April 2011

You don’t need to be a financial institution to develop these best practices.

The Seventh Circuit Court of Appeals recently upheld the termination of an employee who sued, alleging FMLA interference and retaliation after termination for failure to contact his employer during a nine-day leave of absence to address a medical emergency involving his mother. In Righi v. SMC Corp. of America, a sales representative, while attending a mandatory training seminar, received word that his mother was experiencing a medical emergency. The employee left the training session and, despite informing a co-worker that he was leaving due to a family emergency, made no attempt to contact his supervisor. The next day, the employee sent his supervisor an e-mail stating that his mother, who was a diabetic, had slipped into a coma. After stating that he would need the next few days off to make arrangements for his mother’s care, he wrote: “I do have the vacation time, or I could apply for the Family Care Act, which I do not want to do at this time.” Upon receiving the e-mail, the supervisor repeatedly attempted without success to contact the employee by phone to inquire further about his need for leave.

Finally, after nine days of silence, the employee called his supervisor and was terminated the next day for violation of the employer’s leave policy, which provided that an unapproved absence of two or more consecutive days was grounds for termination. After the district court granted summary judgment on the employee’s claims of FMLA interference and retaliation, the employee appealed. The Seventh Circuit Court of Appeals held that the employee’s e-mail, in which he mentioned that his mother was in a diabetic coma, was sufficient to alert the employer that the employee might qualify for FMLA leave, and that the employer was obligated at that point to make further inquiry regarding the employee’s need for FMLA leave. The Court also found that the employer properly attempted to fulfill its obligation by making numerous calls to the employee and that the employee’s failure to respond to his employer’s calls caused his FMLA claims to fail. The employee was required under both the FMLA and his employer’s written policy, to contact his employer to let the employer know of the likely duration of his requested leave, which he failed to do.

Article courtesy of Worklaw® Network firm Shawe Rosenthal.

The theory of respondeat superior makes employers vicariously liable for wrongful acts committed by employees during the course and scope of their employment. However, the “going and coming” rule generally exempts employers from liability for wrongful acts committed by employees while on their way to and from work, because employees are said to be outside of the course and scope of employment during their daily commute. A well-known exception to the going-and-coming rule arises if the use of the car gives some incidental benefit to the employer. Thus, the key issue becomes whether the employer derives an incidental benefit from the employee’s use of the car. This has been referred to as the “required-vehicle” exception. The exception can apply if the use of a personally owned vehicle is either an express or implied condition of employment, or if the employee has agreed, expressly or implicitly, to make the vehicle available as an accommodation to the employer, and the employer has “reasonably come to rely upon its use and [to] expect the employee to make the vehicle available on a regular basis while still not requiring it as a condition of employment.”

For example, Section 401.011(12) of the Texas Labor Code, which codifies this general rule, states:

Course and scope of employment means an activity of any kind or character that has to do with and originates in the work, business, trade, or profession of the employer and that is performed by an employee while engaged in or about the furtherance of the affairs or business of the employer. The term includes an activity conducted on the premises of the employer or at other locations. The term does not include:

(A) transportation to and from the place of employment unless:

• the transportation is furnished as a part of the contract of employment or is paid for by the employer;
• the means of the transportation are under the control of the employer; or
• the employee is directed in the employee’s employment to proceed from one place to another place; or

(B) travel by the employee in the furtherance of the affairs or business of the employer if the travel is also in furtherance of personal or private affairs of the employee unless:

• the travel to the place of occurrence of the injury would have been made even had there been no personal or private affairs of the employee to be furthered by the travel; and
• the travel would not have been made had there been no affairs or business of the employer to be furthered by the travel.

In insurance policies, the general definition describes coverage, and travel must meet both its components to be in the course and scope of employment. Subsections (A) and (B) are exclusions, each followed by exceptions. Subsection (A) has three, disjunctive exceptions; if any one is met, the exclusion does not apply, and travel to and from work is not excluded from the course and scope of employment. Subsection (B) has two, conjunctive exceptions and applies unless both are met. Subsection (B) is somewhat convoluted. More simply put, it does not exclude work-required travel from the course and scope of employment merely because the travel also furthers the employee’s personal interests that would not, alone, have caused him to make the trip.

