Ep 30: Culture is King

April 18, 2014

Nasir and Matt discuss UPS laying off 250 employees over the decision by one worker. They also answer a question on the best techniques to keeping employees long-term.

Update: Those 250 employees have been rehired.

Full Podcast Transcript

NASIR: Welcome to Legally Sound Smart Business.
This is Nasir Pasha.

MATT: This is Matt Staub.

NASIR: And we’re ready to go on Episode 30. Talking about UPS.

MATT: Yeah, we have a good UPS story here that happened and this was in New York.
Basically, because of the actions of one of the employees – and, for some reason, I thought that UPS drivers weren’t necessarily all employees but some of them were independent contractors, but I know you’re not going to get into that because I know you hate the distinction between the two.

NASIR: Please, no.

MATT: There was a 90-minute protest by one of the UPS drivers and it happened and people kind of went along with it. As a result, they have already dismissed 20 of the workers and they’re planning on terminating another 230. So, 250 potential employees are going to be let go because of one person’s 90-minute protest. I think he was a union activist. Of course, it was over an hour’s dispute, too. I’m sure it’s something that’s probably legitimate. I don’t know if you heard about this story at all but it seems like UPS might not be making the best call in this situation.

NASIR: Well, it’s not easy. I think it’s tough.
Basically, I think these drivers are in a union and, for whatever reason, when you have employees in a union, all the rules tend to change when it comes to employment law issues. There’s a lot of provisions in there but, basically, what UPS is saying is that, yeah, you have a right to do certain things and a lot of unions have a right to strike and so forth, but this particular action of this particular protest is against the labor contract that we have. Therefore, it’s blatant in subordination and it’s an illegal conduct. Therefore, we have every right to terminate the employee for this.
I don’t know if it’s the case that the employee was doing the 90-minute protest and the other employees joined him but I thought that the protest was because that one particular employee was terminated for misconduct and then these other 250 employees did a 90-minute protest. Either way, the point is still the same.

MATT: Yeah, it was kind of unclear. It makes a lot more sense than how I described it previously.
Here we are. A group of 250 employees walked out for 90 minutes. That’s what it was.

NASIR: We have a long history in our country of striking and protesting. Without getting into the details and politics of unions in itself, I think the most important thing to get from this is that (1) UPS is not going to terminate and also hold to that termination – they haven’t backed up on this – without a pretty solid standing ground in doing this. Keep in mind, too, I also read that some of these cities – including New York – are not necessarily too happy about UPS’s actions and are threatening to terminate the contracts that they may have with UPS as well.

MATT: UPS took a pretty no-nonsense approach to this. I kind of respect it, assuming they did it in the most legally appropriate way possible of just saying, “Hey, we have people that are walking out or protesting. We’re not going to put up with that. If that’s what you’re going to do, we’re just going to get rid of you.” 250 is a lot of people, don’t get me wrong, but the distribution center has 1,400 workers. I guess they can find people to replace them.

NASIR: For an hour and a half, I mean, they claim that, because of that hour and a half, things get delayed and, if things get delayed, then they incur penalties from it. That’s probably true and so forth and there’s no doubt that they probably incurred some expense from this, but I think the point is they wanted to make a point so this wouldn’t happen again or they won’t be manipulated through these protests. If they found a way to do it in a way that’s legal, I think – I mean, we’ll see – I’m pretty sure it’s fine. That’s just big business and how it goes.

MATT: Yeah, I wonder if they’ll do the same thing that Domino’s did – they let go of all those people and then they kind of recanted on it. “Actually, we’re not going to let you go.” I guess they only let go of 20 and they said they planned on terminating another 230. There’s still time for them to just not do that and dismiss the 20.

NASIR: Yeah, that’s true. Well, I think they issued termination notices. The only reason I think they’re not letting them go right away is because they need to retrain people to replace them. Otherwise, they may have already done so. But, you’re right, they could turn back.
It’s funny that you mentioned that pizza place because I think the big difference with that was that it was a franchise owner, right?

MATT: Right.

NASIR: And maybe not as sophisticated. It didn’t go through the corporate legal department and so forth, but I can tell you for this, you don’t fire 250 employees without it going through legal – through UPS’s legal department.

MATT: I would hope so, at least.

NASIR: Yeah, you would think.

MATT: Yeah.
All right, we’ll try to keep up-to-date with what happens with this and just see if they end up going through with it or kind of going back on it and see what ends up coming up.
[MUSIC]

MATT: Let’s get to the question of the day.
“I keep losing employees after I spend time training them. Is there something I can do to lock them in long-term if they perform well?”
This comes from a marketing firm in Santa Ana.

