Better Safe than Sorry… A lesson about business continuity planning

Leslie Hollis is Employers Group’s Vice President of Consulting Services. Prior to joining Employers Group, she was Chief Operating Officer for the Orange County Human Resources consulting firm Human Capital Co-op (HCC), which was acquired by Employers Group in 2005. Leslie has more than 23 years of diverse experience in corporate human resources management, consulting, organizational development, employee benefits, and risk management, and she is a Certified Safety Specialist and earned a Masters Certification

Earthquakes, terrorist attacks, fires or workplace violence occur without warning. California is as close to a natural disaster as the Gulf Coast was to Hurricanes Katrina and Rita. Experts say Californians are ill-prepared and some businesses may never recover, except those businesses that have created and implemented a viable Business Continuity Plan (BCP).

Protecting your business
Business continuity planning is the process whereby businesses of all sizes and types ensure the maintenance or recovery of operations, including services to clients, when faced with unpredictable adverse events such as terror attacks, natural disasters, technological failures or interruptions, human error or even a flu pandemic.

The BCP’s primary objective is to minimize financial loss to the business, continue client service and to ultimately mitigate the negative impact disruptions could have on the business strategic plan. It’s also critical for maintaining a company’s reputation or stature in the global marketplace, operations, business value and liquidity or credit worthiness, as well as keeping it compliant with state and federal regulations.

We all remember Y2K and the pro-activity that businesses engaged by planning for disaster recovery relating to preservation of computerized data in anticipation of the new millennium. Throughout this process, businesses were educated in the activities associated with not only technological concerns but company-wide, process-oriented considerations for business processes and communications strategies, both of which are key in creating an effective BCP.

Business impact analysis
The BCP process is only slightly different from Y2K planning, in that boards and senior management teams are responsible for creating a more comprehensive, enterprise-wide action plan following a Business Impact Analysis (“BIA”). The BIA considers:

• The impact of various business disruption scenarios on the company, its clientele and vendors;
• The probability of occurrence based on a rating system of low, moderate and high risk;
• The loss impact on information services, technology, personnel, facilities and service providers from both internal and external sources;
• The safety of critical processing documents and vital records/data, and
• A broad range of possible business interruptions, including natural and human-generated threats.

When assessing the probability of a specific hazard or event occurring, companies and technology providers should consider the geographical locations of facilities and their specific susceptibility to natural threats such as floods, and the proximity to critical infrastructures such as power sources, airports, nuclear power plants, major freeways, railways, etc.

The analysis should include the company’s locations and facilities. Worst-case scenarios, such as total destruction of the facilities and loss of life should be taken into consideration. At the conclusion of this phase, the company will have prioritized processes and estimated how they may be disrupted under various threat scenarios.

The BIA phase identifies the potential impact of uncontrolled, non-specific events on the business processes. The BIA phase also should determine how much is at risk by identifying critical business functions and prioritizing them. This facilitates focus on the maximum allowable downtime for critical business processes, recovery objectives and the related costs. The BIA also considers the impact of legal and regulatory requirements such as the privacy and availability of client data and required notifications to clients and vendors when facilities and processes are relocated, even temporarily.

The board and senior management should designate personnel to participate in BCP development and properly allocate resources that might prove to be challenging throughout the development and maintenance of a BCP. A large company may need a business continuity team or department with liaisons throughout the company. A smaller, less complex company may only require an individual business continuity planner. In either scenario, the choice of the personnel to participate in the BIA and ultimate execution on the BCP is crucial.

After conducting the BIA and risk assessment, management should prepare the written BCP. The plan should document strategies to maintain, resume and recover critical business functions and should include procedures to execute the plan’s priorities for critical vs. non-critical functions, services and processes. A well-written BCP should describe, in detail, the types of events that would prompt a formal declaration of a disruption thereby invoking the BCP. The BCP must describe in detail the procedures to be followed to recover each business function impacted by the disruption and should be written in a way that all levels of personnel can implement the plan in a timely and effective manner.

When determining a company’s critical needs, reviews should be conducted for all company functions, processes and account for personnel in each department. Each department should document the critical functions performed. Departments should consider:

• What specialized equipment is required and how is it used?
• How would the department function if the network or Internet access were inaccessible?
• What single points of failure exist and how significant are those risks?
• What are the critical outsourced relationships and, more importantly, dependencies?
• What is the minimum number of staff and space required to establish a recovery site?
• What special supplies and/or staffing would be necessary at the recovery site?
• What communication devices would be required at the recovery site?
• Have employees received adequate training/cross training and has the department defined contingency roles/functions that employees should/could perform if key personnel are unavailable?
• Are emotional support and family care needs adequately considered?

The BCP is more than recovery of technology as it addresses recovery of all critical business operations. The plan should be flexible to respond to internal and external changes in conditions and new threats or risks. The plan should outline immediate steps to be taken during a disaster in order for the business to minimize the damage from a disruption, as well as necessary actions to recover. Hence, the BCP should be focused on maintaining, resuming and recovering business operations following a disruption and response tactics if:

• Critical personnel are not available;
• Critical buildings or locations are inaccessible;
• Equipment malfunctions;
• Software and data are not accessible or have been corrupted;
• Utilities are not available (power, telecommunications), and
• Critical documentation or records are inaccessible.

Insurance is key
Insurance can provide the lion’s share of protection in a business interruption, provided that it has been carefully planned and annually reviewed. Generally, insurance is obtained for unpredictable risks that could pose a high-degree of financial loss or other disastrous consequences. Management should know the limits and coverage afforded the business under these policies and make sure that adequate coverage has been secured recognizing the level of risk associated with the specific business type.

This insurance should be reviewed annually as businesses change, grow and locations multiply thereby making the assessment of adequate insurance coverage a constant concern. Also keep in mind the location of the business insurance provider. If the carrier is headquartered in California, perhaps near the vicinity where the threat or perhaps a large-scale natural disaster occurs, inquire as to the carrier’s contingency plan in order to service its clientele with financial resources required to set up temporary facilities and recovery efforts of your California-based business. Perhaps insuring through an out-of-state carrier is more attractive considering this scenario.

While insurance is a safety-net, it is by no means the total answer. Insurance can reimburse the business for some or all of the financial losses incurred as a result of an unpredictable event or natural disaster, however, it is not a substitute for an effective BCP, since the primary objective of insurance is not business recovery, it merely supports business interruption gaps. Insurance coverage can never replace or repair a damaged reputation of a business that failed to plan for interruption, thereby losing its client base and stature in the market.

