In the Trenches: A one-way door

Feb. 25, 2004
The tightening screw makes life difficult for Acme's engineering department

Among the strategies Acme uses for weathering economic storms is maintaining strict adherence to a maximum gross-sales-per-employee ratio. For example, if sales decline in a given month, Mahogany Row mandates an aggregate dollar reduction in overall payroll. This monthly number is announced at one of the departmental manager's weekly meetings, where each manager learns the expected savings that must come out of the plant area under their jurisdiction.

To avoid driving an entire department out of existence, individual pro rata departmental reductions are based on current payroll. Departments that are either heavily populated or staffed with high-priced workers are responsible for a greater share of the cost reduction than departments having only a few minimum-wage employees. After the allocation is announced, department heads have exactly one week to finalize the terminations necessary to bring their payroll numbers into line with the magic ratio. Whether it's true or not, the only reason department heads can give affected employees for their dismissal is "lack of work."

On the other hand, if sales increase in a particular month, peer pressure and continued uncertainty discourage department heads from adding staff. They bite that proverbial bullet, trying to do more with less. The net effect increases the ratio of gross sales to headcount, which becomes the Mahogany Row expectation and the standard that gets codified in a revised ratio accompanying later revenue decreases.

"For a few months now," states Norman DeBiech, Acme's engineering manager, in his most serious tone of voice, "economists, both governmental and private, have been predicting a sustainable upward trend across a broad range of industries, including the few in which we compete."

"That's old news on the plant floor, Norm," replies Ollie Garkie, the operations manager. "Do you really think we need an economist to tell us that our recent sales are definitely much better month-to-month? Out on the floor, we see it every day, in real life."

"Increased sales is a good thing, no doubt about it," Norman says. "I'd imagine our magic payroll ratio is putting some pressure on you to get back into a hiring mode."

"You're very perceptive," Ollie replies softly. "Production is struggling to keep up with demand while maintaining output quality. My department managers are struggling with rising overtime costs."

"Are we still using that seniority-based policy?" Norman asks. "You know the one where we give former staff the right of first refusal when jobs are available again. That should make it easy."

"It's apparently not working well," replies Ollie. "I'm hearing that HR is struggling to identify critical former employees who might be induced to return. Unfortunately, when we call, most of them simply shout flaming epithets into the phone before hanging up. Ever so rude, don't you think?"

"Yes, I agree. But be selective and don't try to bring everyone back," Norman demands. "There were some real losers on my team and I'm glad to be rid of several of them. No doubt, soon I'll need to staff up as well, and I'm not looking forward to the prospect of having some of those mopes back in the office. The only one I brought back so far is Igor Beevore."

"Great," Ollie says. "Igor is a good guy. We enjoy working with him. In any case, we'll identify and qualify some new candidates for you, I'm sure."

Before Ollie can continue, Norman's phone rings, and Ollie rises and leaves the office silently.

"Hi, Norm. It's Al. I wanted to talk to you about coming back to Acme now that you're getting busy again."

Norman rolls his eyes skyward and sighs silently when he realizes he is once again having to talk to Al Batrauce, one of the more useless plant engineers Acme ever put on the payroll some 25 years ago. "How could he have lasted that long?" Norman wonders. Then he recalls his elation about the opportunity to fire Al some nine months ago in response to the demands placed on him by the magic ratio.

"Yes, Al. What can I do for you today?" Norman inquires, hoping desperately that this will be a short conversation.

"Well, you folks are busy again and I'm available," Al replies. "I'm ready to come back."

"That's not going to be possible, Al," Norman answers. "I doubt that you'll be coming ashore here again. We've got no opening for you. Your job was eliminated."

"How can you eliminate a plant engineer function?" Al asks. "Besides, you told me that I was laid off because you had no work for me to do. Now that you're going to have more work than you can handle, you should call me back."

"No work. That's the standard response, Al," Norman explains. "We say there's no work because it makes it easier for you to collect unemployment. It's certainly better than getting fired for cause."

