LOCAL CUSHION PRODUCTION

Local Cushion Production $($LCP$)$ was a small business that manufactured bleacher seat pads that sports

fans or picnickers could use to make wooden outdoor seating $($or even convenient rocks$)$ a bit warmer

and more comfortable. The primary markets for LCP$\text{'}$s product were college bookstores $($to be sold to

students and alumni$)$ and specialty advertising firms $($for use as corporate give$-$a$-$ways$).$ The firm was

organized in the second half of $2016$ and began selling products in $2017.$

LCP had a policy of providing an annual "cost of living" increase for its assembly workers to maintain a

constant annual cost of $$24,500$ per worker $(1984$ dollars$).$ The production process requires one worker

for every sixteen tons manufactured. As of January $2020,$ up to ten of the assembly workers were

provided by a local Sheltered Workshop facility $($a facility that provided and supervised disabled workers

for product assembly and piecework$).$ This facility also rented the necessary manufacturing space to

LCP$.$ Coast$-$to$-$Coast Prime Manufacturing $($CPM$),$ a local manufacturing conglomerate with some excess

capacity, provided the remaining workers and production space when more than ten disabled workers

were required. Coast$-$to$-$Coast Prime Manufacturing was also paid $$24,500($inflation$-$adjusted$)$ apiece for

its workers plus an additional fee for the rental of equipment and space.

In addition to manufacturing labor, LCP employed a clerical worker and a general manager but no sales

staff. Through December $2020,$ sales were generated primarily by manufacturer's representatives who

received a standard $5\%$ of sales as their commission.

In January $2020,$ Coast$-$to$-$Coast Prime Manufacturing purchased LCP$.$ CPM$\text{'}$s management team

immediately began supplementing sales efforts by adding the LCP products to their own manufacturer's

representatives lines. Otherwise, they operated LCP without significant changes. The Coast$-$to$-$Coast

Prime Manufacturing managers soon found that while sales were growing, profits were shrinking. The

management responded for the second half of $2020$ by increasing the commission to their manufacturer's

representatives from $5\%$ to $6\%.$ The sales force responded quickly, and sales boomed.

By July $2021,$ CPM$\text{'}$s board of directors expressed some concern to management. Even though sales

were up$,$ the deal was not proving to be profitable. At the end of July $2021,$ the board of directors was

informed that CPM$\text{'}$s management team had decided to reduce LCP$\text{'}$s production staff by letting go of

those employees provided by the Sheltered Work Facility.

It is now autumn $2022.$ CPM has been sued by a noted civil rights attorney claiming that closing down

the Sheltered Work Facility manufacturing operation was a wrongful termination of the workers in the

Sheltered Work Facility. Her court filings say that there was no valid business reason for selecting the

disabled workers for layoff rather than the nondisabled workers; in part, the court filings claim that the

layoff was wrongful because there was no economic justification for dismissing these workers who had

been at least as productive, and profitable, as their non$-$disabled counterparts for so many years. The

attorney claimed that this was obvious discrimination against the disabled and because of the

discrimination, her ten clients will be unemployed for an average of $20$ years each.

The attorney is asking the court for a verdict of $$19,600,000$ as an appropriate award to her ten clients if

she prevails in her action. She estimated this figure by computing $20$ years $10$ clients $$$$24,500=$

$$4,900,000,$ doubling it to account for her fees, then doubling that to account for future inflation.

Required

You have been hired by CPM$\text{'}$s board of directors to help their attorney $($and them$)$ evaluate the claims in

the lawsuit and determine whether the management team made the right decision. You have been asked

to consider the following specific questions in preparing a report: $($Use the guidelines for preparing a

report on the course website.$)$

You remember from your Business School days the following concepts that you think might be useful

here: Q$.6.$ Suppose that punitive damages were allowed by the court in the event of a plaintiffs$$ verdict. What is an appropriate level of punitive damages? If there is not enough information to determine this, what other data would you like the directors to provide to you?