Government assistance
A company may also need to coordinate with community and government officials and the local news media to ensure successful implementation of the BCP. Ideally, these relationships and contacts should be established during the planning phase of the business continuity planning. This establishes proper protocol in the event of a city-wide or region-wide event that impacts the business operations. During the recovery phase, facilities access, power and telecommunication systems would be coordinated with various entities to ensure timely resumption of operations. Facilities access should be coordinated with local fire or police agencies and depending on the nature and extent of the disaster, possibly the Federal Emergency Management Agency (FEMA).

Accuracy of information
Documented data listed in the BCP must be verified periodically for accuracy, including furniture, equipment, telecommunications, connections, applications, and operating systems at both the primary and alternate sites.

Plan orientation
An orientation walk-through is the most basic type of test to determine the plan’s efficacy. The orientation’s primary objective is to acquaint critical personnel with all areas of the BCP. This orientation should include:

• Discussions about the BCP in a conference or meeting room;
• Individual and recovery team training, and
• Clarification and highlights of critical plan elements.

Test the plan every year
Testing requires centralized coordination by the appointed Recovery Team. A team coordinator is usually appointed and responsible for overseeing the accomplishment of targeted objectives and follow up with the appropriate areas on the results of the test. It is beneficial to have the entire team participate in the annual test, thereby increasing buy-in and ownership in achieving the goals and objectives established by the BCP. As with Safety Committees, rotation of personnel through this process is imperative, as it prepares the business for the loss of key individuals.

It is generally advisable to have the maximum number of team participants involved to increase awareness and buy-in in achieving successful BCP implementation. Management should report test results and the resolution of detected problems to the Board. Test analysis should include:

• Objective assessments;
• Assessment of the validity of test data processed;
• Corrective action plans to address plan flaws encountered during the test;
• Proposed modifications to the BCP, and
• Recommendations for future tests.

Validation of plan’s assumptions
The testing plan’s assumptions should be validated to ensure they are appropriate for the business continuity requirements. This validation requires the participation of appropriate business, operations, and technology personnel. Planning assumptions that require validation include:

• Criticality of services;
• Volume of transactions;
• Interrelationships among business functions;
• Selecting the business continuity planning strategy related to use of facilities and other outages, and
• Availability and adequacy of resources required to provide the planning service level, such as the time required to establish new/temporary facilities, obtain back up files and reconstruct lost or contaminated data.

Updating the business continuity plan
Since the BCP is a living document, changes within the business should dictate immediate modifications to the plan to better support those activities. The plan should be reviewed by management and the board at least annually. As part of the review process the BCP team coordinator should contact business unit managers to assess the nature of changes in business systems, hardware, software, personnel or facilities. Specifically, organizational changes should be analyzed to determine how they affect the existing plan and what revisions may be necessary to accommodate these changes. Finally, the modified BCP should then be disseminated throughout the organization.

Audit and independent review
An independent third party should review the adequacy of the BCP to ensure that board expectations are met. The review should include assessing the adequacy of the business process identification, threat scenario development, business impact analysis and risk assessments, the written plan, testing scenarios and schedules and communication of test results and recommendations to the board.

In summary, the following six factors are critical aspects of effective business continuity planning:

1. Business continuity planning should be conducted on a company-wide basis.
2. A thorough business-impact analysis and risk assessment are the foundation of an effective BCP.
3. Business continuity planning is more than the recovery of technology; it is the recovery of the business.
4. The efficacy of a BCP can only be validated with thorough and regular testing.
5. The BCP and test results should be regularly subjected to independent audits.
6. The BCP should be periodically updated to reflect and respond to changes in the business.

(Editor’s Note: For more information about Employers Group’s disaster planning/business continuity consulting services, please contact the writer of this article directly: Leslie Hollis, VP Consulting Services, (714) 545-5017 or lhollis@employersgroup.com.)

By Tanya Butler, M.S., Helpline Consultant

Knowledge itself is a flexible and often elusive concept. In the context of strategic management, it is perhaps easiest to understand knowledge in terms of what it is not. It is not data and it is not information. Data are objective facts, presented without any judgment or context. Data becomes information when it is categorized, analyzed, summarized, and placed in context.

Information, therefore, is data endowed with relevance and purpose. Information develops into knowledge when it is used to make comparisons, assess consequences, establish connections, and engage in a dialogue. Knowledge can thus be seen as information that comes laden with experience, judgment, intuition and values.

Mergers and acquisitions (M&A) have become an important means for executing corporate strategies, gaining a competitive edge, and reallocating resources in the global economy. This has intensified competition and driven price competition.

The transferring of knowledge (Intellectual Capital) in M&As can become problematic, as people from different cultural contexts have different ways of thinking and communicating. Therefore knowledge transfer cannot be seen as the transfer of a tangible commodity, but as an intangible – the mental learning process.

Successful M&As in knowledge-intensive businesses are usually hampered by both a loss of knowledge and poor employee perception of the merger target or acquirer. Unfortunately, managing the M&A process successfully, in the context of knowledge transfer and employee perception, requires a much longer transition process.

Knowledge transfer process
Successful M&A requires effective knowledge transfer. The fundamental prerequisite for this is a comprehensive plan that serves to promote positive perceptions and entrepreneurial thinking. All too often, the integration process involves significant layoffs and a demoralized team – usually the target. The subsequent loss of security and uncomfortable environment leads many of the remaining employees – who presumably were retained due to their extensive base of knowledge – to reduce productivity or leave in search of greener pastures.

A well-managed integration process that relies on visible leadership, communication, and the use of integrating mechanisms such as joint development teams, job rotations, and joint meetings will lead to higher levels of knowledge transfer.

It is also important that organizational members from the target and the acquirer begin to establish a social community that will also facilitate future knowledge transfer. This social community is important since individuals are only expected to participate in knowledge exchange when they share a sense of identity or belonging with their colleagues. In addition to sharing a sense of identity, trust is another prerequisite for the flow of knowledge among individuals.

Pre-combination
Building excitement at the prospect of new innovative products and services needs to start early. One of the most important things that managers can do in this stage of M&A activity is to start the process of assuring positive perceptions. This can be difficult where two companies have a history of fierce competition. Employees will have concerns about job security. Furthermore, personal concerns will be difficult to address given recent M&A history of large-scale layoffs and the low success rate of most M&As.

