Thursday, September 16, 2010, 8:08:28 PM | Richard Mansfield
Only a few years ago, the very concept of having a transferring employee sit down with a counselor and discuss the financial, legal, and social aspects of a move would have seemed overkill. After all, houses were a good investment, the job market for spouses and companions was almost universally good, and cities were flush with money to spend on schools. Add to this the commonly generous relocation packages, and getting an employee to move was, one might say, a “no brainer”. Fast forward to the present, and almost none of the positive elements of the mobility environment remain. Many, if not most, houses are underwater (or close to it), the job market is not strong anywhere, and confidence in the economy is down.
With all of these negatives affecting employers, one would think that moving employees would be cut back drastically, if not come to a screeching halt. But that is far from the truth, as shown, for example in the study done by WRRI, and discussed in this month’s Mobility magazine. The numbers show that companies are thinking and acting strategically, in order to be in place and ready to produce as we come out of the recession. Talent management is, of course, a critical issue here, and companies, while trying to keep their costs down, are still moving employees both domestically and internationally.
Domestically, the survey shows that 90% of the respondent companies still have home sale programs, about a third have loss on sale programs, and 75% will have pre decision counseling (PDC) programs in place before year’s end (65% already do).
There is no question but that PDC programs are now an integral part of the relocation process domestically. Another article in this month’s Mobility (written by Cullen Bunn) discusses the components, which are often found in these programs, and points out the reasons they are popular and effective. I couldn’t agree with him more. In fact, I suspect that these programs will continue to be a part of most domestic relocations long after the recession ends.
Both of those informative articles can be found online.
There are some legal risk management issues involved with these programs, which should be top of mind for existing and planned programs, though. It’s not that they cannot be easily put in place, but it is important to keep away from certain pitfalls. Let’s look at these issues.
There are three general legal categories of interest: state employment law, the type and coverage of the program, and special circumstances of a particular employee or group of employees. Let’s consider them in that order.
It is axiomatic that employment law affects the relationship between employer and employee. At the outset, in order to determine which subcategory of employment law applies, it is first necessary to determine whether the PDC process (and indeed the relocation program) is a benefit, or merely compensation. The answer to this is easy; it has long been determined that relocation programs are a method of compensation, paid by an employer in order to further its business purposes. Because they are compensation, not benefits, the regular provisions of employment and contract law apply.
Given that fact, it is important to remember that employment law is primarily state based, with a federal overlay. Every state and the federal government have anti discrimination laws, which prohibit an employer from making a hiring, firing, or promotion decision on the basis of an improper, discriminatory motive. This is law familiar to all, so it needs to be discussed only in passing here. Anti discrimination policies must be built into PDC programs, too.
In the past, there were some concerns that mandatory PDCs – programs which made the move contingent on certain financial criteria – could be discriminatory because of the potentially larger impact on certain classes of employees. There is no evidence that this has ever been raised judicially, and frankly, so long as a mandatory program is applied fairly according to its terms, such a claim, in my opinion, would be groundless. In fact, with foreclosures reaching the highest number ever last month; it is clear that no one is immune from financial hardship due to the housing market.
Another commonly understood legal framework impacting PDC programs arises out of the philosophical basis of a state’s employment law. All states, with the exception of Montana, start off with the basic principle that an employee is hired, and can be fired, at the will of the employer; thus the commonly heard phrase “employment at will”, or “at will” states. Interestingly, Montana modified this by statute allowing discretionary firing only during a probationary period, after that, only “for cause”. Other states have limits on discharge, too, generally derived from the common law. In fact virtually all limit the employer’s ability to hire, fire or promote for reasons other than discrimination.
The three general categories of exceptions to at will employment are the public policy exception (active in about 45 states), the covenant of good faith and fair dealing (active in about 11 states), and the implied contract exception (active in at least 39 states). Of all of these, it is the last one – the implied contract exception which we need to examine carefully in the context of any PDC program.
The reason is easy to understand, because the ‘at will’ doctrine does not, by its very nature, apply to employees whose employment rights are determined by contract. Union employees, for example, have detailed agreements regarding the terms of their employment. So do many senior level and professional employees. But there are also other categories of “implied” contracts which courts have held to be as effective as an individually signed employment contract, or a collectively bargained agreement.
This is where state employment law comes to play, because the states span the spectrum regarding employee manuals, published HR policies, and similar rules for employees. The majority hold that even though there is a detailed manual regarding hiring, firing, promotions, and compensation policies, this does not rise to the level of a contract. But there are circumstances where handbook can become a contract in a growing number of states, especially if the employee was improperly counseled or promised that its terms were “like a contract”. HR counsel know and can advise of the actual state case law in this regard, and should always be asked to look over any published policy, especially if it is a mandatory PDC program. And promises should be anathema during the actual counseling process.
Another risk management consideration revolves around the type of PDC: mandatory or consultative. The latter are the easiest to deal with. These are the programs in which the employer is offering financial and other counseling to an employee to help him or her determine the ramifications of a move. Many educated and successful employees just have no clue about the actual costs and administrative burdens currently associated with any move, especially a home sale. This type of counseling can also be used to introduce employees to the concepts of short sales, and the federal programs which may allow their mortgages to be reduced or bought down by the lender. I have discussed some of these in previous blogs.
The mandatory programs are the ones which need special scrutiny, because they are programs which actually determine whether the employee is eligible for entrance into the home sale program. These are becoming much more prevalent due to the high cost of moves, especially with companies offering loss on sale benefits.
Here, the written policy (and there must be a carefully thought out and explained policy, in my opinion) should contain the proper disclaimers so that the employee understands that the policy is not a contract but a process to a decision. Other factors, such as the economy, other candidates, plant closures, and the like, may be a part of the decision. This should be fully explained in the policy and at the first spoken contact with the counselor. Large and bold type may be called for.
Finally, two other issues.
First, some employees may belong to classes of employees whose employment relationship is impacted by outside agreements or laws. I mentioned union collective bargaining agreements above, and this is probably the largest class. There are many companies which have in place mandatory PDC programs, but these were done within the collective bargaining agreement, and may be subject to grievance or other procedural safeguards, dependant on the agreement. Counsel must be consulted in these programs.
Another class requiring special policies is the Sarbanes – Oxley covered officers and directors. Because that act limits or requires special federal disclosure of compensation to this class, counsel should be notified if in fact they are included in a PDC program. Fortunately there are very few SOX covered employees, and their needs are most often met with special contracts and programs.
Second, both types of PDC policies are concerned with gathering detailed financial data from an employee. Because of this, there are federal requirements on data security, including the FTC regulations arising out of the Gramm – Leach –Bliley Act, which may have to be observed. Most relocation policies have proper policies in place for the data of transferring employees, and they should not be overlooked for the PDC programs, too.
Published: 9/17/2010 10:51 AM