• Economic Rescue May Trigger Employment Concerns
  • October 24, 2008
  • Law Firm: Womble Carlyle Sandridge & Rice - Office
  • Although the new Emergency Economic Stabilization Act (EESA) -- the so-called "economic rescue"--doesn't include any direct provisions addressing labor and employment issues, implementation of EESA will impact labor and employment. Participating financial institutions, as well as other employers directly or indirectly affected by EESA, should be aware of several areas of concern.

    The possible wide-ranging changes include:

    • Employment transition actions (termination, reductions in force, reorganization and voluntary quits) and the impact of such job actions on employment contractual commitments. Note that the "conflicts of interest" provisions of EESA require regulatory standards regarding "the selection or hiring of contractors and advisors, including asset managers".
    • Post-separation matters, including noncompetes, non-solicitation clauses, confidentiality, trade secrets and the other aspects of employee defection and raiding. Also impacted are separation and release agreements where both Section 409A of the Internal Revenue Code and the rescue statute's limitations on executive compensation come into play, as well as the structure and implementation of reductions in force (RIFs) to minimize claims. EESA also mandates regulation of "post-employment restrictions on employees” under the "conflicts" section.
    • Wage-hour implications of reclassifying existing jobs (for example, restructuring duties of exempt personnel in a manner which may render them nonexempt).
      Employment-related insurance issues (Employment Practices Liability and Directors and Officers coverage).
    • Wage and benefit restructuring.
    • Contractor relationships, outsourcing, and creative approaches to the classification of those who perform services for employers.

    A particular challenge in EESA implementation is the relationship between organized labor and management, especially given the heightened Congressional interest in encouraging union membership. This impacts both covered entities and other affected employers—those who are currently in collective bargaining relationships and those who are not. While employee benefits considerations are beyond the scope of this alert, EESA, like other benefits-affecting legislation, contemplates slightly different standards and trigger dates for collectively-bargained plans. There also may be a rethinking of the ability of a debtor in possession to reject collective bargaining agreements under Section 1113 of the Bankruptcy Code, not to mention the application of the automatic stay to wage and benefit claims and claims of regulatory agencies.

    Another concern is what some deem a perceived weakness of current whistleblower protections under statutes such as Sarbanes-Oxley and other prohibitions on retaliation against those who complain. Legislators, regulators and courts may act to fill this "gap" by strengthening those whistleblower provisions.

    Finally, the multiplicity of forums--federal and state courts, regulatory agencies at all levels, arbitration and other dispute resolution processes--suggest opportunities for clients to contact Womble Carlyle’s Labor and Employment Practice Group for assistance. In this regard, you should be aware that proactive strategy is a more reliable method of meeting these challenges than reactive measures to threats as they present themselves through claims or crises.