NASIR: Santa Ana.
You know, this is a big problem, I think, with a lot of companies – not just in marketing and so forth. I think marketing has a lot of sales teams and so forth so they may have high turnaround but I can think of some other industries and businesses that have this training period and you just have some level of attrition.

MATT: You’re right. From marketing, what I’ve seen and people I know that are in the industry, it’s pretty interchangeable. They seem to be switching firms, switching companies all the time, just everchanging.
For this specific industry, first things first, it’s just kind of an industry where this happens so you have to keep that in mind when you’re hiring people. Unless you just have outstanding pay or outstanding culture or outstanding benefits, you’re going to be prone to this from the get-go.

NASIR: Yeah. But, to answer the question whether you can lock them in, when we got this question, I started thinking about this. There is something. I’m almost reluctant to give the answer because I don’t think it’s good business practice but here’s the answer – there’s something called a “liquidation damages clause.”
If you have an employee sign up in a long-term contract, first of all, that’s a requirement, too. It can’t be an at-will agreement. You have to have them sign up for at least a month or two months or whatever after the training period because you want to keep them long-term. And so, that means also that you’re going to have to provide provisions for termination – whether it’s for a cause, without cause, and so forth. No matter what I’m saying, you’re going to have to have an attorney draft this.
But then, also, you can have it so that, if they terminate the contract before the end of its term, you could include a liquidation damages clause which has very strict requirements and some jurisdictions for employees is not enforced. But what you can do is you can make it so that you can recoup the cost of the training. However, especially with employees, you can’t make it so that you can deduct this amount from their paycheck – like, their last paycheck if they quit. Also, it can’t be termed as a penalty – otherwise, it’s also unenforceable.
The bottom-line is that it may be possible but, I think, if you have high turnover, you can’t bind them through a legal doc.

MATT: I definitely thought you were going to say just lock them up in a cage – like in the first episode.

NASIR: Yeah, exactly – like the first episode. That’s pretty much your only other option is just to go back to days of slavery. Slavery still does exist in certain countries and you can move there or you can do it in secret and these are all things that I think are morally reprehensible and illegal. But that’s definitely an option.

MATT: I do think there is something and it’s not necessarily something you can do from after you hire them. It’s more pre-hire and that’s a very good screening process and, going back to what I said before with just the company culture, bottom-line is, if you have a good culture and the compensation is right, then you’re not going to lose the people. You’re not going to lose as many people.
So, if you have that and if you have the proper screening and you hire the right people, that’s probably your best bet in terms of keeping people long-term. It’s not necessarily something you can do from a legal perspective or from a contract perspective but it’s just something that will make it more likely that they stick around.

NASIR: I think that’s true. Also, think about this concept – whenever we get a new client, one of the first questions I ask – well, I don’t want to say first but one of the questions in the beginning that we ask – is “What kind of turnover do you have with your employees?” The reason I ask that is because it gives me a good idea of what kind of risk we’re running with this particular client going forward because, the more turnover you have, I think, the more risk you have dealing with employment issues. Also, it tells me about the culture of the business.
If you have high turnover in a position which shouldn’t have high turnover, then it’s a big red flag. For example, a minimum wage telemarketing position is expected to have high turnover. That’s the nature of it. However, I’ve seen plenty of businesses that don’t because they are somehow able to attract those employees and keep them for the long-term. If you do have high turnover and you keep losing your employees after training, I would look beyond more. I guess we’re saying the same thing over and over again but look beyond more than just a legal document and see what you can do to change who you’re hiring and everything from even the job posting – how those documents are drafted because maybe the expectations aren’t being met by your employees.

MATT: Exactly. Culture is king. That’s what it comes down to.

NASIR: Very good.
That was a long answer to a short question but I think we got it.

MATT: Yeah, I think so. That’s the best you can really hope for when they ask that.

NASIR: I think it’s a good way to end the week and our episode – Episode 30.
If you have any more questions for us – which I hope you do, we definitely enjoy them – send them in at ask@legallysoundsmartbusiness.com and don’t forget to leave a review and check out our website as well.

MATT: Definitely.
As always, keep it sound and keep it smart!

NASIR: All right, have a good one!

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Legally Sound Smart Business

A business podcast with a legal twist

Legally Sound Smart Business is a podcast by Pasha Law PC covering different topics in business advice and news with a legal twist with attorneys Nasir Pasha and Matt Staub.
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