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OIL SPILL LEGAL NEWS, Vol. 8, The Gulf Oil Spill's Impact on Coastal Businesses and Employment

07.15.10

Oil Spill Legal News – Update No. 8, July 15, 2010

Not surprisingly, the Gulf Oil Spill has impacted more than the natural environment. If the oil continues to spill into the Gulf, we will see an increase in business closings and layoffs. Temporary positions will also pop up throughout the Gulf region related to clean up efforts. This article provides practical tips for avoiding legal risks related to such layoffs and the hiring of clean up workers.

A Dun & Bradstreet analysis published on June 7, 2010 found that the Gulf Oil Spill has the potential to impact 7.3 million active businesses in Alabama, Louisiana, Florida, Mississippi, and Texas, affecting more than 34.4 million employees. Layoffs often lead to charges of discrimination and other claims of wrongful termination. Although no measures exist to prevent potential litigation, companies can significantly minimize their legal risks by implementing a strategy for any reduction in force. Any layoff plan should identify the reason for the layoff and scope of reduction. Layoff plans should also be reviewed to ensure that employees in one or more protected categories—such as race, gender, age, disability, or national origin—are not adversely impacted by the process. Employers are also wise to decide in advance whether the layoff will be permanent or whether the company will recall workers if business conditions improve. The layoff selection criteria is also critical and should include as many objective factors as possible. Such factors might include length of service, attendance record, education, performance, productivity, and compensation. Employers should consider assigning a value to each criterion which will allow them to more easily rank employees for the layoff selection.

Other legal issues to consider are the federal Worker Adjustment and Retraining Notification (WARN) Act, which requires employers with 100 or more employees to provide 60 days advance notice to employees, unions, and local government officials prior to closing a plant or conducting a "mass layoff," which is defined as at least 33% of a company's workforce. Employers may be able to assert an exception to the WARN notice requirement under the Act's "unforeseeable business circumstance" exception. Regardless, the exemption would only apply to the 60-day notice period and affected employers must still give notice as soon as practicable.

What risks are associated with the temporary workers hired for the clean up efforts? One likely issue that will arise from the hiring of such workers is how they should be classified – as independent contractors or employees. With the federal government's increasing focus on employee classification, this is a critical issue for all employers. In November 2009, the IRS announced the Employment Tax National Research Project, in which the IRS will randomly select 6,000 taxpayers (2,000 taxpayers each year for the next three years) for a comprehensive examination of employment tax compliance, including worker classification. Incorrectly classifying employees as independent contractors can result in substantial tax liabilities and penalties. In January 2010, the U.S. Department of Labor announced a nationwide campaign to combat independent contractor misclassification. Finally, President Obama's 2011 budget proposal earmarked $25 million for government agencies to utilize for investigating cases of misclassified workers. Employers hiring individual temporary workers to help in the relief effort must make sure they are properly classified. In a nutshell, true independent contractors are in business for themselves. They invest capital in their own ventures and share in the profits or losses of their enterprises. The IRS has published a multi-factor test for determining whether workers should be classified as employees or as independent contractors at this link.

Layoffs and worker classification issues can be difficult to navigate. Gulf Coast employers faced with these issues should consult with legal counsel to minimize these risks.

Waller Lansden will continue to monitor events and issues related to the Gulf Oil Spill. For additional information on workforce issues, please contact Marcus Crider, Bahar Azhdari, Shane Morris, or any member of Waller Lansden's labor and employment or tax practices at 800-487-6380.

The opinions expressed in this bulletin are intended for general guidance only. They are not intended as recommendations for specific situations. As always, readers should consult a qualified attorney for specific legal guidance.

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