Harold: How To Prepare Your Business For State Budget Cuts

NEW ORLEANS – With the recent drop in oil and gas prices and the State’s budget shortfalls, companies that depend on doing business with the State need to prepare for less opportunity and fewer deals.

         Labor and employment lawyer, Edward Harold, who’s a partner at Fisher & Phillips’ New Orleans office, said at a time of economic downturn, costly lawsuits should be avoided. But, that requires planning, especially if the economic climate means you have to downsize. Any change to employment practices needs to have a solid defensible foundation, Harold said.

         “Often times the employees who want out are the ones the employer is best rid of,” Harold said. “To this end, overstaffed employers can offer incentives to individuals who agree to voluntarily leave their positions.”


         Harold said if you need to cut staff, early retirement and voluntary severance programs are good strategies. Voluntary resignations are significantly less likely to lead to lawsuits, he said, as such programs usually require the employee to sign a release of claims. A properly designed and executed voluntary severance program can sometimes remove the need for involuntary terminations altogether.

         “The downside is that the employer loses control of who leaves, and a carelessly designed program can encourage resignations by employees the employer wants to keep,” Harold said.

         Many employers do not want to lose good employees due to temporary conditions, but maintaining all the employees you want to keep on the payroll full time can stress the bottom line. Harold said if you’re looking to reduce payroll costs while maintaining your staff, furloughing workers or reducing hours is a strategy that allows you to continue your relationship with employees.

         “While certainly some employees may choose to move on in these circumstances, many will stay,” Harold said. “Hiring freezes are often attractive because they do not appear at first blush to affect current employees. However, not hiring employees can stress the whole workforce as responsibilities and tasks increase for those who remain.”

         Harold said pay reductions can provide some relief across the board, but this measure appears more permanent and can cause good employees to start looking for new jobs.

         If faced with reducing your workforce, Harold said that solution requires a lot of careful thought because decision-making can often appear discriminatory, particularly if a large majority of the employees let go are older. “This may well happen for legitimate reasons,” Harold said, “such as the benefit of terminating one employee with a high salary, who happens to be older, and keeping two with lower salaries, who happen to be younger. But if these decisions are not probed for flaws in advance, they can easily be attacked in a lawsuit.”

         Harold said reduction-in-force lawsuits are particularly attractive because of the ability to increase the value of the suit with multiple plaintiffs.

         Last, Harold said obtaining the proper insurance for employment lawsuits is “critical.” He suggests looking at your retention amount, claims that are excluded from coverage and coverage limits.

         “A company might have $1 million dollar maximum coverage on a policy,” he said. “This would ordinarily be sufficient to cover most claims, but when large numbers of employees are being let go, there is a risk of them banding together or bringing several separate suits that would eat through the million dollars in defense costs alone.”

         Harold said companies contemplating employee reductions should consider raising this limit.

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