- Can Midwest Education be selective in who it offers relocation benefits to?
- Are the employees of ETA who merged with the creative development division guaranteed positions at Midwest Education, or should they be treated as a pool of applicants?
- Which of the three approaches should Midwest education use to select which manufacturing employees to keep? Is there a better method?
- Which de-cruitment method is best for a "quality" strategy?
No, as a general rule, Midwest Education cannot be selective or discriminatory in who it offers relocation benefits to because this is a prohibited employment practice. Under the various laws enforced by the Equal Employment Opportunity Commission, it is illegal for an employer to discriminate an employee base on the latter's race, color, religion, sex, age, or disability.
There are many reasons why companies relocate employees such as in order to acquire more space, reduce operating costs, update current facilities, move closer to or establish presence in a major or new market, and to consolidate facilities, to name a few. Arguably, the employer has all the right to exercise business judgment in matters affecting the company but this right does not give him the option to discriminate on his employees or future applicants on matters affecting employee relocation benefits.
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Relocation of employees requires extensive planning and consideration, especially if the relocation would require some or all employees to transfer to a place which is far away from their home and would result in additional transportation costs on their part. In the case of employees who have already established their roots in a fixed place not far from their current workplace, relocating to a new and far area will mean that they will have to live away from their families. Alternatively, the entire family might be pressured to relocate with the family member especially if the latter is the main breadwinner in the family. Either way, the employee concerned still incurs relocation expenses which the employer has to take into consideration in offering relocation benefits to its affected employees.
Employees facing relocation from their current workplace to a new one are also burdened with the stress and pressure of adapting to a new culture. For one, adjusting to a new environment and new co-workers entails time and effort on the part of employees concerned. Both the original employees and the new employees are now faced with the responsibility to familiarize themselves with the personalities and attitudes of one another in order to make their work easier and bearable. The Human Resource Department is also tasked with the duty to make newly-relocated employees at ease with their new workplace so that they will be more comfortable with their co-employees.
Whenever there is merger or acquisition of a company, the possibility of relocation, redundancy, discharge or termination also looms in the horizon. As such, every employee become worried on his or her work tenure with the existing or new company. Matters such as job security, role conflicts, interpersonal conflicts, and cultural adaptations are some of the issues which should be dealt with effectively by the management particularly by the HR before and after the merger or acquisition takes place. This is to ensure that there will be further misunderstanding and miscommunication among the employees regarding their status in the company.
As mentioned above, the company is prohibited from discriminating on its employees by offering relocation benefits only to a select few. Whenever an employee is required to relocate to another worksite, the company is always required to pay the relocation costs or reimburse its employees for the additional costs incurred by the latter in the relocation. This is only fair considering that not all employment contracts have mobility clause where an employee agrees at the start of his employment that he will be willing to relocate if the circumstances so require.
However, even if there is a mobility clause in the employment contract, the employer still has to compensate his employees for their relocation costs. This is in keeping with justice and equity because after all, the employees are essential for the continuity of the business and without their willingness to relocate, the employer cannot force them to do so. The Employment Relocation Council or the ERC is the agency which serves to promote the rights of all professionals or employees facing relocation from their respective company. According to the ERC, the first and foremost rule which every employer should keep in mind is that there should be no discrimination against an employee to be relocated. Discrimination can be in the form of denying housing allowances to employees who have residences which are far from the new workplace and will necessarily need a place to stay.
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Employers and employees should both be aware of the terms and conditions embodied in the contract of employment regarding relocation benefits and packages. For instance, a managerial employee may have greater relocation benefits compared with a rank and file employee and this permitted so long as the same is agreed upon by the parties concerned and embodied in the employment contract.
Be that as it may, every employer should exercise reasonableness in requiring employees to relocate. It cannot force any employee to transfer to a new location, if the latter has not agreed to begin with. If the terms of the employment contract permits relocation to a designated place only, no employee can be forced to move to a new office which is not included in the terms of his employment.
In the case of Midwest Education, as a result of its acquisition of Education Training Aids (ETA) , the company is contemplating on moving 17 of its employees from the Creative Development Division headed by Serena Tibaldo to San Jose California where the Computer Development and Communications of ETA headed by Jenny Lutz is located. Another proposal is to move majority of the Creative Division to the Massachusetts office.
According to Serena, it would be cheaper to hire new staff to fill the positions needed in the Massachusetts office than to relocate the ETA staff from San Jose. Admittedly, the costs of hiring new employees is lower than the costs of relocating ETA employees. However, Serena's reasons for adopting this approach is discriminatory. Her main reason for choosing hiring new employees instead of relocating those already existing is because she is unsure whether "ETA's computer staff will fit her existing employees." By saying this, she in the process made a discriminatory act of favoring Midwest Education employees over ETA employees and this is prohibited under the law.