A recent California case, Lobo v. Tamco, 182 Cal. App. 4th 297 (Cal. App. 4th Dist. 2010), interpreted this standard very broadly. Here are the facts of this case:

“Daniel Lobo, a San Bernardino County deputy sheriff, was killed on October 11, 2005, as the result of allegedly negligent operation of a motor vehicle by defendant’s employee Luis Duay Del Rosario, while acting in the course and scope of his employment by defendant Tamco. Del Rosario was leaving the premises of his employer, Tamco. As he drove his car out of the driveway and onto Arrow Highway, he failed to notice three motorcycle deputies approaching with lights and sirens activated. Deputy Lobo was unable to avoid colliding with Del Rosario’s car and suffered fatal injuries.

“Deputy Lobo’s widow, Jennifer Lobo, filed a wrongful death suit on behalf of herself and the Lobos’ minor daughter, Madison. Kiley and Kadie Lobo, minor daughters of Deputy Lobo, filed a separate wrongful death action through their guardian ad litem. Both suits alleged that Del Rosario was acting within the course and scope of his employment by Tamco at the time of the accident…..

“When Del Rosario left Tamco on the day of the accident, he was going home. However, if he had been asked to visit a customer site, he “would have gotten in [his] car and used [his] car to go to that facility,” just like on any other day. He kept boots, a helmet, and safety glasses in his car.

“This evidence is clearly sufficient to support the conclusion that Tamco requires Del Rosario to make his car available whenever it is necessary for him to visit customer sites, and that Tamco derives a benefit from the availability of Del Rosario’s car. Tamco, however, emphasizes that it was rare that Del Rosario visited customer facilities or jobsites, and contends that in all cases in which the “required-vehicle” exception to the going and coming rule has been found applicable, driving was an “integral” part of the employee’s job and that Del Rosario’s occasional use of his own car to visit customers is insufficient as a matter of law to invoke the exception.

“Tamco has not cited any case in which a court has addressed a contention that the employee’s use of his own car was too infrequent to warrant application of the exception and we have found none. “

Lesson learned. Realize that allowing employees to use their personal vehicles on company business can expose you to liability. Make sure that employees know the parameters and have good driving records, and make sure there is plenty of insurance to handle any possible claims.

Risk management experts, safety experts, accountants, actuaries, and other professionals make the distinction between direct and indirect costs of accidents, lawsuits, and so forth. For example, the cost of turnover in the HR That Works Turnover Cost Calculator includes the direct costs (such as paying for a Help Wanted ad) and indirect costs (such not growing the business due to lack of manpower). Two of the most commonly insured employee risks are those for work-related injuries and employment practice claims. This means that the direct costs associated with a Work Comp injury are those related to medical expenses and expense reimbursement, which the Workers Compensation carrier usually pays.

We usually recommend that our clients pay the compensatory portion of the claim because if they don’t, the insurance company will pay it and then get their money back by increasing your experience modifier over the next three years. In a sense, they don’t pay these claims, they finance them. In addition to the increase in the experience modifier (MOD) and cost of future insurance, there are also indirect costs:

• Damage to property (building, tools, machinery, etc.)
• Emergency supplies, cost
• Possible media exposure/brand change
• Investigation time, claim management time
• Affect on employee morale
• Overtime, costs of replacing employee
• Increased experience modifier
• Damage to client relations if accident is “on site”
• Injury to third parties
• Additional legal fees

Of course, these ratios depend on the type of claim or injury, type of business, days lost from work, and so forth. When it comes to an employment practices claim, direct costs are for attorney fees, litigation costs and any settlement or verdict payout. The indirect costs include: Loss of employee morale, damaged customer and client relations, copycat claims, loss of knowledge base, training, and experience.

The risk management literature offers a wide range expert opinion on the range of direct to indirect costs. Only one out of seemingly dozens of surveys identifies indirect costs as lower than a 1:1 ratio to the direct costs. Some go as high as 20 times the direct costs (for example, when an expensive piece of machinery is destroyed in the process). Based on my personal experience and that of experts I agree with, we can safely assume at least a 1:1 ratio in most circumstances. For example, you might have to pay out $50,000 to settle the lawsuit, plus another $50,000 to replace the employee! Unfortunately, these indirect costs are often uninsurable, and in many cases dwarf the insurable costs in a given risk scenario. Interestingly, the indirect cost ratio has been diminishing as medical and legal expenses continue to soar.

