Before the Next Recession: Three things HR pros should do before an economic downturn

In September of 2008, Lehman Brothers filed for bankruptcy. By the end of 2008, the effects of the economic collapse had reached all corners of the economy. The Great Recession caught many companies off guard. For human resource professionals, this meant having to quickly make difficult staffing decisions, often without adequate preparation.

While we are celebrating 10 years of economic growth, another recession is likely. When it will occur is uncertain. However, indefinite economic expansion has no precedent. From an employment law perspective, the best time to prepare for a recession is before it occurs. Having proper policies and practices in place prior to when difficult staffing decisions must be made helps human resource professionals make well-informed decisions. This in turn reduces the risks of costly and protracted litigation.

There are three steps which human resource professionals can take today to ensure they are better prepared for the next recession than many were for the last.

Prepare (or brush up) your employee handbook. If you don’t have an employee handbook in place, or if it has been a few years since you last had your employee handbook updated, now is the time for your company to update its policies. In the past three years there have been important legal developments in the employment law arena. If your employee handbook does not reflect these developments, your company could be exposed. Few things make a plaintiff’s employment attorney more excited than a poorly drafted employee handbook. Outdated policies can become the basis of litigation against you or your company. Like oil changes for your vehicle, an updated employee handbook is the regular maintenance your company needs to help it avoid a catastrophic failure.

For example, if you don’t have a well-articulated sexual harassment policy, your company is unlikely to be able to benefit from one of the most powerful defenses in a sexual harassment case known as the Faragher/Ellerth defense. Under the Fargher/Ellerth defense, an employer can avoid liability by proving that: 1) It exercised reasonable care to prevent and promptly correct the harassing conduct (i.e., maintained effective anti-harassment policies and complaint procedures); and 2) the employee unreasonably failed to take advantage of those procedures.

Update (or maintain) employee personnel files. Terminating an employee is expensive and stressful. Nevertheless, during a recession many companies are compelled to right size their work force. This can be difficult if the company has not documented employee performance and discipline. If you have conducted honest performance reviews, you’ll be able to make well-informed decisions as to which employees to keep and which to terminate. But if you have not conducted annual reviews, and if you have failed to document employee discipline or performance issues, then you risk a claim that you are playing favorites based on any one of a number of protected characteristics or actions (e.g. race, age, gender, protected activity, etc.) In other words, keep your company’s employee personnel files up to date so you can easily demonstrate that you had a legitimate reason for staffing decisions.

Furthermore, if you have an employee that you know needs to be terminated but you have been unable to muster the courage to do so, you may wish to make that decision now. There is no better time to terminate an employee than during a period of full employment, especially if you suspect that employee is litigious. Once a recession occurs, that employee may have extreme difficulty finding new employment. This means that he or she will likely file for unemployment. It also means that if the employee files a lawsuit during a recession, his or her potential damages will likely be much higher because of the difficulty in finding replacement employment. A terminated employee has a duty to mitigate his or her damages by seeking reasonable alternative employment. But if alternative employment is difficult to obtain, or non-existent, the ability to mitigate damages diminishes and an employer’s potential liability increases.

Pick how you want to resolve disputes before disputes arise. If you do end up in a legal dispute with a current or former employee, where and how would you want it to occur? It is generally acknowledged that arbitration is quicker, less costly and more private than conventional litigation. Should you provide in your employee handbook that disputes will be resolved through arbitration? In addition to arbitration, some employers and employees enter into mediation agreements which requires them to mediate disputes before either party files a lawsuit. This can be a major benefit as it encourages both parties to find cost-effective solutions rather than engaging in the sum-zero litigation game. Several key legal opinions in 2019 clarified that employers and employees have wide discretion as to how and where disputes will be resolved. Human resource professionals should think carefully about the options and, if possible, develop an alternative dispute resolution mechanism.  These will help their companies fairly and cost-effectively resolve legal issues with employees.

Conclusion

When a recession occurs, human resource professionals are on the front line. Human resource professionals must make difficult staffing decisions. If a company has neglected its policies and practices, already difficult decisions become even more difficult. Put the right policies and practices in place before the next recession occurs. You won’t regret it.

Anders J. Gillis is an attorney with Parker Harvey PLC. Reach him at (231) 486-4507 or agillis@parkerharvey.com. You can also read his legal blog at northernmichiganemploymentlaw.com.

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