Alternatively, they can pay unemployment expenses for ETA employees who will have to be laid off as a result of hiring new employees in Massachusetts. As can be gleaned from the discussion of the persons present in the meeting, it is evident that the acquisition made by Midwest of the ETA company resulted in taking over the existing staff of ETA and merging them with those from the Midwest. Since Midwest Education and ETA are engaged in the same line of business, there is no substantial difference in the work performed by their respective employees before the acquisition. Hence, Midwest Education can either relocate the employees of ETA, if the latter agree, or pay unemployment expenses for those who will not be willing to relocate.
As a general rule, employers cannot be selective on who it offers relocation benefits to. All employees who are required to relocate and who agree to do so are entitled to receive relocation allowance as the circumstances warrant. The employment contract is also the governing law between the employer and the employee and if there is a mobility clause in the contract requiring the employee to relocate when needed, then the latter must abide under the agreement.
However, if there is no mobility clause in the employment contract, then the relocation shall be treated as a new employment condition which is subject to negotiation between the parties. Midwest Education cannot demand from ETA employees to transfer to Massachusetts absent any mobility clause in the latter's employment contract because when Midwest Education acquired ETA, it is understood that it assumed all the responsibilities of the former management to its employees, in the absence of contrary stipulation.
The employees of ETA are not guaranteed positions at Midwest Education because not all divisions of Midwest Education can accommodate additional staff. There will also be some employees of ETA whose work is no longer necessary for Midwest. Furthermore, while all employees of ETA have work which are similar to those performed by the Midwest staff, not all of them can be absorbed because this will result in redundancy of the work performed and hence, additional costs for the company. However, they are entitled to all employee benefits pertaining to them from their former employer.
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Chief Operating Officer Frank Rose pointed out during the Midwest Education senior management retreat that relocating all the ETA employees to Massachusetts will cost more than million dollars and as such, they should treat the East Coast positions as new hires. However, as correctly argued by Lawrence Wilson, the Vice President of HR, all ETA's staff are Midwest Education employees. Furthermore, he pointed out that they have in the past paid relocation expenses for employees to move to California office and they are also willing to pay the Audio Visual department of ETA to move from Anaheim to San Jose.
Wilson clarified that while the company does not have to pay relocation costs to move staff to Massachusetts, they will however have to pay unemployment expenses for ETA staff who will be laid off in the process. This means that Midwest can chose to hire new applicants instead of relocating ETA staff to avoid relocation costs and inconvenience on the part of the employees affected, they will however have to pay unemployment fees to ETA employees who will lose their job in addition to other benefits already owing to them from their former employer.
It should be noted that while merger and acquisition are two interrelated concepts, they nonetheless have different meanings. In merger, two firms, usually of the same size, agree to form a single company. In this case, both companies surrender their stocks and a new one is issued. There have been numerous company mergers such as the merger of Glaxo Wellcome and SmithKline Beecham where both firms ceased to exist as separate entities and a new company was created as a result of their merger, the GlaxoSmithKline.
Acquisition occurs when one company takes over another company, usually a competitor business. In this case, the acquiring company is the new owner and the acquired company is deemed absorbed by the acquiring one. In the legal sense, the acquired company ceases to exist because the buyer company becomes it new owner. Thus, no new stocks are issued because the stocks of the acquiring company is the one which continues to be traded.
In reality, acquisitions are more common than mergers. Although the action is referred to as merger of two companies in order to avoid the negative connotation associated with being bought out by one company. The merger of Chrysler and Daimler-Benz is an example of a company takeover but which is called as merger of two corporations. Treating the takeover as a merger is necessary to preserve the integrity of the company being bought and also in order to keep the existing clients.
In the case of Midwest Education and ETA, while the management refers to the action as a merger, what actually transpired was an acquisition by Midwest Education of ETA. As its founder Mr. Henry Dalton explained during the management retreat, "the reason for the budget cuts was to raise enough capital to purchase Education Training Aids (ETA)." Furthermore, Lawrence Wilson also said that "all ETA's staff are now Midwest Education employees." This clearly shows that Midwest Education has bought ETA and as the new owner thereof, all of the latter's employees are absorbed by Midwest during the acquisition.
However, even though all of ETA staff became Midwest Education employees as a result of the acquisition, this did not automatically guarantee ETA staff positions in the Midwest Education because there are additional expenses which have to be dealt with first by Midwest Education before it can offer all ETA staff positions. Admittedly, relocating ETA staff is costly for Midwest. However, as pointed out by Jenny Lutz, ETA has several important clients from the East Coast which its staff have already handled. Thus, in terms of accommodating customers from the East Coast, ETA staff are more qualified than those in the Midwest Education.