"But I don't want unemployment," Al says. "I want my old job back. I'm already on extended unemployment benefits and I have only three weeks left before that's gone. Whatever happened to the policy of first refusal? Remember the Acme tradition?"

"I'm not hiring anyone right now," sighs an exasperated Norman. "To my knowledge, Al, nobody has ever returned to Acme. Those who had anything on the ball found another job quickly and had no need to return. Why don't you do the same? It would be better for both of us."

"Well, I'm the exception, I guess," Al retorts. "I deserve that job and I feel I must do whatever it takes to force Acme to hire me back in accordance with the long-established policy."

"Well, Al, I don't see it that way at all. We've already got the candidates we need to staff this department. I've got to go now," Norman says sternly.

"Just a minute, Norm," interjects Al. "I know you rehired Igor, and I have way more seniority than him. And he's a plant engineer, just like me."

"You are no Igor, Al," Norman snorts. "Besides, his situation has nothing to do with you."

"This is going to look bad for you when my attorney contacts Acme," Al hisses.

"Sure, Al, sue me," says Norman through gritted teeth as he hangs up the phone and buries his face in his palms to calm himself down.

Can Al's wishes soar above Norman's line of resistance? Does Acme have a moral imperative to offer jobs to former workers before going to the marketplace for candidates? What would you do if you were Norman? What would you do if you were Al?

An attorney says:

Perhaps Professor Homer Johnson can comment on this seemingly unorthodox procedure of reducing headcount to make it commensurate with the monthly decline in sales. Is this now an accepted B-school protocol for flagging sales or a new twist, perhaps, on organizational psychology produce or perish?

Regardless of the wisdom of this procedure, Acme's difficulty now seems to be at the other end of the spectrum how to hire when sales pick up and it's time to increase the workforce. Acme's dilemma is how not to rehire those it was happy to terminate. Perhaps an understanding of a few commonly used but not always well-understood terms might help.

In common parlance, most workers use the term "lay off" to describe a separation from employment caused by an economic downturn without any fault on the part of the worker. In actuality, "lay off," often a temporary measure, implies a right of recall. Employers with unionized employees who are protected by a collective bargaining agreement almost always have to deal with a provision that provides workers with a right of recall from layoff and normally in inverse order of the layoff itself. The most recently laid off worker is recalled next in accordance with seniority. In some contracts, plant-wide seniority governs and in others, department-wide seniority.

Most non-union employers don't describe a separation from employment due to an economic belt-tightening as a "lay off." Instead, employees are simply terminated. This implies no right of recall, and most non-union employers don't recall workers who previously have been terminated in a workforce reduction. There is no legal obligation for an employer to do so.

However, the laws that apply to firing workers also apply to not hiring them. It is just as illegal to fail to hire an employee because of his race, sex, age or religion as it is to fire him. Once an employer begins to cherry pick former employees to rehire when economic conditions improve, it opens itself up to claims that it has refused to hire an employee for an illegal reason.

If Acme hired Al Batrauce 25 years ago, it's substantially likely that Al is in the protected age group, that is, above the age of 40. If Igor happens to be under the age of 40, Acme is headed toward an age discrimination claim. Similar discrimination claims are possible if Al is of one race, nationality or religion and Igor of another.

To make matters worse, Acme appears to be departing from either a practice or an actual policy of giving former workers a right of first refusal when job openings occur. While an employer has no legal obligation, outside the confines of a collective bargaining agreement, to recall or rehire former workers, if it has done so in the past and departs from that practice or policy when it comes to an employee in some protected group, such as an employee over 40, that departure provides additional evidence the employer acted for a prohibited reason. The Equal Employment Opportunity Commission, as well as plaintiffs' lawyers, routinely ask employers for their policies on a particular practice for this reason.

