Layoff Simulation

Legal Issues in Reduction of Workforce

Introduction

FastServe Inc. is a $25million company involved in the direct marketing of branded sports apparel. They once had two online websites, one for girls and one for boys. The websites didn’t do well and became and expense and subsequently that division had to be disbanded and the websites shutdown. Due to this shutdown, FastServe will now have to reduce its workforce by 10% in an effort to decrease their expenses. Subsequently, a list of 5 employees was compiled and of those five, three must be chosen to be terminated. However, due to the laws, the choices have to be made carefully. If the wrong person is terminated for the wrong reason, this could have a very detrimental affect on the company. Before making the decision on whom to terminate, management will need to evaluate employment laws and how those laws affect each person being considered, determine if any extenuating regulatory circumstances come into play with each candidate, evaluate the agency principle and make sure the right choice is being made for the right reason, and management will need to evaluate the reasons for the choices made. FastServe’s management needs to make sure they are acting in the best interest of the company, not only to help it get past this difficult time, but to also make sure the company is not left open to wrongful termination lawsuits.

Fast Serve’s management has identified a list of five candidates for termination from the company. This list includes: Carl Haimes, Brian Carter, Sarah Boyd, Nora Manson, and Jenny Mills. All parties have good points and bad points, some more than others. All these points have to be evaluated when making the decision whom to retain and who to let go. Another aspect to evaluate in making this determination is the laws that may come into play regarding each of these individuals. Carl Haimes, who is a good worker, has had to deal with some recent ridiculing and harassment regarding his sexual preference. He has complained and an investigation has been done to determine that the allegations he has made are true. The law or policy that comes into play in this situation is Sexual Orientation Discrimination вЂ" Sexual Harassment. Brian Carter has missed many days of work and it has now been determined that due to a work related injury he will miss many more. The company can not fire him due to this injury. The law prohibits this with the Americans with Disabilities Act. Sarah Boyd has been with FastServe for the longest amount of time and she is also the eldest. Many of Ms. Boyd’s skills have become irrelevant to the companies fast paced environment. The company can not let Ms. Boyd go based on her age however. The Age Discrimination in Employment Act prohibits terminating an employee’s employment based on age. Nora Manson is an African-American who seems to be a very controversial employee and has close links with the NAACP. The Civil Rights Act of 1964 prohibits the company from letting her go based on color. Jenny Mills is pregnant and the male employees of the company already tired of her taking breaks all the time. Jenny is a good worker but has made no significant contributions to the company and does average work. The company can fire her for being good at her work but not for the fact that she is pregnant and will have to be off work as the Pregnancy Discrimination Act prohibits this.

Issues may come up once the announcement is made to fire the three that have been chosen to be terminated. Of the list of 5 employees, the ones chosen for termination are Brian Carter, Sarah Boyd, and Jenny Mills. There may be extenuating circumstances that come up regarding these layoffs. All 3 parties have something they can claim to be the reason that the company is letting them go. Brian Carter’s termination may be seen to have and exception to the employee-at-will stipulation based on the public policy exception. “Under the public-policy exception to employment at will, an employee is wrongfully discharged when the termination is against an explicit, well-established public policy of the state.”(Muhl, 2001) Brian Carter will probably file a workers-compensation claim for his hand injury. This will cause a bigger problem for FastServe in terminating him. Though the true reason for his termination maybe that his expertise is no longer needed, the assumption can also be made that he was fired due to his injury and that he will have to be paid even though he is hurt. The law indicates that an illegal activity has occurred if someone is fired when the party is sick or injured, especially if diagnosed as work related. The same holds true for Jenny Miller who is expecting. She can file a wrongful termination suit based on the fact that she is pregnant, and her coworkers are complaining and suddenly she gets fired. The problem lies therein that the company will have to entertain these suits as they may seem valid until further investigation is done.

“Conventional wisdom holds that investors are rewarded when companies thin their employment rosters because operating costs are lowered, in theory leading to greater profits. This expectation is often made explicit in news reporting surrounding a downsizing episode; the reports highlight whether investors seem pleased or displeased with an announcement of a mass layoff, and the often-stated assumption is that corporate management has undertaken the layoffs in part, if not in whole, to please shareholders and enhance their wealth. In this instance it is obvious that shareholders' interests are advanced to the detriment of at least one other constituency, namely the employees.” ("Agency Theory," 2006) Managers are often given the power to make very important decisions on behalf of the owners of the company. Many times this does include hiring and firing of employees. The manager may do this based on the interest of the company, or self-interest. The manager may act impulsively and fire someone based on emotion or that persons own personal feelings. “In determining the most efficient contract, agency theory makes certain assumptions about people, organizations and information. It assumes that agents and principals will act in their self-interest to maximize their own welfare.” (Hayagreeva Rao, 2008). The three people who were chosen to be terminated were the best choices for the direction that the company is trying to go. There was no self-interest in these decisions and they were made solely with the company’s interests in mind. Brian Carter’s specialty and his technical training is programming computers and managing websites. FastServe no longer has an online division and thus Mr. Carter’s

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