These ratios also depend on such factors as:

• Type of claim/injury
• Type of business • Claim value
• Days lost from work
• Legal jurisdiction
• Management response

Finally, check out the $afety Pays e-tool.

I conducted an examination of California Labor Code, Section 132(a) Workers Compensation retaliation claims filed over many years. When filing a Section 132(a) claim, “in addition to establishing that the industrial injury has resulted in some detriment, the worker must also prove that he or she was singled out for disadvantageous treatment because of the injury.” This is typical of how other states handle Workers Comp retaliation claims. Some states allow workers to bring separate claims outside the comp system. Here’s a summary of these cases:

Conduct that will not result in a 132(a) verdict:

• Where there is truly no work available.
• Where the employee is unfit for duty because they will risk further injury or aggravation to an injury.
• Where there are safety issues related to the employee or third parties.
• Where there’s a business necessity (such as lack of funds or a change in company direction).
• If they were terminated for cause (and consistently with how others were treated in engaging in similar wrongdoing).
• If there’s a layoff or reduction in force.

What’s not OK:

• If there/s a change in pay, hours or duties without a business justification.
• Where they were “singled out” or otherwise treated “differently” than others.
• Where the company makes return-to-work or light-duty decisions without medical proof.

Note that ERISA often preempts benefit discrimination claims in this area.

In an interesting Freakonomics podcast, authors Levitt and Levine discuss whether expensive wines are worth the price. Their conclusion: They are not. Here’s an example of an interesting experiment. Participants were asked to rate two different wines. All they knew was that one was a $10 bottle and one was a $50 bottle of wine, when in fact it was the same $20 bottle. The participants overwhelmingly chose the $50 bottle as having the better taste. Interestingly, some participants asked the testers if it could, in fact, be the same bottle of wine. When told that they’d have to decide for themselves, most of them reached the “logical” conclusion that they had to be different wines because of their different pricing – so they rated the more expensive wine as better.

Here’s the point: We often value things more simply because we pay more for them. If this holds true for wine and cars and dates, then why wouldn’t it be true for employees? Employers have tried to finagle with compensation systems from Day 1. What’s the right mix of compensation to help generate the greatest return on investment of an employee or workforce? Because it’s a mistake to underpay or overpay employees, how do we decide just how much to? Here’s an easy three-part solution:

1. Identify the market rate. What does the “average” employer pay for a certain level of employee? You can learn this by going to the statistics at BLS.gov, your state labor agencies, sites such as Salary.com, or your local employers’ group. You might also have industry-related associations and can hire some competitive intelligence to provide these rates. In my experience and opinion. to pay anything more than 25% above grade is essentially throwing away money. For example, in the fast food industry if $8.50 is the norm, it might make sense to pay $10.50, as In-N-Out Hamburger does in California, or the premium Costco pays its employees. However, it doesn’t make sense to pay even 1% above grade if it’s not going to buy you a more productive employee. Perhaps there are other ways to attract productive employees. You might be able to attract them by being the most outrageous or flexible or cutting-edge workforce.
2. Think team bonuses. When I perform employee surveys at companies, I always ask whether employees prefer incentives based on individual performance, on that of a team, or of the entire company. Over the years, I’ve found that where there’s a great deal of trust, people prefer team-based incentives. If trust is low, they prefer individual incentives. Of course, we trust those people to whom we’re closet. As an owner, if I wanted to help generate trust, I would offer team-based incentives. As the saying goes, “A rising tide floats all boats.” I would recommend a bonus (say 10% of net profits) and then distribute it based on employee’s gross compensation. For example, if one employee makes $50,000 per year and one employee makes $25,000, the person making $50,000 gets twice the bonus. This is a simple formula that avoids a lot of wasted time and energy trying to finagle 2% here, 4% there, etc. If an employee displays outstanding performance, the chances are that they’re in line for a raise or promotion. This is how you manage going forward.
3. Award people immediately on an individual basis when they go the extra mile. According to Barber’s 1001 Proverbs, “The greatest benefit is the one last remembered.” Don’t underestimate the power of: (a) rewarding what you want to reinforce, and (b) doing it immediately. These rewards need not be expensive; they’re as much about acknowledgment as they are about money. Of course, a little bit of cash helps too.

