Decisions Affecting Your Workforce in the Times of COVID-19

Claudia A. Gonzalez Martinez, Ph.D.[i][ii]

Managing Director at GlassRatner, a B. Riley Financial Company

COVID-19 has wreaked havoc on the US economy, leaving nothing and no one unaffected. If you are an employer, you are likely dealing with decreases in the demand for your services and/or products, or difficulties ensuring the necessary supply of inputs for production. Moreover, you have the responsibility of protecting your employees and your clients, as well as financial responsibilities that can be hard to meet in the current environment. As a result, you are faced with making difficult decisions and are trying to figure out how to minimize the impact of those decisions upon your employees as well your own financial livelihood.

There are two situations where you may need to make these difficult decisions: (1) When you’re contemplating a reduction in your workforce, their hours, and/or their compensation (or a combination of these three); and (2) when you begin opening up your business after lockdown and need to choose whether, and to what extent, to call employees back to work. These two decisions, if not made carefully, can make you vulnerable to labor discrimination litigation, which is expensive both in monetary and reputation terms:

(1)   To be able to meet your own financial responsibilities, you are contemplating a payroll reduction, which may include a decrease of your workforce, a reduction of hours, and/or a reduction in the compensation of your workers. How do you design this payroll adjustment plan? What should you consider in designing this plan?

During the COVID-19 downturn, it may be tempting to first let go of those employees that are most expensive, or simply to eliminate the positions whose utilization has decreased the most (for example, cashiers in department stores). However, doing so may invite scrutiny and legal claims if, for example, your most expensive workers are also the oldest ones or if the position least utilized is mainly comprised of women. That is, focusing only on minimizing your direct financial impact when adjusting your payroll may result in disparate impact on protected groups and complaints of discrimination.[1]

To avoid situations that can lead to discrimination complaints, it is advisable to seek legal and analytical support to ensure that no group is more likely to be affected by any adverse action than another. This type of support would produce an analysis of your payroll data and create a plan of action based on your needs to ensure that disparate impact on any group of your employees is minimized (if not fully eliminated). Because there are elements that cannot be controlled in a plan (for example, employees quitting), once the plan is implemented a new analysis is recommended to ensure that there is indeed no disparate impact and that your adverse payroll adjustment, while regrettable, is compliant with the Equal Employment Opportunity Commission (“EEOC”) regulations. 

While some employers may choose to complete the EEOC analysis and adverse-action plan “in-house”, we recommend you hire an external consultant specialized in this type of analysis. An external consultant would enhance the independence of the analysis and the adjustment plan, which is a further assurance should the EEOC decide to investigate.

The situation becomes even more complex when the employer is in bankruptcy. In this case, as part of the financial restructuring, the employer will likely be restructuring of its workforce. The employer must remember that, while bankruptcy protection may grant a stay to any individual discrimination legal actions, it will not shield the company from EEOC investigation and punitive actions.[2] Accordingly, even in a bankruptcy proceeding, the employer will be better served by retaining legal and analytical support to ensure that any labor force adjustments are EEOC-compliant.

Regarding bankruptcy proceedings, Monique D. Hayes, Esq., partner at Goldstein & McClintock LLLP, remarks that: 

“Employee claims can present significant liability exposure. To be sure, failure to comply with state and/or federal employment laws and regulations prior to or during the bankruptcy can result in debilitating claims. Among the most common employee related claims to be considered are those arising under the Worker Adjustment and Retraining Notification Act (WARN ACT). Exposure for other employee wage and expenses claims, including “back pay” due under applicable law, should be carefully evaluated prior to seeking bankruptcy relief as the priority afforded by such claims may impact funds available to reorganize the business and successfully exit bankruptcy.”

(2)   After the lock down, you are finally ready to open your business back up. Who, of your laid-off/furloughed employees do you call first?  Or, do you assume a clean slate and go into the overall labor force and conduct a full new hiring effort?

As the economy begins to open, you may be eager to go back to work and be productive. However, calling your employees back to work may also pose a series of challenges that, if not addressed carefully, can land you in trouble with the EEOC. We review several situations that can lead to problematic legal actions below:

(a)   You decide to start anew and hire a whole new workforce for your business. In this situation, if the resulting composition of your newly hired workforce is significantly different in terms of age, disability, or other characteristics than your previous set of employees, then they could argue that you used the crisis to change the composition of your workforce to one that you prefer and that this action has caused a disparate impact on them. An example of this situation would be if you hire a set of new employees that are significantly younger than the ones you laid off.

(b)  You may be concerned about your older, pregnant, or disabled employees as they are the most vulnerable to the virus. Out of a desire to protect these workers, you may decide to call back to the workplace your younger and healthier employees first, and indicate these vulnerable workers to continue in a furlough situation or working from home. This action, while well-intentioned, may be construed as violation of EEOC regulations and can also lead to accusations of discrimination.

(c)   Similarly, you may be concerned about employees whose race/ethnicity may make them more vulnerable to be targets of harassment and discrimination, as they could be perceived as most likely to carry the virus.[3][4][5]  Your desire to protect them may lead you to mandate they work from home and not return to the workplace immediately. This would constitute a violation of EEOC regulations if the employee has not requested working from home as a special accommodation.[6] As above, your good intentions may result in discrimination claims and legal and other types of trouble. 

(d)  Lastly, some of your laid-off or furloughed employees may no longer be available or willing to come back to work, in which case you’ll need to go into the overall labor force to look for workers. Because COVID-19 has changed the make-up of the available workers, this new labor force composition, as well as the composition of your remaining available workforce also needs to be considered when hiring new workers.

Any of these situations, if not carefully addressed, could result in costly litigation and damage to a company’s reputation. The best way to minimize litigation exposure is to engage legal and independent analytical support early in the process so that to ensure that any hiring/rehiring/payment adjustment decisions are not benefitting any group over another.  

