financial and timing objective for the transition out of the business.
  2. Assessing the business and personal resources available to help contribute to the owner's objectives.
  3. Developing and implementing strategies that will contribute to maximizing and protecting the value of the business.
  4. Evaluating the opportunities for ownership transition of the business to third parties.
  5. Evaluating the opportunities for ownership transition of the business to inside parties.
  6. Developing business continuity measures to protect the business and the owner's family from the loss of a key owner or employee.
  7. Developing a post-transition plan for the owner that aligns with their Legacy objectives, including lifestyle objectives, estate planning, philanthropy and family relationship enjoyment.

Let's look at each of these in greater detail.

Identifying the owner's financial and timing objectives for the transition out of the business: For most business owners, the transition out of their business will be the single, most significant, financial event of their life. Identifying when and how much the owner desires is the first step in the planning process.

Assessing the business and personal resources available to help contribute to the owner's objectives: In order to evaluate if the owner will be able to meet his or her financial objectives, we believe we must start by developing a personal financial plan for the owner(s). This plan takes into account the reality that both business value upon transition and personal wealth accumulated during the operation of the business, combined, will together finance the lifestyle of the retiring owner. The more efficiently a person manages their non-business wealth prior to exiting the business, the less pressure it places on the value obtained from the business upon exiting.

Developing and implementing strategies that will contribute to maximizing and protecting the value of the business: In my many discussions with business owners, I often conclude that the owner believes their business is worth more than it really is. One of the most beneficial things a business owner can do to maximize and protect business value is operate in a constant state of planning and operations as if their business is “For Sale.” By evaluating all of your company's planning and operations in alignment with this premise, an owner can proactively manage the investment in their business. These planning and operational strategies often include:

  • Development of non-owner management.
  • Implementation of Buy-Sell Arrangements between owners helps protect owners, and their heirs, from the termination of employment, death, disability, or divorce of an owner. Though not every risk in a business can be insured for, death and disability can and often should have insurance policies implemented to finance the buy-sell.
  • Business Dashboard Metrics of sales and profitability.
  • Task functionality planning within the business.
  • Maintaining sufficient capitalization within the company for growth and banking purposes.
  • Maintaining appropriate amounts of key-person insurance on valuable company personnel to protect the company from the loss of an owner, or key-employee, and the financial burden that can result. Examples of this burden can include loss of revenue, reduction in profitability, cost of hiring a replacement, or default of or risk to credit facilities. In the midst of a crisis, I don't believe it's possible to have too much cash.
  • Formalizing appropriate compensation agreements with executive management, including golden-handcuff incentive compensation plans.
  • Maintaining a certain level of outside audits of the company's financials.
  • Recognizing when family should not be running the business and hiring professional outside management.
  • Consistently reviewing customer contracts to maintain the most favorable terms for your company.
  • Maximizing tax reduction planning opportunities on corporate profit, and at the time of a business ownership transition.

Evaluating the opportunities for ownership transition of the business to third parties: Many businesses are good candidates for a sale to a third party. These third parties often come in the form of a Strategic or Financial Buyer. The Strategic Buyer is often a competitor, or non-competitor that desires to enter your geographic market or industry, and sees your company as a lower cost or more rapid pathway to entry. The Financial Buyer typically comes in the form of a private equity group that owns another company that, when combined with some aspect of your company's offering or value, can acquire or joint venture with your company's offering to multiply the value of both companies within the private equity group's portfolio.

Either of these alternatives can produce an excellent financial transition windfall to a selling business owner, assuming the selling owner's company is clean. When an acquirer performs its due diligence, if it finds that the company hasn't been operationally managing itself in a professional manner as mentioned, hasn't applied consistent accounting principles, doesn't have a deep management bench, or depends upon the owners for ongoing revenue or profitability, the value it will pay in a transaction plummets.

Evaluating the opportunities for ownership transition of the business to inside parties: Whether your transition intentions are to transfer ownership to heirs, key employees, or the employees as a whole through an Employee Stock Ownership Plan (ESOP), assessing the skills and leadership capabilities of your successors is as important as the development of your ownership transition plan.

