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Acme's penny-wise and pound-foolish when it comes to cherished employees

May 1, 2005
A new company policy's legality is questioned at Acme by a cherished employee. When management refuses to compromise on the policy, it is faced with a lawsuit. How can this situation be avoided at your plant?

Like many innovative manufacturers, Acme occasionally needs a custom-built machine that’s suited to a specific need. The company had been using outside contractors to build them until they noticed that Bailey Whire, a maintenance mechanic with almost two decades of service to the company, demonstrated a talent for adapting existing machines to new uses. As a test of his abilities, Acme asked him to design and build a small, noncritical, special-purpose machine that would normally have been obtained from a contractor. In exchange, he was given a budget based on quotes Acme had received for the device, and for the next month he was relieved of his regular duties so he could work on the project full-time.

After working three 12-hour days, Bailey printed his final set of Autocad drawings and ordered parts. One week later, he brought his collection of materials to Acme’s fully equipped machining center in the maintenance shop to begin assembling his grand vision. Two weeks later, the maintenance department installed the widget-maker on the plant floor. Bailey spent two more days debugging and adjusting it before finally turning it over to production 28 days after he first sat down to design it.

When the dust settled, Bailey’s project worked as promised and Acme management learned that he brought it in under budget and in half the time a contractor would have required. The kicker was that Bailey used commercial, off-the-shelf components as much as possible to minimize maintenance inventory. Production liked the fact that workers could move from one machine to another with less training.

Although he’s still listed on the payroll as a maintenance mechanic, Bailey’s role evolved into that of a de facto one-man mechanical R&D department. Suddenly, all his time was devoted to customizing, designing and building production machinery, a situation he found quite to his liking. And Acme’s front office was thrilled to have an in-house resource such as Bailey saving significant money and time, both of which were reinvested in enhanced production efforts and profits.

Meanwhile, huddled in a corner office at the front of the building was Hugh Dunnett, the human resources manager, and Mona Torr, the controller. They were discussing their own plan for enhancing Acme’s bottom line even more – eliminating what they called shrinkage.

Acme issued to each new production-floor hire a set of basic hand tools – a pair of sturdy gloves, a screwdriver, an adjustable wrench and a 12-ft. measuring tape. The problem that irked Hugh and Mona so much was new hires who quit after working only a few days. When that happened, Acme mailed a check for the hours worked, but was out the cost of the tools. The plan Hugh and Mona hatched to solve the problem was simple: They drafted a new company policy. It read:

“I authorize Acme to deduct from my paycheck an amount to pay for goods, tools, equipment or other items furnished to me by the company if they are not returned with normal wear and tear upon termination of employment or if lost while in my possession. I understand that it is my responsibility to protect company assets and I agree to compensate the company for the cost to repair damage to any company vehicle, equipment or property that is a direct result of negligence on my part.”

Copies of the document were included in every pay envelope the following Friday, along with instructions to sign it, date it and return it within a week. Most complied, but those who objected were told that signing it was now a condition of employment. Interpreting that statement as a threat of dismissal, more employees signed. Some still maintained it wasn't fair and even questioned its legality. Hugh told them it was legal because it wasn’t a contract, but a new company policy. Those who didn't sign it were told they could be subject to the disciplinary policy for insubordination. More workers signed, but there were still some holdouts. One of them was Bailey.

He understood what the company was trying to achieve, but he had experience with the management style of several Acme administrations, some of which would have used such authorization to dip into employees’ paychecks on a regular basis. He didn’t think current management would abuse the power. But, he knew from experience that changing only one or two people in the front office would alter the company’s management style. When he refused to sign on principle, he was called to Hugh’s office to discuss the matter.

At that meeting, Bailey explained that the policy was too broad in that it could be invoked without any proof or evidence. A worker could have his paycheck raided on a simple accusation. In fact, a worker could be accused, tried, convicted and punished and not even realize it until the next payday. Because the policy had no appeal process of any type, it almost begged to be abused. Bailey mentioned some slight modifications that would guarantee some protection for the workers, but Hugh wasn’t interested in hearing them. Bailey said it was blatantly unfair.

Hugh insisted it was all perfectly legal under state law and if Bailey didn't sign it, he would be suspended without pay until he returned the signed policy. If he didn’t respond within 30 days, he would be terminated. It was his choice – he could sign it now or leave the building. Bailey left, to find a lawyer.

Upon hearing this news, the remaining holdouts began turning in their signed policy statements.