What is poor Acme to do? Given the path it has begun to travel, its best approach might be to admit that it is offering re-employment to its best workers. This might fly if performance evaluations show that Igor was a top-notch employee and Al was at the bottom of the barrel. Lacking honest and accurate performance evaluations, as so often occurs, Acme should just fess up and admit it is rehiring only the workers it misses and not rehiring the losers. No law forbids this practice. How Acme might prove it, if faced with a discrimination charge or a lawsuit, lacking documentation to reflect the difference in work performance of Al and Igor, of course, is a different story.

Julie Badel, partner

Epstein Becker & Green, P.C.

(312) 499-1418

[email protected]

A corporate consultant says:

For all the noise that surrounds this case, it really is, in my opinion, pretty simple, and involves only two basic components.

First, Norman wasn't straight with Al during their telephone conversation. He misrepresented the truth four times during their brief conversation, by saying: (1) Al's previous position was eliminated; (2) he wasn't hiring right now; (3) there's no work available; and (4) "... nobody has ever returned to Acme." These distortions of the truth damage Norm's credibility, and that of Acme, and are inflammatory because Al knows the truth.

All Norm needed to do was simply state that Al wasn't on the list of those former employees Acme would be attempting to rehire. Simple direct unemotional honest. Alternatively, Norm could have referred Al to HR.

The moral imperative to offer jobs to former workers can't be expected to include underperforming workers.

If Al believes he's being discriminated against, and believes himself innocent of allegations of poor productivity, consulting an attorney may indeed be a viable option.

However, in my view, he made three mistakes during his telephone conversation with Norm. First, he circumvented normal processes by approaching Norm rather than HR. Second, he allowed the conversation to become confrontational. At the first indication that Norm wasn't leaping at the opportunity to rehire him, Al should have ended the conversation amicably, and contacted Acme's HR department. Finally, threatening Norm wasn't smart: wrong target, wrong approach, wrong strategy.

Al handled the conversation in a way that was reactionary and retaliatory, possibly eroding his chances for any kind of successful outcome.

Al should seek alternative employment. If he decides to sue Acme, it's important that he place the offensive role in the hands of legal counsel, and simultaneously pursue a constructive, positive path toward re-employment.

As for Acme's magic ratio, I can't imagine that they'd not be better off using temporary employment agencies to fill the positions most likely to be affected. The current practice not only reduces the pool of candidates by generating ill will among those previously terminated, but also is likely to damage the morale of those who survive the cuts.

Francie Dalton

Corporate consultant

Dalton Alliances Inc.

(410) 715-0484

[email protected]

An academician says:

Acme needs to address a few general management problems.

First, if the business runs in cycles, Acme needs to solve the problem of how to retain good employees in the down cyclea critical mass of skilled and productive employees is central to any effective organization. Many companies lose their best talent on the down cycle simply because it's precisely the best people who are better able to find other jobs. And what Acme might be left with are the Als of the labor pool, who nobody wants to hire.

Some organizations in cyclic industries designate some employees, their best employees, as permanent, and somehow make sure they are always employed. In a downturn, the company may go to a four-day workweek or take other similar measures. On the up cycle, they bring back retired employees, use contract workers, outsource some work and use a dozen other options. The point is that Acme needs to keep a stable and productive workforce on board.

The second problem that Acme needs to address is why Al kept his job for 25 years as one of the more useless plant engineers. Acme needs to clean up its performance management system so the Als of its labor force either shape up or are moved out quickly.

If Acme would follow these two points, deciding whom to call back during a production up cycle would not be much of a problem. Acme would not have furloughed a lot of productive employees, and those they had would know that they'd be back soon. And no Als would be rehired.

As to how to handle the current situation, I don't think Al has a case unless Acme has a written policy stating that people are rehired based on seniority, and only on seniority. Otherwise, I don't see the case. However, I defer judgment to the legal experts.

Prof. Homer H. Johnson, Ph.D.

Loyola University Chicago

(312) 915-6682

[email protected]

Our "in the Trenches" stories are created as a learning tool; the names of the companies and the people described within them are fictional.

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