(3)   Other considerations, data and documentation requirements, and recommendations. Labor laws and regulations have changed as result of the COVID-19 pandemic. In particular, the following should be remembered when making decisions and engaging in actions that will affect your workforce: 

(a)   Maintaining proper documentation of decisions, communication with current and ex-employees, and analytical documents is of vital importance. Note, for example, that if a vulnerable employee requests to work from home, allowing this accommodation would not make a company more likely to face discrimination claims. That is, while a company may not force an employee to work from home, an employee is entitled to request it and do so voluntarily if the employer permits it. Nevertheless, maintaining documentation and communications exchanges depicting the employee’s request for accommodation is key to protecting yourself against any adverse legal action. 

(b)  Employers may grant accommodations only to those workers who request it. That is, employers cannot assume that a specific worker needs accommodations and provide them without the employee requesting them. Note that, as a result of COVID-19, some workers may need accommodations that they did not require prior to the pandemic, but the employer may not provide them until the employee request them.

(c)   Note that, in general, the EEOC does not allow employers to conduct health assessments of their employees unless based on strict business necessity and prior to conditional hiring. However, based on the Direct Threat Defense exception, employers are currently allowed to conduct screenings for COVID-19 such as temperature measurements.[7] Nonetheless, employers cannot test employees for COVID-19 antibodies as the EEOC determined that such testing violates the American with Disabilities Act (ADA).[8]

(d)  It is important to know that, even when you provide an attractive severance to your laid off employees, conditioned on them not initiating individual legal action against you, any such severance agreement will not apply to EEOC complaints. While a severance contract may keep ex-employees from directly suing you, they are still allowed to present a complaint with the EEOC, which can also lead to scrutiny and a legal action against you.

(e)   Lastly, when conducting layoffs and other workforce adjustment activities, you must also consider the effects in your remaining workers’ compensation. For example, even if your layoffs decisions are made such that no group is more likely to be laid off than another, this action may still result in significant differences in pay among groups in your remaining workforce, which may be construed as discriminatory. The potential for significant compensation differences resulting from workforce adjustments adds an additional element that needs to be accounted for when designing the company’s labor adjustment plan as response to the COVID-19 crisis.

In summary, taking proactive action regarding decisions affecting your workforce can significantly limit the potential of a costly litigation, both in monetary and reputation terms. This proactive action is particularly important in the environment created by the COVID-19 pandemic, as the pandemic has forced and will continue forcing employers to make rapid decisions regarding their workforce. Taking precautions to ensure fairness and legal compliance will minimize penalties and mitigate adverse legal actions due to potential disparate impacts on the company’s workforce. 

[i] I would like to thank Bruce Blacker, Paul Dopp, Monique Hayes, Sam Hewitt, Antonio Pereira, and Johanna Tejada for suggested edits, comments, suggestions, and discussion regarding this article.

[ii] Claudia A. Gonzalez Martinez, Ph.D. is an economist with 17 years of post-doctoral experience. She specializes in labor and employment, healthcare, and impact evaluation analysis. Claudia is a Managing Director at GlassRatner, a B. Riley Financial Company.

[1] As indicated by the EEOC, “Applicants, employees and former employees are protected from employment discrimination based on race, color, religion, sex (including pregnancy, sexual orientation, or gender identity), national origin, age (40 or older), disability and genetic information (including family medical history). Applicants, employees and former employees are also protected from retaliation (punishment) for filing a charge or complaint of discrimination, participating in a discrimination investigation or lawsuit, or opposing discrimination (for example, threatening to file a charge or complaint of discrimination).” See https://www.eeoc.gov/employers/small-business/3-who-protected-employment-discrimination.

[2] See e.g. EEOC v. The Krystal Company, Case No. 1:18-CV-4536-TCB-CCB, 2020 U.S. Dist. 92482 (D. N.D. Ga. May 21, 2020)

[3] See “2,120 hate incidents against Asian Americans reported during coronavirus pandemic”, https://www.cbsnews.com/news/anti-asian-american-hate-incidents-up-racism/

[4] See “COVID-related discrimination disproportionately impacts racial minorities”, https://phys.org/news/2020-07-covid-related-discrimination-disproportionately-impacts-racial.html

[5] See “Latino workers face discrimination over spread of coronavirus in meat plants”,https://www.theguardian.com/world/2020/may/25/latino-workers-coronavirus-discrimination-meat-plants

[6] See “What You Should Know About COVID-19 and the ADA, the Rehabilitation Act, and Other EEO Laws”, Section G.4.,  https://www.eeoc.gov/wysk/what-you-should-know-about-covid-19-and-ada-rehabilitation-act-and-other-eeo-laws, which indicates: “If the employer is concerned about the employee’s health being jeopardized upon returning to the workplace, the ADA does not allow the employer to exclude the employee – or take any other adverse action – solely because the employee has a disability that the CDC identifies as potentially placing him at “higher risk for severe illness” if he gets COVID-19.  Under the ADA, such action is not allowed unless the employee’s disability poses a “direct threat” to his health that cannot be eliminated or reduced by reasonable accommodation.”

[7] See “What You Should Know About COVID-19 and the ADA, the Rehabilitation Act, and Other EEO Laws”, Sections A.1 – A.6  at https://www.eeoc.gov/wysk/what-you-should-know-about-covid-19-and-ada-rehabilitation-act-and-other-eeo-laws

[8] See “What You Should Know About COVID-19 and the ADA, the Rehabilitation Act, and Other EEO Laws”, Section A.7 at https://www.eeoc.gov/wysk/what-you-should-know-about-covid-19-and-ada-rehabilitation-act-and-other-eeo-laws