Managers can address these fears by letting employees know how important they are to the success of the combined company. It is imperative to the success of M&As in knowledge intense industries that the companies maintain the institutional knowledge that drives value creation.

To facilitate positive perceptions and future transfer of knowledge, successful companies begin the process of introducing the teams. These relatively informal gatherings serve to break the ice and provide the beginnings of the basis for trust. While it may be too early to exchange highly confidential technical information, it is not too early to start the collaborative process at a high level.

Combination
Once the M&A is finalized, the integration team is faced with the challenge of combining both the operations and the culture of the two companies. A successful combination depends on the ability of the employees of both firms to be able to make sense of the merger and perceive the combination as a positive thing.

Managers of a firm involved in the combination stage of a merger should identify key employees as the merger progresses. Once identified, it is important to make sure that these individuals understand the goals of the merger, that they see the merger in a positive light, and that they are able to make sense of the merger. Once on board, these employees should be positioned strategically in order to gain the most from their abilities. The goal of this strategic placement is to canvas the merged firm with individuals that are ready and willing to make the merger work.

Post-Combination
The combined firm is in a position to realize the goals of the merger that were stated at its outset. The acceptance and involvement in the merger on the part of the firm’s employees will ensure the successful transfer of the embedded knowledge of both earlier firms. Managers should, at this point, begin to influence and support the shifting perception from one of combination to one of unity.

Actions that managers can take in this stage should be focused on the support of these shifted perceptions. These steps may include incentive programs to reward entrepreneurial behavior and innovative decision-making. Also important are actions that support a unified social community, such as team building events and integrated meetings including employees from both firms, which will help improve the continued sharing of knowledge and ideas.

Conclusion
Managers of firms engaged in a merger or acquisition need to identify the knowledge transfer individuals located within each organization during the pre-combination stage. These individuals will play a key role in influencing the positive perception of the merger among employees and will help employees make sense of the merger from a strategic perspective. This perception, combined with the effective knowledge transfer stimulated by specific individuals, will help fuel and stimulate corporate growth and entrepreneurship and aid in the realization of the goals of the merger – the new unified company.

Changes for the EEO-1

Dagmar Muthamia, SPHR, Helpline Consultant

Since 1966, the Equal Employment Op-portunity Commission (EEOC) has required employers in the private sector with 100 or more employees, and some federal contractors with 50 or more employees, to submit annual EEO-1 survey reports. EEO-1 information on gender, race, ethnicity and job classifications is used by the EEOC to investigate charges of employment discrimination against employers in private industry and to provide statistical information about the employment status of minorities and women. The data are shared with the Office of Federal Contract Compliance Programs (OFCCP), U.S. Department of Labor, several other federal agencies and state and local fair employment agencies.

Changes in the race and ethnicity definitions have been finalized after several years of discussion. The new definitions will take effect in 2007 if they receive final approval by the Office of Management and Budget after a period of public comment. The EEO-1 reports that are due September 30, 2006 must be completed on the current form using the current definitions.

Revised race/ethnic category definitions
The current race/ethnic definitions require that all individuals be classified in one of five categories: 1) Hispanic, 2) White (not of Hispanic origin), 3) Black (not of Hispanic origin), 4) Asian or Pacific Islander, 5) American Indian or Alaskan Native. The new proposal has seven categories: one ethnic group and six racial groups.

The new survey will ask two questions. It will begin by asking applicants if they are of Hispanic or Latino ethnicity. Those who are not of Hispanic or Latino ethnicity will be identified by race. The new racial categories are:

1. White
2. Black or African American
3. Asian
4. Native Hawaiian or Other Pacific Islander
5. American Indian or Alaska Native
6. Two or More Races

The race of those who identify as Hispanic or Latino will not be reported. Those who identify with more than one race will be recorded in the "Two or More Races" category.

The Asian or Pacific Islander category has been split into two categories. Asian is defined as: “A person having origins in any of the original peoples of the Far East, Southeast Asia, or the Indian subcontinent including, for example, Cambodia, China, India, Japan, Korea, Malaysia, Pakistan, the Philippine Islands, Thailand, and Vietnam.” Native Hawaiian or Other Pacific Islander is defined as: “A person having origins in any of the original peoples of Hawaii, Guam, Samoa, or other Pacific Islands.”

The definition of American Indian or Alaska Native has been expanded to include Central and South America. Only North American Indians are included in the current definition.

Obtaining the information
Another change is that employers should get their information from voluntary self-identification. Visual observation is to be used only if the employee/applicant refuses to self-identify.

Employers are not going to be asked to resurvey current employees except in Hawaii. Hawaiian employers will no longer be exempt from completing the EEO-1 survey.

Proposed changes for EEO-1 job category data
The Commission has also modified the current EEO-1 job categories. Currently the categories are as follows: Officials and Managers, Professionals, Technicians, Sales, Office and Clerical, Craft Workers, Operatives, Laborers, and Service Workers.

The definitions have been revised somewhat and there are a few minor changes to the names. The significant change is that the “Officials and Managers” category will be subdivided allowing for more detailed assessment of the utilization of minorities and women in these activities. This Officials and Managers category has been split into two categories: 1) Executive/Senior Level and 2) First/Mid-Level. It will be important to look at these new classifications very carefully as they may impact the overall picture of the position of minorities and females in the organization.

Definitions of managers
Executive/Senior Level Officials and Managers are those who plan, direct and formulate policy, set strategy and provide for overall direction of enterprises/organizations. They include, in larger organizations, those individuals within two reporting levels of the CEO, whose responsibilities require frequent interaction with the CEO. Examples of these kinds of managers are: chief executive officers, chief operating officers, chief financial officers, line of business heads, presidents or executive vice presidents of functional areas or operating groups, chief information officers, chief human resources officers, chief marketing officers, chief legal officers, management directors and managing partners.

First/Mid-Level Officials and Managers are individuals who serve as managers other than those who serve as Executive/Senior Level Officials and Managers. These jobs include vice president or director. They typically lead departments, divisions, programs, regional offices or other major business units. Examples of these kinds of managers include group, regional or divisional controllers, treasurers; human resources; information systems; marketing; and operations managers. The First/Mid Level Officials and Managers subcategory also includes those who report directly to middle managers. Examples of these kinds of managers are: first-line managers; team managers; unit managers; operations and production mangers; branch managers; administrative services managers; purchasing and transportation managers; storage and distribution managers; call center or customer service managers; technical support managers; and brand or product mangers.