Every week I read Time, Business Week, and The Economist, together with about a dozen other periodicals. I’d like to share a number of the main themes “going on out there” and how they might apply to running your business. Remember, what’s going on out there is a reflection of what’s going on “in here.”

1. Education equals wealth. All three magazines tend to piggyback stories from each other. All three have discussed recently how income disparities nationwide and worldwide are impacting society. Fact is, those with the greatest level of education also have the most amount of wealth. The U.S. remains a world leader in education. We have nine out of the world’s top 10 endowed universities and remain the primary source of global innovation. For example, Harvard faculty members have earned more Nobel prizes than either France or Russia.

According to one of the articles, the world’s standard for wealth remains at $1 million in the bank. Another article concluded that it takes approximately $70,000 per year to be happy (i.e., middle class).

How this applies to managing your business: The wealthiest companies will also be the most educated ones, with the most educated owners, managers, and employees. They will place a high value on constant training. Successful companies will give employees an opportunity to learn more so they can earn more.

2. Tiger moms, tiger bosses, and the tiger self. Battle Hymn of the Tiger Mother by Amy Chua, a book written by a controlling Asian-American parent, describes the strictness with which she raised her two daughters. It caused a lot of discussion online, in the media, and among my wife and her friends. Of course, the liberal reaction was that the parent was too harsh. By her own admission, this was sometimes true. However, look at the results. She has two highly talented, healthy, and well-behaved young adults who claim to have no regret with their mother’s tough parenting style. On the other hand, we have an entire generation of parents more interested in being their kid’s best friend than a parent. Many of these kids get to do whatever they want to do, including watching hours of TV, texting friends, or playing video games. These children are disconnected and will not be prepared to compete with the tiger children. Their only hope will be to be more innovative than their counterparts. Unfortunately, I don’t see how hours of TV or video games will help them to be more innovative.

Dan Kennedy reminds us that if we want to be rich, we shouldn’t do what the huddled masses do with their time – which includes watching TV, engaging in gossip, spending hours on social media, fantasy football, and anything to do with Kim Kardashian or Charlie Sheen. I believe that there will be a demarcation not just between the intelligent and the unintelligent, but also between the watchers and the doers.

How this applies to managing your business: Are you a tiger boss? Are you overly demanding of your employees? Do they appreciate or resent your strict ways? Do you have a tiger self? Are you tough on yourself? Are you unnecessarily tough on you? In my opinion, the workplace, like the home, requires a balancing act. I expect nothing but the best from myself and the people around me at work and home. Anything less than excellence is simply not acceptable. I understand the importance of discipline, planning, and process. I also understand that my employees need permission to think for themselves and not to be so afraid of punishment for making mistakes that they fail to push themselves to higher levels.

3. A continuing loss of faith in institutions. There’s a breakdown in confidence with our financial, educational, political, and business institutions. Politics and economics are transitory. Yesterday’s regime is not current enough to be trusted and today’s is not experienced enough to be trusted. As we lose faith in institutions, we’re gaining faith in communities. We trust those who are closest to us. Given the advent of social media, somebody can be very “close,” yet 6,000 miles away. On the other hand, you might connect with a political activist two blocks away from you that you’ve never met before.

How this applies to running your business: Business is an institution. Statistics have shown and common sense reveals that we’re less enamored with our institutions today than ever, whether it’s Congress, the local school board, GM, or your company. There’s less loyalty to business entities among consumers and employees than ever. Employees today trust in and are loyal to the communities that involve their work and personal activities. Today’s leader realizes that they have to foster those communities and motivate them toward profitable ends. You can entertain and talk with people all day long, but as the IBM commercial says, “How do you make money at this?” The answer is to build this community outside of your four walls with your clients, customers, and prospects. A recent book I read, Crush It, encourages us to talk about what we’re passionate about. Do your employees have permission to do this? This might be something as simple as an account manager talking about the passion she has for doing a great job for her clients every day.

