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Strategies to Defend Y2K Claims

September 1, 1999
Related Topics: Technology and the Law, Featured Article, Technology
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Avoiding legal liability to employees is a primary responsibility of the contemporary HR professional. However, the Y2K problem presents an entirely new inventory of potential claims for which defense strategies must be prepared.

Good documentation has always been critical to a successful defense, but what happens when the documents are no longer accessible? Here, you'll get an idea of strategies to defend against claims concerning:

  • Interruption of retirement
  • Disability and other benefits
  • Payroll administration regulation
  • Workplace health problems caused by embedded technology
  • Corrupted communications
  • Data of suspect validity

Why Is It HR's Problem?
While management of a "computer problem" is not traditionally a human resources function because the problem is so potentially pervasive, it has become everyone's problem. While perhaps considered to be a computer problem now, on the morning of January 1, 2000, there may be a massive problem in management of employees and, thus, falls squarely into the HR realm. Since HR management is the foundation of any business, when the business's ability to function is disrupted, the entire business is threatened.

The Nature of the Threat to the Core Business
Virtually every aspect of the core function of American business is potentially vulnerable to the Y2K problem, according to Bob Bener, of Phoenix, Arizona, a pioneer in computer systems. Among his accomplishments is responsibility for the development of ASCII text, partial responsibility for the design of the computer language COBOL and creation of the backslash.

The two biggest things that can fail are the worldwide banking system and electric power. Unless the banks get with it, you probably won't be able to take out your own money-because they won't know when you deposited it, when its due and they won't be able to figure out the interest. The Federal Reserve pays $2.5 trillion per day-that's one-third of the U.S. yearly gross national product-which means they're exchanging checks from this bank to that bank and so on. If all those banks aren't talking the same language, where do the checks go?

Electric power plants are impregnated with embedded chips, and embedded chips turn things on automatically, like the doors of an elevator and traffic lights. The thing about an imbedded chip is the program is built in; it's not changeable. And if it wasn't built for 2000, it'll never work. So you've got to throw it out and put in a new one that will work. But embedded chips are often difficult to find. Some of them are in underground wells, in underground gas lines, and in telegraph repeaters under the Atlantic Ocean. (Millennium Bug Smasher, American Way, October, 1998.)

Therefore, when computers don't work, IT professionals are needed to solve the problem. However, when people cannot access their workplace or their work, cannot perform essential jobs functions and/or cannot be paid, HR professionals will be expected to solve the problem. In addition, management will expect to be positioned to resist claims by employees resulting from Y2K issues. HR professionals will be expected to have positioned themselves to make an informed and effective response.

Perhaps the problem is overstated. The "Millennium Bug" may be no more real than the apocalypse predicted by cult religions. Nevertheless, no one can predict with any accuracy just how serious a threat is really posed to any aspect of American business. While none of us can "save the world", we can take a series of small, modestly expensive steps to shield our businesses from unnecessary legal threats from the Y2K Problem.

The Eight Critical Tasks
In order to meet the challenges of the Y2K Problem, responsible HR professionals, like other departmental managers, will be expected to expedite at least eight separate, new projects (many of which you've hopefully already done):

  • Determining where systems are likely to be affected;
  • Designing solutions to systems identified as defective;
  • Managing the installation of the solutions;
  • Managing the effects of the defective solutions and the disruption caused by their resolution;
  • Protecting the integrity of the company's data;
  • Reporting and compliance issues;
  • Preserving the company's relationship with key employees; and
  • Communicating with employees to maintain confidence in the company and its survivability.

The Y2K Problem may prove unmanageable for many who failed to implement prophylactic strategies. On the morning after, it may well be impossible to "catch up."

Liability Threats
One of the core HR functions has always been to protect the company from legal liability challenges from prospective, current and former employees. In the 90's, the threats have been more serious than ever before. The Y2K Problem does not, in and of itself, present new direct threats; rather, the problem is more likely to be that an employer finds that its traditional ability to defend itself has been compromised. Insurance industry analysts suggest that the problem will be felt in four waves:

  1. The first wave of Y2K impacts will be the technical manifestations in software, hardware and date sensitive embedded electronic systems.

  2. The second wave will be first-party insurance claims [claims by insureds against insurers] (many could involve direct damage scenarios), system incapatabilities, operational disruptions, supply chain shortages and physically manifested consequential losses, such as accidents from traffic light failures.

  3. The third wave will be breached contracts, liability insurance claims, liability-based third party litigation and insurer subrogation actions.

  4. The fourth wave will be the aftermath. After all the cost recovery and litigation is complete, individual companies may no longer exist or be forced to restructure and others will stand in a better competitive position because of the effect of Y2K. As stated above, the greatest societal concern is the preservation of essential industries, including the insurance industry. ("Are You Covered for year 2000 Events?," Business Insurance, August 10, 1998, Pegalis & Schaefer.)

HR will feel the effect in waves all its own, perhaps the following:

  1. The first wave will be the unexpected departure of formerly expendable employees now key to survival: principal members of the company's Y2K Team and/or IS Specialists.

  2. The second wave will be allegations of regulatory non-compliance: wage-and-hour violations, working conditions (heat, etc.), payroll compliance, wage deductions, etc.

  3. The third wave will be claims by customers and other third-parties, ranging from breach of contract to garden-variety torts.

  4. The fourth wave will be manifested in a hindered ability to defend traditional claims by employees for unemployment compensation, workers compensation benefits, illegal workplace discrimination, etc., due to an inability to access records and statistical evidence.

  5. The fifth wave will be claims by retired and former employees for pensions, benefits and ERISA-type claims, where the defense will be hindered by the same inability to access data.

Human Resource professionals should conduct an internal assessment of where liability threats are most likely to occur in each aspect of the implementation of the Y2K Problem management plan and to implement prophylactic strategies accordingly.

Perhaps the Millennium Bug will prove to be more imagined than real. At worst, however, the problem presents an opportunity for HR professionals to conduct internal critical self-analyses of business systems and communications protocol.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion.

Recent Articles by Lee Stephen MacPhee, Esq.

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