NUTS & BOLTS

Nuts & Bolts Inc. is a manufacturer of industrial fasteners, mostly nuts and bolts. It has a total of 500 employees, the majority of whom work in its manufacturing plant and the rest of whom perform standard business functions such as accounting, sales and marketing, human resources etc. The company's operations are all located in the United States, and the majority of its sales are domestic with a limited number of international customers. For the last two years, competition has been increasing in the industry, and profit margins for the company have been shrinking. The company is still profitable, but top management is concerned with the trends and sees a real possibility of a net loss next year. Because of this, the CEO and the President are discussing the need for layoffs.

Company turnover is low, and most employees stay with the company for five or more years. The company has a history of treating its employees well, and there is no labor union representation. The company is considering expanding its international business, but fears that it does not have either the time or the money to do this before financial results turn from profit to loss. After some discussion, the CEO and the President agree that a labor force reduction of about ten percent would be sufficient to keep the company profitable for the foreseeable future. The company has no history of layoffs, so they are exploring uncharted territory for them.

They feel that the layoffs must be done quickly to have the desired effect, so reducing staff by attrition will take too long, and they have rejected this option. After reviewing what other companies in similar situations have done, they have reduced their action plan to two options.

Option 1 is to carry out all the layoffs on the first working day of the next month. Fifty employees will be told that their employment is being terminated on that day. Each terminated employee will receive two weeks' severance pay, and have their health insurance continued for one month. Layoffs will be effective immediately: for these employees the day that they are told will be their last day at work. The layoffs will be proportional by work division: that is, the number of layoffs in each division will be ten percent of the number of employees in that division. Division heads will be informed of the plan one week before the layoffs take place. Each division head will determine which specific employees will be laid off.

Option 2 is the same as option 1 with the following exceptions. In order to avoid any possible legal entanglements based on discrimination, employees to be laid off will be selected alphabetically by last name. All those whose last name begins with "A" will be laid off, then "B" and so on until the required number of employees has been reached. This approach will assure randomness and prevent even accidental bias. In addition to two weeks' severance pay and one month's health insurance, an employment service will be retained and each employee terminated will receive up to three hours' free counseling and help from this service.

Part II Legal Analysis

Answer the following questions relating to legal issues (each answer should be between 1/4 and 1/2 page long):

1. Does Nuts & Bolts, Inc. have a potential legal duty to inform the workers that there will be layoffs?

2. The Nuts & Bolts layoff Option 1 calls for each division head to determine which specific employees will be laid off. Some of these employees will almost certainly fall into various classifications, such as race, color, religion, national origin, sex, disability and age, which are protected under federal law, most notably Title VII of the Civil Rights of 1964 which protects the first five. It is quite likely that some of these workers will feel they are being laid off not because of their lack of skills and abilities, which is presumably what the division heads will say (and quite likely are applying) is their criteria, but are in fact being laid off because of their race etc. How would these workers make their case that they being intentionally fired for such an illegal act?

3. The Nuts & Bolts layoff Option 2 calls for employees to be terminated by alphabetical order beginning with the letter "A" until the desired number is reached. This approach would be applying facially neutral criteria since all people have names and thus, on the surface this does not appear to be illegally discriminatory. However, under Title VII even using facially neutral criteria is illegal if it has a disparate impact on protected groups. Give an example of disparate impact analysis, and then discuss whether this is likely to occur in this scenario.