The other job categories are: Professionals, Technicians, Sales Workers, Administrative Support Workers, Craft Workers, Service Workers, Operatives, and Laborers and Helpers.

In the past, hourly paid supervisors and leads were classified as Craft Workers. Under the revised classifications, they will be classified with the workers they supervise.

For more information view the new instruction book at http://www.eeoc.gov/eeo1/instruction_rev_2005.pdf.

By P. Anthony Burnham, Esq., Senior Vice President & Employment Counsel, and Mark Nelson, J.D., Helpline Consultant

The notion of an employer inserting itself in the private lives of its employees, while perhaps an innovative management practice in Henry Ford’s time, crosses the line for most individuals working today. HR professionals generally adopt the mantra that the less you know about an employee’s private life, the better – and for good reason. So why would an employer ever want to tell its employees whom they may date and when the company shall expect full disclosure of an employee’s romantic life?

Regrettably, the classic sexual harassment case starts with a supervisor and subordinate entering into a romantic relationship, only to have the subordinate’s romantic interests wane before the supervisor’s. The subordinate feels pressure to remain in the relationship, as if his or her decision to call it off would result in termination.

Such a set of facts can quickly dissolve into quid pro quo sexual harassment (i.e., conditioning employment on one’s submission to sexual favors), not to mention sex discrimination for the subordinate’s peers who might allege favoritism, especially in light of a recent California Supreme Court ruling on this issue. Of course, if the supervisor breaks off the relationship with the subordinate first, the harassment claim risks for both the employer and supervisor can be equal to or greater than in the reverse situation.

Putting a policy in place
Because of the potential for these discrimination claims, and the difficulty and costs of defending them, many employers are resorting to anti-fraternization policies and even “love contracts.” But balancing the several sensitive interests involved in effectively dealing with this subject requires both considerable HR experience and workplace savvy.

An anti-fraternization policy is a policy addressing what prohibitions or limits the company desires to place on dating in the workplace. Well-drafted policies go no further than necessary and generally focus on only those situations where one individual:

1. has direct supervisory authority over another,
2. has access to confidential information about the other, or
3. is entrusted with passing money to another.

The policy may place an absolute prohibition on dating if it involves one of the above-referenced scenarios or may just require disclosure to the company and state that, upon disclosure, the company may require one of the two to transfer out of the chain of command, plus, perhaps even, have the employees each sign a “love contract.”

Love contracts
A “love contract” is a means whereby both individuals: make written disclosures indicating that they have entered into a consensual romantic relationship; are aware of their employer’s harassment prevention policy; and, specifically, agree to abide by that policy both during their relationship and afterwards. The “contract” is essentially designed to prevent claims the subordinate might otherwise make that the subordinate was coerced to engage or stay in the relationship for fear of retaliation or reprisal by the supervisor. Keep in mind that “love contracts” cannot prevent allegations of favoritism from the subordinate’s peers. If the company does not outright prohibit dating up the chain of command, it should at the very least carefully monitor the dynamic in that department. The impracticality of doing so, however, would suggest moving in the direction of a blanket prohibition on employees dating who are in the same chain of command.

Anti-fraternization policies and “love contracts” are not panaceas for either the employment law or workplace issues involved in employee romances. Moreover, they can even complicate these often-delicate situations, if not carefully implemented.

To minimize such risks, it is recommended that your company’s policy be reviewed by Employers Group’s employment counsel, Tony Burnham, before either communicating it to your employees or implementing it, particularly, in “touchy” situations. Likewise, employment counsel should be involved in the drafting and implementation of any “love contracts” you decide to use. Tony may be contacted by phone at: (714) 545-5017 or by e-mail at: tburnham@employersgroup.com.

FEHA Implications on California Workers’ Compensation Cases

Darren Cartwright is a Workers’ Compensation Services Manager for the San Francisco-based brokerage and risk management consulting firm Woodruff-Sawyer & Co. He currently consults in workers’ compensation and integrated disability management issues and assists employers in untangling the web of workers’ compensation, ADA, FMLA and disability overlap. Woodruff-Sawyer & Co. is one of Employers Group’s insurance partners.

There is little doubt that many of us are applauding the changes of the recent workers’ compensation reform and its positive impact on the California business community. Be aware however, California Workers’ Compensation Applicant Attorneys are now increasingly turning their attention toward employment exposures that they have historically ignored.

With the transition from vocational rehabilitation to the voucher system whereby injured workers can no longer collect cash benefits for retraining, attorneys have begun to focus on Fair Employment and Housing Act (FEHA) exposures that have traditionally been overlooked. Furthermore, the passage of AB 2222, the Poppink Act, (which took effect January 1, 2002) amended the FEHA to ensure that disabled workers in California would have broader workplace protections well beyond that of the Federal Americans with Disabilities Act (ADA). Both the ADA and FEHA prohibit discrimination in the workplace based on disability, but the Poppink Act broadens the definition of disability to include several additional physical and mental impairments.

Many applicant attorney firms throughout the state have either hired or aligned themselves with employment practice attorneys to complement their existing workers’ compensation practice, and have begun to scrutinize those cases where disabled workers have been denied their rights under the FEHA.

This exposure is by no means new, but because it was not applicant counsel’s focus in the past, Risk Managers and HR professionals need to be aware and work together to take the necessary steps to avoid these legal landmines.

Labor Code 132a extends protection to employees by declaring that there shall not be discrimination against workers who are injured in the course and scope of their employment. The burden is on the employee who must establish that employer’s actions are “detrimental” to the employee in the employment relationship. Generally speaking, many 132a claims arise from situations where the employer terminates employment and benefits prior to the employee being placed in a new vocation and without any consideration to the interactive process. This creates an opening to file a disability discrimination claim with the Department of Fair Employment and Housing (DFEH).

Failure to engage in the interactive process will make it more difficult to defend against any discrimination charge brought forward by an employee with a disability. And, with the elimination of the formal rehabilitation system, the probability is far greater now that an applicant’s attorney will be monitoring the actions of the employer and the extent to which they engage in a timely good faith interactive process with the disabled employee.

