For at least a decade, International Business Machines Corp. (IBM:US) gave fired employees information detailing a severance package that asked them to waive age-discrimination claims and also included a page listing the job titles and ages of workers being let go.
This disclosure helps fired employees determine if they have an age-discrimination case, and it’s required by U.S. federal law for workers over 40 if a company wants the person to agree not to file such a lawsuit. Now IBM is withholding the information, according to documents reviewed by Bloomberg. It’s avoiding the disclosure requirement by offering workers the option of bringing claims in arbitration.
Although employees are now able to accept a severance agreement and maintain their ability to bring an age-discrimination claim in arbitration, the strategy could make it harder and riskier for dismissed older employees to decide whether it’s worth taking on the cost of a legal battle, lawyers and labor law experts say. And many older workers are already feeling vulnerable in a still anemic economic recovery, said Ross Eisenbrey, vice president of the Economic Policy Institute, a nonprofit think tank affiliated with labor. IBM, considered a pioneer in employee benefits, may be one of the first major companies to make these changes in severance agreements.
IBM Tries to Adapt. Again
“It’s part of a long trend, a 30-year trend, of reducing the rights of workers,” Eisenbrey, who focuses on labor and employment law, said in an interview from Washington. “It’s just a symptom of the increased bargaining power that employers have over workers.”
IBM said it made the changes to disclose less data in order to protect employees’ privacy.
“IBM addressed concerns raised by employees that the age/title information the company previously provided infringed on employee privacy,” Doug Shelton, a spokesman for the Armonk, New York-based company, said in an e-mail. “IBM complies with all applicable laws in all aspects of its business. IBM continues to enhance and rebalance its skills in order to lead in key growth areas.”
Under the old approach, fired employees had two options: accept severance pay and give up all age-discrimination claims, or reject the severance offer and preserve the right to pursue legal claims.
Now, IBM doesn’t have to disclose the age and title data of co-workers in a group layoff because it’s no longer asking fired employees to agree not to take any legal action at all.
Instead, IBM says it’s giving those people who accept a severance agreement but feel they’ve been discriminated against an option to settle disputes: private arbitration.
IBM said the arbitration process is fair and independent.
Workers 40 years and older are protected by the Older Workers Benefit Protection Act, which was passed by Congress in 1990 to amend the Age Discrimination in Employment Act of 1967. If a company fires two or more workers and asks them to waive age discrimination claims in exchange for a benefit, the U.S. Equal Employment Opportunity Commission regulations require the contract to be “knowing and voluntary.”
That means the information should be easy to understand, refer to specific age-discrimination claims, give the employees at least 45 days to consider the waiver and encourage them to seek legal counsel. It also must include eligibility factors, plus titles and ages of the group of workers considered for the layoff, including those who were fired and those who weren’t.
David Larson, a professor of employment law and arbitration at Hamline University, said IBM may be giving staff members the arbitration option to comply with the Older Workers Benefit Protection Act. By offering arbitration, IBM is no longer asking employees to forfeit all options for raising legal disputes related to age discrimination.
The EEOC declined to comment on IBM specifically, according to a representative for the organization.
“There is nothing to prevent an employer from requiring arbitration as the forum in which to pursue a claim of discrimination,” the EEOC said in an e-mailed statement. “Therefore, to the extent a severance agreement requires arbitration, but does not require a waiver of claims, it would probably be acceptable.”
Age-discrimination claims filed with the EEOC rose 29 percent to 21,396 in 2013 from 16,548 in 2006. The EEOC enforces federal laws that make it illegal to discriminate against an employee or a job applicant for a variety of reasons, including race, religion, and age if the person is over 40. The organization investigates discrimination claims, works to settle charges and has the authority to file a lawsuit.
While IBM’s new approach gives employees a way to pursue discrimination claims and still get severance pay, it also provides them with less information to potentially build a case for wrongful dismissal, according to Mark Carta, a lawyer whose client was awarded about $2.5 million this year in an age-discrimination trial against IBM. That, in turn, could help the company cut down on such claims.
“It’s a new twist,” said Carta, who works at Carta, McAlister & Moore LLC in Darien, Connecticut. “A company like IBM can just wear you down. It’s a way for them to control their cost and avoid exposure to a jury.”
IBM said that the $2.5 million ruling for Carta’s client was in error and that the company “is pursuing appropriate post-trial remedies.” The judge’s decision was “an evidentiary ruling on the admissibility” of IBM’s in-house mediation and investigation process, called the Open Door program, in that case only, the company said in a statement. It wasn’t a ruling on IBM’s program generally for addressing internal concerns, the company said.
