Tuesday, April 29, 2008

Cameron on Reclassification of Workers at IBM

Ccameron Chris Cameron (Southwestern) was quoted in the following NPR Marketplace story about the reclassification of workers from salaried to hourly at IBM, and related litigation:

From the transcript of the story:

KAI RYSSDAL: It should be a pretty good time at IBM's annual shareholder meeting in Charlotte, N.C. tomorrow. After Big Blue reported a 25 percent jump in profits a couple of weeks ago the stock is near a six-year high. But employees aren't feeling any of that love. Workers are planning to protest the meeting over something called "reclassification." The word's getting a lot of play in corporate America these days. And in the courts, too. As Marketplace's Lisa Napoli explains.

LISA NAPOLI: It was just another workday for David Canizares, a network administrator for IBM. Then his boss called him and gave him the news.

    David Canizares: They said they wanted to be more compliant with federal regulations, so they were going to take us from exempt status to non-exempt status.

That was a fancy way of telling Canizares he still had a full-time job with benefits, but he'd no longer be classified as a salaried worker. He would be paid by the hour. And that wasn't the biggest change.

    Canizares: They had to cut our pay 15 percent.

IBM said the cut was necessary because the reclassified workers would now get to earn overtime. In fact, to make the same pay as before, those workers would have to put in extra hours. But for a third of the reclassified employees at IBM, working overtime isn't a possibility. So they're taking home less money.

    Christopher David Ruiz Cameron: It's about the bottom line.

Christopher David Ruiz Cameron teaches labor law at Southwestern Law School in Los Angeles. Welcome, he says, to the modern workplace.

    Cameron: Every manager's job is to figure out how to get as few employees to do the most work for as little money as possible. There's nothing evil about that. That's just how that works.

But as more companies have cut costs by reclassifying workers, the lawsuits just keep coming.

    CAMERON: There's a reason why they call wage and hour litigation the plaintiff lawyer's full-employment act.

One case that's dragged on for years has to do with agents at insurance company Allstate. They filed a class action against the company after being reclassified as independent contractors back in 1999, and being told they couldn't collect overtime. In some cases, courts have found workers haven't been fairly compensated.

    CAMERON: In the last 10 to 15 years, major settlements for millions of dollars to settle wage and hour claims for unpaid overtime and rest breaks and meal breaks has been paid out by Starbucks, by Microsoft . . .

Welcome to the modern workplace, indeed. And look for more reclassification issues coming up in big time litigation to a courthouse near you.



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Now that the standards for exemption from the FLSA are clearer, it's hardly surprising that some employees formerly treated as exempt are now classified as non-exempt. That's a direct consequence of limiting the exemption. As many companies have recently learned, misclassification can cost big bucks.

What puzzles me is why IBM handled it in this complicated and clumsy way. It could have kept them salaried although non-exempt, and it even could have reduced the salaries to account for expected overtime payments. So why add the status downgrade of moving them to hourly wages? Just to flag their overtime rights so that supervisors are more careful not to give them more work than they can do in 40 hours? Or is there some other explanation I'm missing?

Posted by: Dennis Nolan | Apr 29, 2008 9:18:29 AM

Other than getting no overtime, what's the big prestige from being "salaried"? In what social/economic circles is overtime-eligibility a "status downgrade"?

I acknowledge the popular notion that "exempt" is an elite/desireable status and "non-exempt" is vulgar/prol, but is it all just a classist prejudice? Isn't the bias for being exempt wishing for something against your economic self-interest?

IBM blew it by providing a "legal" explanation ("to be more compliant..."); generally, the best advice is to provide a non-legal excuse (e.g., "our payroll software runs faster with fewer exempts") to muddy the issue.

Posted by: kent | Apr 29, 2008 12:34:38 PM

I wonder if they have a defined benefit plan covering employees, and whether that plan excludes employees classified as hourly.

Posted by: Suzanne L. Wynn | Apr 29, 2008 3:14:15 PM

Kent: Your second paragraph answers the question in your first. For many people, a salaried white collar job is in fact an important marker of social status. That's one reason that so many people are willing to take such jobs rather than better-paying blue collar craft jobs. You can see that attitude in the workers' reaction to the IBM reclassification. You may not find that such a big deal, and you might think the reclassified employees are better off because of their "overtime-eligibility," but that doesn't mean the affected employees will agree with you.

IBM had to know that reclassifying the employees as non-exempt would offend many of them regardless of the net economic change. That's why I wondered why the company chose that path.

I doubt if software is the answer. Once an employee is put in a particular classification, the software will do the rest. Of your two answers, the first ("to be more compliant") is more persuasive.

Posted by: Dennis Nolan | Apr 29, 2008 5:43:15 PM

Dennis: I was not trying to offer a "persuasive" reason for changing exempts to hourly, I was offering a "minimizing litigation" reason.

Telling workers you're NOW complying with the law suggests you weren't before. To limit lawsuits, some experts suggest workers shouldn't be prompted that laws and legal rights are involved.

To avoid waking sleeping dogs, tell them you're computer can't handle the exemptions; you need an hourly rate for your insurance coverage; you want everyone earning more for long weeks; etc.; anything BUT "I'm now going to comply."

unless you're a plaintiffs lawyer, of course.

Posted by: kent | Apr 30, 2008 5:01:47 PM

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