4. Hard times for democracy. There’s been a decline in democratic governments. Certainly, imbalances in wealth could be one cause for this challenge. The age-old challenge of trying to get government to spread the wealth through capitalist and democratic means is falling prey to fear and greed. Even here at home, we’re losing faith in our democratic institutions, even as we continue to realize that they’re the least of all evils.

How this applies to your business: First, the workplace is not a democracy, even if it’s unionized; it’s a business. The challenge I see is that business owners in tough times who operate more out of fear than greed, can move toward an authoritative management style. This will produce short-term results at best and resentment and eventual overthrow at worst. Ask how you can be more “inclusive” of the thoughts and feelings of your workforce.

5. The Consumer Electronics Show. Listening to and reading about what went on in Las Vegas assures me that people are becoming increasingly detached from their natural environment. Whether it’s Apple TV, WII games, or new tools for texting, it appears that the only way we’ll be connected in the future is through digital means. I saw a news video recently in which a woman, while texting to a friend at a mall, tripped over a knee-high wall and fell in to a water fountain in the middle of the mall. One of the employees released the video thinking it was hilarious, and it became a YouTube sensation. Of course, the woman expressed her outrage at this insensitive act and her lawyer had the guy fired! Amazing.

What this means for your business: First, it’s hard to fight today’s reality. Think Kung Fu. Go with the flow! We have to be willing to communicate through these tools as owners and employees. Sticking our head in the sand or playing dinosaur means going out of business. However, as John Naisbett warned more than 25 years ago, the more we go “high-tech,” the more we need “high-touch.” Today, the company that can go high touch will win not just people’s minds, but their hearts and wallets as well. Going high touch in a high-tech world is the single most powerful way to show you care.

6. Us versus Them. Where would the good ol’ plot be without “goodness triumphs over evil?” More than half of the content in these leading news magazines focuses on some type of conflict: Democrats vs. Republicans, North Sudan separating from South Sudan, Arabs vs. Jews, Libyan vs. Libyan, China vs. the world — and all of the violence, destruction, pain, and war that these conflicts create.

What this means for your business: No matter how hard you try to be a good boss, at some point you’ll need to deal with conflicts — employers vs. employees, like cats vs. dogs. As leaders, we need to acknowledge this fact, stand it on its head, and not let workers portray themselves as our victims. If you want to play us vs. them, then do it with the competition.

7. Increasing financial and environmental debt. It doesn’t seem that this trend is going to stop or go away any time soon. Grim realities such as the mortgage scandal, the oil spill, and global warming aren’t going away. In fact, there’s no reason for things not to get worse. We’ve been mortgaging our future for our present and will leave an awful legacy for our children and grandchildren.

What this means for your business: First, we have to teach employees financial literacy. HR That Works members can start by watching the Accounting Game Webinar. Then watch Coach George’s webinar on what you can do about the impact of financial stress on your workforce. You don’t have to become LEED-certified, but you can certainly attempt to recycle paper and reduce waste. Encourage your employees to come up with suggestions about how you can make a greener company. It’s a “cool” thing for them to do.

8. Sometimes the greatest risk lives next door. If the Tucson tragedy taught us anything, it’s that mayhem can show up anyplace at any time.

How this applies to your business: Sometimes we’re so busy looking at the risks we face from the “outside” we forget that the greatest risks that lie closest to home. For example, most auto accidents occur within a one-mile radius of our home or business. The greatest risks we face in our business generally come from the inside as well: The sales manager who did such a bad job that sales were cut in half; the marketing executive that endorsed a risky campaign damaging our brand for years; the driver addicted to crystal-meth who drove head-on into that family. In the end, the greatest risk to you or your business is … you and your business!

9. Last, but not least, there’s been a change in our Zodiac signs! Millions of new-agers have been thrown into psychic turmoil. Think of all the wasted horoscopes. The horror of it all.

What can you do about this at work? Absolutely nothing but to sympathize with those folks who thought that it meant anything in the first place.

That’s my report of today’s news and how it affects your business.