What employers must do
In light of the earlier expansion of the definition of disability under FEHA, along with Workers’ Comp reform and the elimination of vocational rehabilitation as we knew it, it is recommended that employers allocate adequate resources to the process and efforts to return injured employees to work. Whether the disability is due to occupational or non-occupational reasons, employers need to understand two key aspects of California law when it comes to employees with disabilities: 1) Employers must provide a reasonable accommodation for those applicants and employees who are unable to perform the essential functions of their job because of their disability, and 2) Employers must engage in a timely, good faith interactive process with applicants or employees in need of a reasonable accommodation.

A reasonable accommodation can be any appropriate measure that would allow an applicant or employee with a disability to perform the essential functions of the job. It can include buying or modifying existing equipment, restructuring jobs, modifying work schedules, examinations and policies, as well as other accommodations. As an example, a reasonable accommodation may be providing a keyboard rest for a person with carpal tunnel syndrome. Again, whether that disability is caused by industrial or non-industrial factors matters not. If it is a disability that limits the function of a major life activity, a consistent employer policy and practice that addresses making reasonable accommodations is highly recommended.

The interactive process is the process by which applicants or employees engage in a dialogue about the employee’s functional work limitations due to a covered disability, and any accommodations that can be made that would allow the employee to perform the essential functions of the job.

When considering your approach to the interactive process, you may first want to start by analyzing the job and identifying and distinguishing between its essential and non-essential job tasks. You should consult with the employee and their healthcare provider to identify job-related limitations. Then, identify possible accommodations and assess the reasonableness of each, in terms of effectiveness and equal opportunity, with the employee. Consider the preferences of the employee and implement the accommodation that is most appropriate both for the employee and employer under the circumstances. Once the accommodation is made, be sure to periodically follow-up with the employee to verify its success.

Essential versus non-essential tasks and functions, physical and functional capacities of the employee, and employer resources (time, space, materials and money) are components that will lead the parties rationally toward reasonable and realistic accommodations.

Documentation of these steps cannot be over-emphasized. Maintaining a written record of the process and the parties’ expressed ideas will help greatly should you need to defend your actions at some point in the future. In addition, it may help as a guide for streamlining future accommodations.

Now that the New Year is upon us, it is the perfect time to undertake a review of your corporate Return-To-Work policy and procedures manual. Two important outcomes from your review should validate that your policy treats occupational disabilities consistent with those that are non-industrial in nature and that consistent interactive processes are in place to assist all departments in the identification and ability to accommodate those individuals who may have a qualifying disability. These results are best achieved by a cross-organizational effort involving Human Resources, Risk Management, Safety and Legal, all of which play a key role in mitigating your employment exposures.

(Editor’s Note: If your company would like help with a review of your policy and procedures manual, contact your broker or call Employers Group at (800) 748-8484 and ask for a Professional Services Manager.

Validating the Value of HR

By BethAnn Whittenberg, PHR, HR Generalist

Does your company consider their Human Resource Department as overhead? Does management target HR as the first place to begin cost savings? Well, you can help them think again.

The savings alone from ensuring compliance with state and federal employment laws is enough to justify HR’s existence. What about saving senior management from dealing with government agencies or attorneys? Even though HR has never been seen as a revenue generating department, they can help reduce the number of zeroes BEFORE the decimal point on those drastic fines for non-compliance. So how can HR begin showing their value? Start with an HR department practices and procedures audit.

An HR department policies and practices audit is an effective means to evaluating the company’s compliance with state and federal labor laws. The audit should uncover the current employment practices, consistency of the enforcement of company policies and document control/retention.
To begin the audit, the company must first decide the players on the audit team. Is the internal HR department going to handle the entire audit? Will this take away from current responsibilities and can the company afford to shift resources in such a manner? In some cases, companies use outside firms to assist in audits of this magnitude. Outsourcing to an HR firm may provide additional access to laws and guidelines, as their consultants and legal counsel are required to continually update their credentials to stay current on new labor law and employment cases. When you consider the time invested by the internal HR group or any other senior managers, outsourcing might be a viable option.

In order to effectively audit your company’s current processes and procedures, the focus should cover critical components of employment law.

First, let’s consider the pre-employment requirements for applicants. Is your recruiting and application process compliant with the EEOC guidelines? Does your company have an affirmative action plan; if so, what methods are being used to track and report this information? An audit of recruiting and hiring practices can quantify turnover trends, and reveal gaps in meeting staffing needs.

During the new hire process, is the newly hired employee being introduced to the company policy and procedures? From the beginning all employees should have read through and signed off on the employee policies, procedures and offer letters. Also, make sure that the proper documentation such as I-9’s and W-4’s are completed and on file for each employee.

Moving on to the existing employees, one of the most important and commonly overlooked procedures is the storage of employee files. Separating the employee benefits and medical information from their employment file helps keep your HR department compliant with HIPPA guidelines.

HR is also responsible for reviewing and ensuring that employees are observing their meal and rest periods. Proper information on employee pay stubs could potentially save your company $4000.00 per error, per employee, per pay period.

Staying up to date on the FLSA regulations can also provide a savings. In the last six years, the state of California has seen 10 times as many wage and hour claims than in years past. Have job descriptions been written and evaluated for proper exemption classifications and physical requirements to be complaint with ADA?

Does the company have an Injury and Illness Protection Plan? Not only is it the law, advising and training the employees on proper safety procedures can help reduce workers’ compensation claims. When was the last time you reviewed your X-Mod (Experience Modification) Factor or your current reserves? Are there changes in the work environment that need alteration to bring your X-Mod down and your rates lower?

With regard to publicly held companies, the Sarbanes Oxley act mandates specific controls for accounting practices. However, the act also requires companies to ensure that all stock option and pension programs are managed appropriately and that all payroll information is accurate and secure. In addition, there are specific guidelines for protecting those who reveal improper accounting practices (whistle blowers).

Does your company pay commissions or bonuses for employees that exceed their goals? Well careful consideration must be given to both the timing and consistency of these payouts as well as final pay requirements. Also, performance evaluations must be consistent with the company policies and are they properly utilized when considering termination or promotion.

Considering all the areas a well-tuned HR Department can truly impact, and the savings a company can realize from adherence to state and federal laws and guidelines, companies should stop bleeding HR and acknowledge its role in boosting profits.

(Editor’s note: For information about EG’s HR policies and procedures audits, call as at (800) 748-8484 and ask for a Professional Services Manager.