A successful transition plan requires the implementation of both Leadership Succession Planning and Ownership Transition Planning. One without the other greatly increases the potential for a failed transition. Once both have been designed, it is then important to evaluate what ongoing role the current owners will maintain through the transition, and the timetable of the transition.

Unlike a 3rd party sale, with an internal transition, the owner's gradual departure often helps facilitate the smoothest transition of Leadership Succession, while the owner can ease into retirement with the benefit of continuing to receive compensation during the transition, distributions of profits, implement gifting strategies, receive seller-financed note payments, or benefit from other strategies, thus lightening the burden on the owner's personal financial assets post departure.

Developing business continuity measures to protect the business and the owner's family from the loss of a key owner or employee: Despite the implementation of intentional planning, life can bring surprises. The premature death of an owner or key-employee, a disability or incapacity, the recruitment of a key employee by a competitor, can all derail the good planning, revenue stability, or corporate profitability.

Every good transition plan should address the need for Buy-Sell Agreements to protect owner personal finances, cash out the family of key-employee minority owners, permit the next generation to purchase the company from the previous owner at its current value before it grows further, reap the benefit of any Step-Up in Basis deceased owner's estates receive at the time of death, and benefit from the income and estate tax-free liquidity that properly designed and owned life insurance policies can provide the business and its family owners.

This planning can also present an excellent opportunity to utilize life insurance liquidity to fund the buyout of next generation family heirs who may not desire to stay in the family business, but otherwise the business might not have the funds to initiate these realignments of ownership.

Developing a post-transition plan for the owner that provides for their post exit Income and Wealth Management needs, and aligns with their Legacy objectives, including lifestyle objectives, estate planning, philanthropy and family relationship enjoyment: For many owners, their lifestyle, hobbies, net worth, and self-esteem is wrapped up in the business. The transition out of the business can be a stressful one.

Many of our clients find this transition to be an opportunity to develop a new personal life mission statement, having experienced great success in life, now focusing on what they desire their Legacy to be. This Legacy planning may involve an increased participation in philanthropy, spending more time with family, possibly even stepping into a new “missional” career. This change in life focus is only possible if post retirement Wealth Management provides for ongoing stable income, which we believe is more important in creating financial independence than a client's net worth.

However, the long-term potential threat of inflation, current low interest rates, increasing U.S. Federal debt, deficit spending and stimulus spending can present major obstacles for the retiree to generate sufficient income when developing a “traditional” post-retirement wealth portfolio. It is for this reason that we approach personal financial planning from a “non-traditional” perspective as we evaluate and recommend investment options beyond stocks, bonds, mutual funds and ETFs and also focus on the tax-efficiency of Wealth Management as it is not “how much you make,” as much as it is “how much you keep.”

The New Pregnancy Disability Regulations – Clarity and Complexity

For years, California has been one of the few states with specific, independent pregnancy disability protections. The protections include freedom from discrimination and the right to take time off from work. Further protection was added last year with the mandate to continue employer-paid health care benefits during a pregnancy disability leave of absence.

California's new pregnancy disability regulations recently took effect. If you are responsible for human resources in your organization, you likely already knew. You may have already seen summaries of the new regulations, or even reviewed the entire 28 pages yourself. If not, a brief summary of the notable changes follows. After the summary, we use the complexity of new regulations to show the importance of careful planning and documentation when handling an employee's pregnancy.

Summary Of New Regulations

Expanded Definition Of “Disabled by Pregnancy”
California law has long stated that a woman is disabled by pregnancy if, in the opinion of her health care provider, she is unable because of pregnancy to perform any essential function of her job or to perform the essential functions without undue risk to herself. The new regulations add a host of specific conditions that could meet the definition of “disabled by pregnancy.” One such condition is “bed rest.” The regulations go on to state that the list of conditions is non-exclusive and illustrative only. The regulations do provide that lactation, without medical complications, is not a condition requiring pregnancy disability leave, but it may require transfer to a less strenuous or hazardous position or other reasonable accommodation.