How could this situation have been avoided? Would it have been possible to turn the Hugh/Bailey win/lose situation and the Acme/Bailey lose/lose situation into some win/win situation? Was Bailey given a choice or an ultimatum? Should legalities be the only consideration guiding a corporate change? How much attention should a company give to the very subjective concept of fairness?

Note: This scenario was contributed by Grant D. Beck, West Jordan, Utah.

An attorney says:

Apart from the questionable legality of Acme’s latest ploy, it seems to me that our friends have thrown the baby out with the bathwater. In order to recover the modest cost of the tools furnished to new hires, Acme has sacrificed a talented mechanic who was saving the company both time and money.

Many states have laws that prohibit deductions from paychecks except under limited circumstances, such as for employee benefit programs, taxes and other reasons authorized by an employee. Some states also prohibit deductions from paychecks that are not “freely” authorized by an employee or not authorized at the time the deduction from the paycheck is made. Depending on the state in which Acme is located, it might be in violation of state law governing the payment of wages to employees.

The reason underlying this protective legislation is obvious. The employer controls the paycheck, and state legislatures have been loathe to allow employers to have unfettered discretion to deduct amounts from paychecks for damage to equipment, cash shortages and the like.

One option for Acme that might have prevented the problem is to require new employees to provide the company with a deposit to cover the cost of the items issued to them. In many states, it is possible to structure a lawful agreement for a deposit on items of this nature to be deducted from paychecks. This approach would be more narrowly tailored to address Acme’s specific problem and likely would have saved some valuable employees, like Whire.

Julie Badel, partner
Epstein Becker & Green, P.C.
(312) 499-1418
[email protected]

A corporate consultant says:

Both Hugh and Bailey could have handled this situation more professionally.

Let's begin with Bailey. Rather than simply delaying his response to Hugh, he could have gone to his boss, articulated his concerns, and asked for guidance about how to proceed. He could also have taken the initiative to benchmark with other companies to see how they've handled similar requirements. He could have summarized his concerns in writing and asked Hugh for guidance or clarification, in which he might have suggested alternative language.

As for Hugh, he most certainly should have benchmarked with other organizations, or with the local chapter of his HR association, to learn how other organizations have dealt with this. Additionally, he took an unnecessarily adversarial position -- and did so much too soon -- with Bailey. His first response was to threaten. That was completely uncalled for and inappropriate. He should have noted Bailey's concerns, researched his options, and met again with Bailey to tell him what his research revealed. And, he should have been open to edits to the statement. Hugh didn't make a very good showing in this case given that he's an HR person.

Francie Dalton
Dalton Alliances Inc.
(410) 715-0484
[email protected]

An academician says:

Wow! How many times have we heard this before?

The general scenario goes something like this. First, start with two executives who know very little about the operations end of the business (vice president of HR and a controller will do nicely). Then they get together in the executive closet and cook up an idea about something well beyond their area of smarts (in this case, tools). Next, without consulting anyone, they issue an edict. Predictably, the people affected by the edict, that is, the people who actually know what a tool is, are upset and think the order is unfair and dumb, and they protest.

Are you following me so far? The next step is actually very important. Once the execs hear about the protest, they become extremely offended -- some hourly employee is questioning their brilliance and authority. Rather than consider whether the objections might have some merit and the policy might be improved by considering such, the execs respond by threatening to fire anyone who doesn’t bow down to their edict.

And you know the rest. Most of the employees submit rather than lose their jobs. A few, however, won’t give in and the lawyers and the union get involved. In the end, everyone is mad at everyone else; employees look for ways to get back at management; and costs actually go up because of legal fees and work slowdowns.

This scenario is so common that I am convinced that it is taught in all executive education programs in a course titled “stupid things to do once you are given authority.”

One of the interesting aspects of this case is that employee theft is directly related to their perception of unfair treatment. So, the new Acme policy could (I said "could") actually increase shrinkage rather than reduce it.

How to eliminate the problem? It’s easy. Involve those employees who are affected by the action. Disappearing tools is a common problem in most shops. Line employees know that; most would agree that there has to be a policy to cut the shrinkage in that area. But, they want something that is fair -- fair to employees as well as the employer. So, sit down with a couple of key line managers and employees and hammer out a policy that everyone thinks is fair, is workable, and will reduce shrinkage.

Professor Homer H. Johnson, Ph.D.
Loyola University Chicago
(312) 915-6682
[email protected]

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