Carta said he hasn’t seen the use of a mandatory arbitration provision in severance agreements at other companies.
IBM, with more than 430,000 employees (IBM:US) worldwide, has been seen as an early mover in employee-benefits changes, said Marcia Wagner, founder of the Wagner Law Group in Boston. It could be setting precedent for other companies once again.
“They are a thought leader in this industry, and they are pushing the envelope,” she said. IBM’s changes in the waivers make “sense from a risk-mitigation standpoint. I think it’s going to be more prevalent.”
In 1999, the company was among the first 20 percent of Fortune 500 companies to switch to “cash-balance” pension plans, which let employees accrue benefits steadily over their careers. IBM joining the movement prompted lawmakers to meet with the Internal Revenue Service over age-discrimination concerns because older employees typically earned as much as half of their pension benefits in the last five years of working. In 2007, the U.S. Supreme Court left intact a lower court’s decision that said IBM’s pension plan doesn’t favor younger workers. IBM previously settled other aspects of the case.
The company is making the severance-package changes as it steadily cuts jobs and then hires employees with different skills to cope with a shift to the cloud, where data and software are stored on remote servers and accessed through the Web. That means customers don’t use as many servers on site, damping the demand for hardware and the IBM consultants needed to install and maintain it. To keep up, the company has exited less profitable hardware businesses and turned its attention to data analytics and cloud computing.
IBM rose 1.3 percent to $192.57 today, bringing the stock’s gain to 2.7 percent so far in 2014. The company has a market value of about $195 billion.
IBM’s total headcount fell for the first time in a decade last year, dropping 0.7 percent to 431,212 employees.
More than 3,300 people in the U.S. and Canada were fired in 2013, according to estimates from Alliance@IBM, an organization that advocates for employee rights and benefits at IBM. The company doesn’t release layoff numbers publicly. Instead, Alliance@IBM was able to tally the number from information that used to be included in severance waivers handed out to employees.
IBM said it spent more than $1 billion on a workforce restructuring last year and $870 million in the first quarter of this year.
While workers let go this year in group layoffs still forfeit the ability to dispute in court when they accept the terms of IBM’s severance agreement, they may be able to get access to the data on titles and ages through discovery in arbitration.
IBM may be taking this approach because arbitration has never been ruled as an unfair forum to resolve age-discrimination claims, said Larson of Hamline University, which is based in St. Paul, Minnesota.
In practice, though, there may be concerns about arbitration, Larson said. While new claims elevated to arbitration would follow rules laid out by private dispute-resolution provider JAMS, employees may still be hesitant to pursue claims because of concerns that the process is biased in favor of the company, he said.
“It’s a legitimate concern that there’s a power expertise imbalance,” Larson said.
Companies have deep pockets to hire lawyers and to pay the arbitrators, who are selected by both sides. Employees have to pay for their own attorney. There are also some employment lawyers willing to only charge a contingency fee, meaning they only get paid if their client is awarded money.
By diverting claims to arbitration, IBM keeps the bulk of the proceedings out of court records and away from the public eye. Also, federal law makes it difficult for an arbitrator’s decision to be reversed, except in narrow instances.
Workers in employment discrimination cases win against their employers about 21 percent of the time in arbitration cases, less than the 36 percent win rate in federal court, according to a Cornell University study that analyzed 1,213 arbitration cases from 2003 to 2007. These statistics didn’t include cases that were settled, which is about 59 percent of arbitration cases and 70 percent for litigation.
IBM is encouraging disgruntled employees to first raise concerns through its in-house mediation program, called the Open Door process, before initiating arbitration.
“IBM always has been a leader in providing opportunities for our employees to raise concerns they may have,” IBM spokesman Shelton said in a statement. “Our Open Door program has been available for decades. Arbitration is widely accepted as an independent and fair forum for addressing concerns. Arbitration was added to give IBMers another avenue for resolving grievances, in addition to the Open Door program.”
There’s an added benefit for IBM to keep layoff information out of the hands of fired employees. It makes it difficult for the public to determine how many jobs are being eliminated. IBM has said it doesn’t publicly discuss the details of staffing plans given the “competitive nature” of its industry.
IBM has previously faced criticism for not disclosing employment numbers to state and local governments that have awarded the company subsidies.
With the changes, IBM will keep disputes out of court, which can help the company control what information becomes public, said Eisenbrey of the Economic Policy Institute. It also reduces the risk of paying damages decided on by a jury.
“It’s more predictable in arbitration than it is in court,” he said.
(An earlier version of this story corrected the Economic Policy Institute executive’s comment in the fourth paragraph to say “symptom.”)
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