However, when one takes into consideration the costs of relocating these employees, the company is also faced with the additional expenses. Thus, while ETA staff are admittedly more knowledgeable in handling East Coast clients, the costs entailed in their relocation presents greater incentive for the Midwest to hire new applicants in the Massachusetts instead. This is acceptable so long as the management is willing to pay the ETA staff who will be laid off their unemployment expenses and other employee benefits payable to them.
As long as the reasons of Midwest Education for laying off ETA employees is sound and fair and in keeping with the employment laws, there is nothing wrong with opting to hire new employees instead of relocating existing staff if to do so will only result in tremendous expense to the company. Furthermore, it will also not be profitable to Midwest Education to retain ETA staff by relocating them when there is no guarantee that the latter will be loyal to the goals and visions of the company.
It should be noted that mergers and acquisitions have a lasting effect on employee engagement and motivations to work in the company. For instance, while the staff of ETA may be loyal to their former employer, the result of the acquisition by Midwest Education can affect their performance and productivity and Midwest has an interest in maintaining efficiency in their workplace by retaining employees who are loyal to the company. Employee engagement is a result of various factors namely: confidence in the organization, having a promising future, support from the company, safety, reasonable stress levels, opportunity for improvement, reputation of the company, effective managers, enjoying one's work, and confidence with senior leaders (Schweiger & Denisi, 1991).
The employees of ETA, after severance of their employment, can also opt to apply as new applicants in the Massachusetts office if they wish to do so. However, while they are still employed under the Midwest Education, they cannot be treated as a new pool of applicants because they are considered as regular employees and as such, they are entitled to all benefits and protections afforded to them as such employees which is different from those given to applicants. In all instances, Midwest Education has to communicate to the ETA employees it plans so that they will have time to consider other options for themselves.
There are three approaches proposed by the senior managers of Midwest in selecting which manufacturing employees they should keep. One strategy proposed by Jenny Lutz is cost reduction which will be carried out by automating all the processes by installing robotic arms. These robotic arms will be responsible for loading the raw materials at the start of the production line. It will also transfer the jobs between the processes and do the final stacking and palletizing of the products. However, she proposed that all of ETA staff should be retained because they are essential to the relocation of the equipment. The strategy is to identify the key skills needed for the manufacturing division, match the same with the existing staff and the remainder of the available positions shall be filled by re-interviewing. According to Jenny, this will also enable Midwest to cut staff which are no longer performing well such as the older staff. However, Max Thorn opposed said proposal because it violates equal opportunity laws and would open the company to employment lawsuits in the process.
A second strategy proposed by Lawrence Wilson is to keep the entire staff but reduce their work hours from 40 hours a week to 30 hours a week. He reasoned that this will only take three to four years. However, as Max Thorn correctly pointed, reducing the work hours amounts to a 25% pay cut across the board and this will only result in poor quality of their products since the employees will be more pre-occupied with getting part time jobs.
Max Derick proposed the third strategy which is to move the equipment to Mexico since the costs of relocating them to Kansas is the same. After relocating the equipment to Mexico, they will use Jenny's approach which is to identify key skills, cut the rest of poor-performing staff and re-staff in Mexico. Max Thorn however countered that the move is not a good idea because the company has no experience in manufacturing in Mexico. Furthermore, there is no certainty whether the managers in the manufacturing division speak Spanish or are willing to relocate to Mexico.
In all three approaches, the underlying consideration for Midwest is to reduce costs. However, it should be noted that the primary aim of the manufacturing division is innovation and not cost reduction. Thus, in deciding where to relocate the equipment and which staff to retain, the management main concern is to enhance the innovative aspect of their business and products. Arguably, all the three approaches have a common negative aspect which is mainly focused on the tenure of its employees.
In the first approach, older employees will suffer the most because they have higher medical expenses and pensions. However, as Max Thorn stated, to terminate employees on the basis of their age would amount to prohibited employment practice and they could face various lawsuits in the process. In the second approach, while the existing staff will be allowed to keep their jobs, they will in turn be forced to seek part time employment as a result of the reduction of work hours. This is also reflect poorly in the quality of the products produced since employees will be more concerned with maintaining additional jobs in order to support their families.
In the third approach which integrates the first approach, both the employees and the managers of the division will be affected by the relocation of the equipment to Mexico. Not only are old employees in fear of losing their jobs, managers are also force relocate to a place which they are not familiar of.
In my opinion, all three approaches are not in keeping with the primary aim of the manufacturing division and as such, they should not be implemented. The senior managers have to adopt a new strategy which is fair to its existing employees and in line with the vision of the manufacturing division. I would suggest that Midwest keep all of its existing manufacturing division staff in Kansas and offer relocation to qualified ETA staff who will train those in the Midwest on how to operate the equipment formerly owned by ETA. For those who will not qualify for the position available in the manufacturing division of Midwest or are unwilling to relocate, the company should be willing to pay for their unemployment expenses as mandated under the law.