Josie Gonzalez is the managing partner of Gonzalez & Harris, a Pasadena law firm that represents employers in all aspects of immigration law.

The recent court decision of Farm-ers Brothers Coffee v. Workers’ Compensation Appeal Board and Ruiz, wherein the California Court of Appeals held that Ruiz remained an “employee” under California Labor Code section 3351 despite the use of fraudulent work authorization documents, prompts one to examine an employer’s responsibilities when it discovers that employees have used false documents. This article will also discuss Immigration and Customs Enforcement (ICE) initiatives directed at the worksite, and how such initiatives will place even more attention on the widespread use of fraudulent documents to secure employment.

After the Workers’ Compensation Judge held that Ruiz was an “employee” and entitled to benefits, the employer filed a petition for review asserting that such a ruling violated federal preemption because the employment of unauthorized aliens is prohibited by the Immigration Reform and Control Act of 1986 (IRCA). IRCA mandates that an employer refrain from knowingly hiring or knowingly continuing the employment of unauthorized workers. Farmers also argued that by using a false green card and social security card, Ruiz obtained employment fraudulently in violation of Insurance Code, section 1871.4a. A claimant who is convicted of a violation of section 1871.4a is precluded from receiving workers’ compensation benefits.The Court of Appeal rejected both arguments. It held:

“California law has expressly declared immigration status irrelevant to the issue of liability to pay compensation to an injured employee. (§ 1171.5.) Were it otherwise, unscrupulous employers would be encouraged to hire aliens unauthorized to work in the U.S., by taking the chance that the federal authorities would accept their claims of good faith reliance upon immigration and work authorization documents that appear to be genuine.”

Section 1171.5 was enacted by the California Legislature in response to IRCA and to Hoffman Plastic’s prohibition on remedies involving reinstatement for unauthorized workers. (Hoffman Plastic Compounds, Inc. v. Nat’l Labor Relations Bd., 535 U.S. 137, 140 (2002.) The Legislature avoided conflict with IRCA by precluding reinstatement.

The Court summarily dismissed Farmers’ contention that the use of fraudulent documents precluded recovery since there was no conviction for fraud under Insurance Code, section 1871.4.

The Farmers’ decision is consistent with another Court of Appeal decision on the topic of Workers’ Compensation benefits, In Foodmaker, Inc., v. Workers’ Compen-sation Appeals Board and Margalise Ortega-Ruiz, 98 Daily Journal D.A.R. 1061 7, Foodmaker was willing to accommodate work restrictions and offer a modified job until it learned that its employee was undocumented. The employee then made a claim for vocational benefits; however, a similarly situated employee would not have been eligible for rehabilitation if a modified job had been offered. The Court held that employers need not provide costly vocational rehabilitation for workers injured on the job who can’t return to work because their illegal immigration status has been discovered. Ms. Ortega-Ruiz was not denied the portion of workers’ compensation benefits that provided for her physical rehabilitation; the issue of vocational rehabilitation was the sole focus.

“No Match” precludes re-instatement
In Anica v. Wal-Mart Stores, Inc. et al., (Wash. App.2004) 84 P.3d 1231, Wal-Mart fired Lorena Anica when she returned to work after recovering from her on-the-job injury. Anica alleged wrongful termination but Wal-Mart countered that the termination was based solely on the employee’s inability to correct a SSN discrepancy contained in a Social Security “no-match” letter. The Social Security No-Match letters are sent by SSA to employers who report wages that do not correspond to SSA records.

These letters, called Code V, No-Match Letters, have been the source of great confusion. The confusion stems from SSA’s admonition that the letter does not imply that the employee has used false documents and is not a basis by itself to terminate the worker. While it is clear that a termination based solely on the letter itself is problematic, most experts feel that the appropriate course of conduct is to provide the employee with a reasonable period of time to correct the discrepancy. If the employee fails to take corrective action, the continued employment of the worker might subject one to liability under IRCA for continuing to employ an unauthorized alien under the “constructive knowledge” standard in section 274a.1(l)(1).

In Anica, when the employer received its first SSA No-Match letter listing the employee’s suspect social security number, it brought the matter to Lorena’s attention. She merely provided a fee agreement from an attorney hired to resolve the matter. Wal-Mart received two more SSA notices. In the interim, Wal-Mart continued to pay workers’ compensation benefits.

The Court held that Wal-Mart acted reasonably in discharging Anica after her failure to provide a valid number. The SSA notice had put the employer on notice that the documents presented at the time of hire and used for completion of the new hire I-9 were invalid, and that the continued employment of the worker could subject the employer to IRCA liability.

Unions sue based on “No Match”
Various unions have sought re-instatement of employees who have been terminated after the employer’s receipt of SSA no-match letters and the workers’ failure to provided corrected documentation. In American Bottling Co. (Dr. Pepper) and Intl. Brotherhood of Teamsters, Local 744, 05-2 Lab.Arb.Awards (CCH) P 3206, the arbitrator held that an employer “may reasonably decide, for its own legal protection, not to ignore convincing information that some of its employees are not authorized to work in this country.”

Expansion of worksite enforcement
The Department of Homeland Security Appropriations Act 2006, includes enhanced enforcement of civil immigration violations and $9 million for 100 Immigration Enforcement Agents (IEAs). The Cornyn-Kyl bill (S.1438) also includes substantial new enforcement provisions, including authorization for the hiring of 10,000 new agents and increased penalties for employers.

Conclusion
Once hired and injured on the job, many state legislatures have adopted a public policy in favor of the injured worker. As the Farmers’ court stated: “The purpose of the California Workers’ Compensation Act is to furnish, expeditiously and inexpensively, treatment and compensation for persons suffering workplace injury, irrespective of the fault of any party, and to secure workplace safety. It is remedial and humanitarian.”

When IRCA was enacted in 1986, Congress authorized a pilot program that enables employers to verify the validity of work authorization cards. California employers were allowed to participate in the program. Recently, Congress expanded the program to all fifty states. In December 2005 the House passed a bill mandating new hire verification; the bill moves to the Senate in spring 2006. Meanwhile, the SSA has expanded its Web site to enable employers to register online and verify up to ten new hire social security numbers. (www.ssa.gov/employer/ssnv.htm).

Although current laws only mandate the completion of the new hire I-9 form and the acceptance and recordation of documents that appear reasonably genuine, many employers are participating in new hire verification programs. By taking this extra step, the employer avoids the predicament of discovering after a worksite injury, or after receipt of an SSA no-match letter, that an employee’s documents are bogus.

