Don't Cut Legal Compliance Training

February 5, 2009

Financially challenged companies that are facing the worst economic crisis in 60 years may be encouraged by bottom-line-conscious executives to cut costs by forgoing legal compliance training for their managers and HR staff. But major spikes in harassment and discrimination lawsuits following past meltdowns, including the 2000 tech bust, indicate that not "training the masses"—particularly after a year of significant expansions in protected worker categories—ultimately could cost businesses far more than they initially save.

If government reports are correct, the U.S. has been in a recession since December 2007, already longer than the 10-month average for post-World War II recessions, with no end in sight. Some of the biggest impacts from recessions are layoffs and unemployment, which, unfortunately, are also some of the strongest drivers of workplace litigation.

As in past downturns, today's soaring unemployment rates reflect not only major reductions in force but also an increasing number of performance-based terminations. Many companies in distress are having difficulty providing sufficient severance packages to discharged employees. Factor in the stock market's brutal plunge and greatly reduced 401(k) values, just as baby-boom workers approach retirement, and you have the recipe for employment insecurity.

Unemployment drives claims

In this high-stakes climate of heightened worker insecurity about pay, benefits and merely keeping a job, any management mistakes in hiring, performance management, firing, restructurings, overtime pay or evaluating reasonable accommodations and leaves of absence could trigger an avalanche of claims, including major class and collective actions.

According to several seminal works by law professors Peter Siegelman and John Donohue, surging unemployment during recession has a profound impact on workplace litigation. According to their research, an increase of just 1.5 percent in the unemployment rate translates into as much as 21 percent increase in harassment and discrimination claims, mostly in federal court.

The most basic explanation for this increase in litigation is that workers who feel their rights have been violated cannot easily move on to another job, and so have both the time and financial motivation to seek legal remedies. In addition, employers in a climate of high employment arguably have more leeway to actually harass or discriminate due to excess labor supply.

New laws increase exposure

Far more significant than any theoretical proclivity by individual managers to harass or discriminate, however, is a very real increase in exposure this year to the risk of unwittingly violating expanded worker protections under the Americans with Disabilities Act. Updated Family and Medical Leave Act regulations could likewise trip up supervisors and HR. New federal and state pressure on employers to clamp down on illegal immigrant labor simultaneously increases the risk of employers running afoul of anti-discrimination laws. And last but not least, employers face significant new risks from the Employee Free Choice Act, a bill Congress is expected to consider in 2009 that may allow a union to be recognized through a review of authorization cards in lieu of secret-ballot elections.

All of the above changes in the workplace legal environment increase the potential for management mistakes that could give insecure or disgruntled workers fodder for a legal claim. Unfortunately, the company's risk profile under this scenario rises in direct proportion to the magnitude of any negative job action it takes, such as a recession-related reduction in force.

If an ounce of prevention is worth a pound of cure, training is the best tool a company may have to pre-empt an onslaught of costly, high-stakes, recession-related litigation. That would make this recession—or any recession—the absolute worst time to unwisely cut legal compliance training budgets. Doing so would leave large numbers of supervisors without critical updates or otherwise render them unprepared to properly conduct reductions in force that raise the company's risk profile so significantly.

Two specific areas deserve mention here. First, recent court decisions have made retaliation claims easier to prove. As a result, it makes particular sense to train supervisors on how to prevent this kind of secondary claim. With such claims, plaintiffs can prevail in court—even when their primary claim of harassment or discrimination is dismissed.

Second, claims experience from the 2001 tech recession shows that federal court overtime actions based on the Fair Labor Standards Act surpassed the number of race and gender discrimination lawsuits for the first time. FLSA litigation is a particularly popular category for class and collective actions, and will undoubtedly be a hot-button area in this recession, thanks to the use of technology that increases productivity by extending the compensable workday, as well as the practice of having middle managers assume nonmanagerial responsibilities and work longer hours.

Training's recession-proof ROI

Fortunately, there is an almost perfect correspondence between established workplace training curricula and all major areas of recession-related litigation exposure. To name just a few: avoiding harassment, discrimination and retaliation; positive employee relations; proper business communications; immigration compliance; reasonable accommodations and leaves of absence; and managing wage and hour issues.

In addition to preventing management mistakes that may give rise to legal claims after a negative job action, training also can provide an important affirmative defense, as it does in the face of sexual harassment claims. Should the company be taken to court, every training dollar spent can be cited as proof of a good-faith effort to comply with worker protections.

For return on investment, there actually may never be a better time than a recession to continue, update or expand the company's workplace training schedule. Many training providers offer multiple formats, including a mix of live and interactive Web-based courses that should provide the flexibility, reach and convenience employers need to make the most of their investment.