Since the Midwest Education is the acquiring company, its employees should be afforded the preferential benefits in terms of security of tenure because they are the original employees of the company as opposed to the ETA staff who are considered as new employees. Furthermore, since the equipment are to be transported to Kansas, it is more practical to retain the employees already working in the division and relocate so much of the ETA staff who will train the employees of Midwest to manipulate the equipment.
Decruitment methods such as firing, layoffs, transfers and retirements are techniques which companies apply in order to reduce the labor supply within the organization. As opposes to the recruitment process, decruitment is concerned with getting rid of employees in excess of the company's needs and costs. Decruitment refers to the process of reducing the size of the organization's workforce to meet the demands of the company.
There are several decruitment options namely firing, layoffs, attrition, transfers, reduced workweeks, early retirements and job sharing (Montana & Charnov, 2000). Firing involves permanent involuntary termination of employment on the part of the employer. An employer can fire its employers only for just cause and not arbitrarily or unreasonably. For instance, while an employee may be fired for committing gross acts of dishonesty in handling the funds of the company, an employer cannot fire a regular employee by reason of one single instance of tardiness because the same is considered as a harsh punishment and entitles the employee to seek protection under the law.
Layoffs involves temporary involuntary termination as when the company as a result of cost reduction policies which is warranted and reasonable, decides to lay off some of its employees with the intention of calling them back to work when the financial conditions of the company later improves. Layoffs may last only a few days but it could also extend for more than one year. Hence, employees who are laid off often seek employment immediately after they are laid off. Attrition is the practice of not filling openings which are created by voluntary resignations or retirements from employees.
Transfers involved moving employees within the company either laterally or downward in order to reduce intraorganizational supply-demand imbalances. Transfers are allowed so long as they do not amount to demotion on the art of employees being transferred. Early retirement refers to the practice of employers in offering incentives to older and more senior employees in order for them to retire before their normal retirement date. Reduced workweeks occurs when employees work fewer hours a week, share jobs with other employees or perform their jobs on a part-time basis. Job sharing on the other hand, means that employees share one full time position.
Decruitment is a very hard task for every manager because it means letting go of some employees which have already became part of the company for a considerable number of years. It a difficult decision to make on the part of managers who has to exercise impartiality and reason in deciding which among its employees should the company let go in order to save costs.
In my opinion, the best decruitment strategy is to offer early retirement benefits to older or senior employees who are at the same time no longer performing at par with other regular employees in the company. This way, no employee will be left unemployed in the process since early retirees can enjoy their retirement pensions to engage in profitable business or trade of their own. The employer will also be able be able to reduce its medical costs.
In the alternative, the company can also lay off some of its employees in order to reduce costs but it must also be willing to pay unemployment expenses. Lay offs however can result in lower morale within the company and can seriously affect the performance of retained employees. For one, the knowledge of company lay off will put every employee in the company on guard among themselves. Even granting that only a few will be laid off, the company may also expose itself to possible labor lawsuits.
However, if the reasons for the lay offs are justified and necessary for the continued operation of the business, then lay off is a good alternative as opposed to firing employees, reducing their work hours, or forcing them to share full time work with another employee. Admittedly, there is no positive side to decruitment insofar as the employee concerned who is after all the foremost affected in this situation. However, the employer can lessen the harsh effects of impending unemployment by choosing the best decruitment strategy to adopt as part of its cost reduction policy. In this regard, I believe that offering early retirement benefits or laying off employees with payment of unemployment expenses are quality strategy which will benefit both the company and the employees.
- Appelbaum, S. H., Lefrancois, F., Tonna, R., & Shapiro, B. T. (2007). "Mergers 101 (part two): Training managers for culture, stress, and change challenges." Industrial and Commercial Training, 39, 191-200.
- Covin, T. J., Kolenko, T. A., Sightler, K. W., & Tudor, R. K. (1997). "Leadership style and post-merger satisfaction." The Journal of Management Development, 16, 22.
- DePamphilis, Donald (2008). Mergers, Acquisitions, and Other Restructuring Activities. New York: Elsevier, Academic Press. pp. 740.
- Montana, Patrick & Charnov, Bruce (2002). Management. New York: Barron's Services Inc.
- Nikandrou, I., Papalexandris, N., & Bourantas, D. (2000). "Gaining employee trust after acquisition: Implications for managerial action." Employee Relations, 22, 334- 355.
- Schweiger, D. M., & Denisi, A. S. (1991). "Communication with employees following a merger: A longitudinal field experiment." Academy of Management Journal, 34, 110-135.
- United States Equal Employment Opportunity Commission. "Prohibited Employment Policies/Practices." http://www.eeoc.gov/laws/practices/index.cfm, accessed January 2009.