Meal & Rest Period Claims

By Jim Kuns, J.D., Senior EG Consultant

The California Court of Appeal, First Appellate District, recently ruled against an employee’s attempt to add claims of rest, meal, and itemized pay stub violations at the trial level, when those claims should have been made earlier before the Labor Commissioner. The court did however, support the employee’s claim that he was a non-exempt store manager and should have been paid overtime – see Murphy v. Kenneth Cold Productions, Inc., (2005).

John Murphy was hired as an exempt store manager for Kenneth Cold Productions, Inc. (KCP) a retail clothing store in San Francisco. He was employed by KCP from June, 2000 until June, 2002. He was paid a weekly salary.

The court analyzed the daily duties that Murphy performed. Murphy testified that approximately 90 percent of his working time was spent doing the same tasks as the sales associates, and only 10 or 11 percent was spent on management tasks. He asserted the company never criticized him for spending too much time on nonexempt activities. Some of the nonexempt work he performed was described as: assisting customers, making sales, processing merchandise, handling markdowns and cleaning. He reportedly performed his management tasks in the afternoons on days when there was less non-exempt work to perform.

In 2002, after he resigned, he filed a complaint with the Labor Commissioner regarding his exempt status. The Labor Commissioner awarded Murphy $26,667.22 in unpaid overtime, $2,863.99 in interest and a waiting time penalty at the rate of $239.25 a day for 30 days. He claimed, because he did not have an attorney, that he didn’t know he could also have claimed meal and rest period or pay stub violations.

In 2003, KCP appealed the Labor Commissioner’s decision to a superior trial court. Murphy's attorney then added claims for meal period, rest period and pay stub violations, plus interest and attorney fees. In 2004, the trial court ruled in Murphy’s favor and awarded him unpaid overtime of $28,412.56, payments for missed meal and rest periods of $17,431.77, penalties for failing to furnish itemized pay statements of $1,650, waiting time penalties of $7,895.40 and prejudgment interest, for a total of $64,206.85. The court went on to grant Murphy's request for attorney fees and costs of $62,171.40.

KCP then appealed the trial court’s decision. KCP relied on a federal theory of exemption in that Murphy’s “primary” duties were exempt and that he simultaneously performed both exempt and nonexempt duties and therefore was always a manager under an executive exemption.

The appeals court ruled against KCP, except for the claim that meal break, rest break and pay stub violations are to be considered penalties, and that those violations may not be raised for the first time on appeal. The court supported prior court decisions where it was determined that “A California court performs ‘a purely quantitative’ test to assess the work actually performed by the employee, in which the court itemizes ‘the types of activities that it considers to be [exempt], and the approximate average times that it finds the employee spent on each of these activities.’”

The court noted that Murphy filed his claims with the Labor Commissioner for unpaid overtime, waiting time penalties and interest. The Labor Commissioner then had 30 days to notify the parties that a hearing will be held. When the hearing is set, a copy of the complaint stating the amount of compensation at issue and notice of the time and place of the hearing is served on the employer. Ten days after the notice of an award is served, the parties may seek review of that award. “The award is based on the original complaint that gave notice to the employer of the matters at issue and upon which a subsequent appeal is based.”

After the Labor Commissioner decides a case, either part can appeal that decision to a superior court. Such an appeal will result in a new trial (de novo), however, the court decided that: “…[W]e see no authority for allowing the introduction of entirely new and different claims at that level.”

The court went on to note that Murphy had other options to satisfy his claims for meal break and rest break violations after he left his job. If the one year statute of limitations had not run on Murphy's new claims, he could have “…filed a civil complaint and sought consolidation with the appeal. Or he could have filed another timely complaint with the Labor Commissioner. “Since Murphy's last day of work was in June of 2002, the time for raising penalty claims expired in June of 2003, before KCP filed its notice of appeal and before Murphy ever raised these new issues.

Blogging: Just Another HR Headache?

By Jennifer Shin, Research Marketing & Communications Coordinator

Web surfing and e-mail are no longer the only problems employers face regarding the Internet. Recently, more and more disgruntled employees have been using the Internet to unload their gripes about their workplace on their personal Internet pages, aka blogs. As blogging’s popularity grows so does the threat of disclosure of confidential information, false allegations as well as personal attacks against management. As a result, companies should take a moment to address blogging in their own employment practices.

The good, the bad and the ugly
A blog is a web page where its owner can post information and opinions, much like an online diary. Easy-to-create and an effective way to spread information, it's no surprise, blogging is on the rise.

One popular blog website, Myspace.com, started as a platform for California musicians to network, but today is a social network with over 40 million members. According to technorati.com, as of October 2005, over 70,000 blogs are created each day and currently 19.6 million weblogs in cyberspace. Some companies are even hosting employee blogs as a marketing tool, increasing publicity by moving the company higher on search engines.

However, as effective as blogs can be for promotion, they can be equally devastating to a company's reputation. A blog can just as easily become a soapbox where an employee can take a stand and spout things that their employers might not want others to know. Still relevantly new, blogging is considered dangerous to a company's image because it spreads information to a potentially huge audience. Once a blog is posted, it is almost irretrievable. Therefore, much to an employers' dismay, a potentially racist, sexist, discriminatory comment or one that discloses confidential information is left to circulate the Internet for a very long time.

What can and should an employer do?
Attempting to prohibit blogging altogether is not only not feasible, it may also bring an overflow of negative backlash from bloggers. Instead, employers should consider developing a policy that will help avoid a blogging fiasco in the future. According to Business & Legal Reports, Inc.’s 2005 blogging policy, the following should be considered when creating a blogging policy:

• Confidentiality – Describe what an employee may or may not disclose, such as company and customer information.
• Respect of dignity – The policy should include a statement that the blogger should respect the dignity of others and refrain from posting personal information about coworkers or managers.
• Identification - Are employees permitted to reference the company in their blog?
• Facilities- Can employees use company facilities to work on their blogs? Are employees permitted to read and post messages to blogs during their work time or from the workplace?
• Monitoring – State that the company monitors its facilities, e.g., Internet, computer systems, network, etc. for compliance with this policy and monitors the use of its name and trademarks on the Internet.
• Discipline – What discipline measures will be used if the employee violates the policy? Note: employers should reserve the right to decide the appropriate level of discipline in any given circumstance up to and including the immediate termination of employment.