Amount Of Pregnancy Disability Leave Allowed
The law allows up to four months of unpaid leave for women who are disabled due to pregnancy. The new regulations change the definition of “four months.” The new regulations provide that it is the number of days the employee would normally work within four calendar months (one third of a year equaling 17 1/3 weeks), if the leave is taken continuously, following the date the pregnancy disability leave commences. If an employee's schedule varies from month to month, a monthly average of the hours worked over the four months prior to the beginning of the leave shall be used for calculating the employee's normal work month. Thus, the total amount of leave available will be based on a “one third” year measurement of an employee's normal work schedule. The regulations provide several examples of the calculation.

Intermittent And Reduced Schedule Leave
The law continues to allow an employee who is disabled due to her pregnancy to take her leave in less than four month increments. Under the revised regulations, an employer may account for increments of intermittent leave using an increment no greater than the shortest period of time the employer uses to account for use of other forms of leave, provided it is no greater than one hour.

More Guidance On Reasonable Accommodations And Transfers
The new regulations included detailed provisions on the employer's obligation to provide a pregnant employee with reasonable accommodations and/or transfers to alternative positions. While the regulations should be consulted to guide the handling of a specific situation, the new regulations closely track the employer's obligations under the state and federal disability law to engage in an “interactive process” and provide reasonable accommodations.

Reinstatement Rights And Rules Expanded
Under state and federal family/medical leave law, a returning employee must be reinstated to the same or an equivalent position. The new regulations provide that an employee returning from pregnancy disability leave must be reinstated to her “same” position. The alternative of a “comparable” position is only available if the employer is excused under the regulations from returning the employee to her same position.

The employer must “guarantee” the right of reinstatement in writing upon request of an employee. The guarantee must be honored, whether or not in writing, unless an exception applies.

The new regulations do not contain the previous language that permitted an employer to deny reinstatement if it would undermine the employer's business. Reinstatement must be made within two business days, or if that is not feasible, as soon as possible after the employee notifies the employer of her readiness to return. The new regulations specify that a position is considered “available” for the employee if the position is open on the day of the employee's scheduled return or within 60 calendar days thereafter. The employer has an affirmative duty to provide the employee with notice of available positions.

Perceived Pregnancy Protection Added
The new regulations specify that it is unlawful for an employer to discriminate against an employee or applicant because of “perceived pregnancy.” Perceived pregnancy is defined as being regarded or treated by an employer as being pregnant or having related medical conditions.

Employer-Paid Health Benefits
Beginning last year, California employers became obligated to continue paying for health care benefits for employees on pregnancy disability leave at the same level and under the same conditions as if the employee had continued working. The new regulations provide the details on this requirement and its relation to the similar requirement under family and medical leave law.

Notice Requirements Changed
The regulations continue to require employers to provide notice to employees of their pregnancy disability leave rights, but provide more detail on how employers must meet the requirement and the consequences for failing to do so. The standard form notices created by the government have been modified to reflect the changes in the law.

Example Of The Importance Of Careful Planning And Documentation

The regulations state that an employee who takes pregnancy disability leave is “guaranteed a right to return to the same position.” They state further that the employer must provide the “guarantee” in writing to the employee if it is requested. After reading or being told of these mandates, an employer with limited time and limited global understanding of the regulations might prepare the following letter and give it to an employee heading out on pregnancy disability leave:

Dear Debbi,

We have received your request to take pregnancy disability leave. We have also received your doctor's certification stating that you will need to be off work for four months. We guarantee that you will be reinstated following your leave.

Sincerely,
Well-Meaning Employer

Well-Meaning Employer has created multiple problems, but we will focus on just one. The new regulations provide that an employee is not entitled to reinstatement if the employee's job would have ended notwithstanding the pregnancy leave. For instance, if the employee's position is eliminated or the employee is included in a layoff for reasons that have nothing to do with the pregnancy or leave. Let's assume that Debbi's position is legitimately eliminated during her leave. She has no right to reinstatement under the regulations.

The regulations, however, also provide that a position is “available” and must be provided to the employee if the employee is entitled to the position by “company policy” or “contract.” The letter and the statement “We guarantee that you will be reinstated…” could certainly be interpreted as a contract entitling Debbi to reinstatement, even though her position was eliminated and she has no reinstatement rights under the pregnancy disability law.

The new regulations were designed to provide employers with clarity, and in many cases, they do. Because of the complexity, however, they also create traps for those employers who fail to carefully plan and document pregnancy leaves.