Employers should also take into account the effect a blogging policy will have on employees. Is the policy intended to discipline renegade bloggers within the company? Or is it simply an extension of an already existing internet policy? And perhaps more importantly what will be the effect on employee morale?

Employers should also keep in mind that while they can prohibit the use of company time and equipment to write blogs. California law prohibits firms from firing employees for engaging in any lawful conduct outside of work. As a result, while many employers may find blogging to be merely another corporate headache, companies should take into consideration employees’ rights to blogging and try to establish a policy that will bring harmony rather than corporate discontent.

Anti-Harassment in the Years to Come

Jeffrey Hull, Director of Training Services

The year may be over, but AB 1825 will never go away. While many employers scrambled to complete harassment prevention training for their supervisors in 2005, many HR professionals had many questions regarding the act, but not too many answers could be gleaned based upon published reports. This is all beginning to change.

The Fair Housing and Employment Commission is now beginning the process of adopting regulations for AB 1825. On December 16th, 2005, the commission released a copy of the proposed regulations and is giving employers a chance to speak out about the regulations on February 1, 2006 in San Francisco and February 10th in Los Angeles.

Employers Group, being your advocate, would like your input on the proposed regulations. For a copy of the proposed regulations and to provide your constructive feedback based upon the regulations, please email me at: jhull@employersgroup.com.

In the meantime, below is a very short synopsis of the draft regulations:

• Is my company considered a 50+ employer? Yes, if you employ 50 or more employees in each working day for 20 consecutive weeks. There is no requirement that you only count your California employees.
• What is effective training? Instructor-led, on-line and webinar type formats are okay if they provide feedback, allow questions to be answered and test trainees to ensure acquisition of knowledge. The two hours of training does not need to be consecutive.
• Do I need to train my supervisors on just sexual harassment? No, the training must include all forms of harassment and discrimination including prevention and retaliation that are covered in both Title VII of the Civil Rights Act of 1964 and the Fair Employment and Housing Adminis-tration.
• Who is considered to be a supervisor? Government Code 12926(r) states a supervisor has authority to “hire, transfer, suspend, layoff, recall, promote, discharge, assign, reward or discipline other employees, or the responsibility to direct them, or to adjust their grievances, or effectively to recommend that action… if the exercise of that authority is not of a merely routine or clerical nature, but requires the use of independent judgment.”
• Who is a qualified trainer? Those that have practical experience in harassment training and knowledge of California laws. Trainers should be able to facilitate discussions, be an effective listener who continues to learn about gender and cultural issues/concerns.
• When should the training be conducted? Provides an explanation of conducting the training on a “training year approach” or by “individual tracking.” Each employer can select its preferred method and stick to it.
• What should the training include? The training shall include definitions, case law and statutory provisions for both Title VII and FEHA, types of harassing conduct, harassment remedies, preventing harassment, practical examples, complaint confidentiality, victim resources, harassment complaint investigations, supervisor responsibilities, and utilization of the employer’s anti-harassment policy.
• What happens if my company does not comply? Make a substantial, good faith effort to comply by completing training within the designated timeframes. If an employer does not, it will be ordered to comply within 60 days of the order.

Salaries for Exempt Non-Management Employees

By Juan Garcia, Director of Research

The recently published 2006 Pro-fessional Compensa-tion Survey shows that salaries for exempt employees (non-management) grew at an accelerated rate of 3.3 percent between 2004 and 2005. In comparison, the annual movement recorded from last year’s survey was lower by .3 percent. This higher acceleration rate presents fresh new evidence that California employers seem to favor a strategy of doing more with less; i.e., maintain existing payrolls and headcounts at current levels while also investing or spending on salaries and wages at levels that favor employee-friendly increases.

Although this do-more-with-less strategy is nothing new, parts of this mentality seem to have its roots in the 2000 economic bubble burst. In 2000/2001, California employers reacted to the downward economic conditions with the shedding of excess payrolls, layoffs and adopting scanty 3 percent salary increases. California employers had adopted a policy of “fiscal HR conservatism” regarding not only their salary budgets, but also employment levels.

Although since 2004, California’s economy has enjoyed robust moderate growth, the creation of jobs has been weak. For example, California’s Employment Develop-ment Department reported lackluster growth in California’s non-farm payroll: Only 11,400 jobs were added to California’s labor force. Consequently, as of November 2006, unemployment rates in the state stands at 5.2 percent, almost 1 percent higher than the lows reported in early 2000.
In contrast to the weak job growth, salary trends indicate that salaries are keeping up California’s economic growth: For the second year in a row, salaries have grown beyond the previous year’s levels. Between 2002 and 2003 salaries for exempt employees grew by 1.9 percent. However this year’s increase rates were quite robust, growing from 2004’s 3.0 percent to this year’s 3.3 percent.

While jobs and salary increases are dependent on future economic conditions, if stable, then the question will be: will employers continue their current “fiscal HR conservatism”? Or instead, will they start adding to their payroll numbers at a higher rate than observed in the last 24 months?

About the Survey
The 2006 Professional Compensation Survey is now available to members! This study examines over 110 exempt classifications in finance, accounting, HR, advertisement, media, and other departments. The Professional Compensation Survey includes all the data you need to determine competitive pay levels for California’s most popular exempt jobs.

Survey includes the following job categories:

• Finance / Accounting, 20 classifications
• Legal, 3 classifications
• Banking, 5 classifications
• Human Resources, 22 classifications
• General Services, 12 classifications
• Creative Media Services, 6 classifications
• Production / Logistics, 17 classifications
• Science & Research, 6 classifications
• Sales / Marketing, 13 classifications
• Communications & Marketing, 6 classifications

Six New Job Classifications such as:

• 91. Payroll Administrator
• Employment Recruiter
• Employment Recruiter, Sr.
• 180. Employee Trainer
• 181. Employee Trainer, Sr.
• 526. Facilities Planner

Survey scope:

• Data by 250+ CA firms
• Nine Industrial Groupings
• Seven Overlapping Employment Groups
• Aging/Maturing Factors
• Six Geographic Labor Markets
• Base Compensation, Formal Salary
• Ranges and Incentive Compensation
• Geographic Differentials

To order or for more information on the 2006 Professional Compensation Survey, please email us at surveys@employersgroup.com.