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THE
POWER OF DOCUMENTS
WHEN
TO DISTRUST YOUR EMPLOYERS
PROBLEM
PEOPLE AT WORK
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Advice on the Job . .
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WHEN
TO DISTRUST YOUR EMPLOYERS
There are certain situations where employees should
be wary of trusting their employers. The spectacular collapse of Enron
and the exposure of its extensive misrepresentations to employees is a
graphic illustration of why there are situations where employee distrust
is appropriate.
In ancient times, sirens were sweet singing enchantresses,
part woman, part bird, who enticed sailors to their doom by distracting
them so that their boats crashed on rocks surrounding their island. Today
corporate sirens sing songs of stock options, promotions, and wealth and
power. When things feel very heady and seductive or you feel that “quickening
of the spirit,” it may be time for a reality check. You may be not seeing
the deadly rocks lurking just below the water line.
Situations where employees need to be particularly
on guard for misrepresentations from their employers include:
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Recruitment statements;
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Commission promises;
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Promises by start-up companies;
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Companies involved in upcoming sales or mergers;
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Companies with financial problems;
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Companies with excessively greedy corporate cultures.
Recruitment
Recruiters naturally tend to be Sirens. Companies
are eager to get the best help they can. In this process, there is a natural
tendency to downplay corporate problems and to over-state the benefits
of employment. Where companies are not particularly ethical puffing or
effusive opinions can turn into misrepresentation.
If you are recruited based on a misrepresentation,
you may have a legal remedy. One problem with a fraud claim is proving
that the statements were intentionally or recklessly false when made.
Remember, too, opinions generally don’t count, only fraudulent facts.
Verbal or written promises may be enforceable in many states without a
formal contract if the employee relies on the promise in accepting a position.
However, if the promise is too vague, it will not be enforceable. The
following are examples of recruiting promises that are NOT likely to give
rise to enforceable legal claims:
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“You
should be able to make millions in the future selling our widgets.”
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“Based on your track record, you should have a great future with our
company.”
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“The sky is the limit with respect to your earning potential
here.”
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“This is a wonderful career opportunity.”
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“You will have job security here.”
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“As soon as we can our stock incentive plan prepared, we will
be providing you with stock options.”
By way of contrast, depending on the state in which
you reside, the following types of promises, if broken or knowingly false,
and made by an appropriate corporate representative may be enforceable:
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“You will have a guaranteed job here for a year, absent some economic
disaster.”
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“We will pay you a bonus of 50% of your salary if you are still employed
after 12 months.”
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“You will not be terminated without cause.”
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“Our product is already in production and we have over 10,000 customers
who have already contracted to purchase our new product so you should
do very well here on our commission plan.”
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“The company is making a commitment to the new division for a minimum
of three years so you don’t need to worry about the division being
shut down prior to that time period.”
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“You will receive 10,000 stock options within 90 days at a guaranteed
strike price of $3.00 per share to vest immediately.”
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Be careful of rosy promises. You will want to believe them because
they make you feel good. Stay skeptical;
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If you are dealing with a new company or a new
division, be careful;
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Check out the financial condition of the company independently;
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Be particularly suspicious about the possibility of uninformed representations
by corporate recruiters. Check out these representations with company
managers before you rely on them;
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Confirm in a friendly writing any promises or other statements you
rely on. This includes promises of job security and financial arrangements;
Be wary of:
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Representations about the company’s financial condition;
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Promises relating to future bonuses, options, and other benefits;
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Promises relating to any special terms and conditions of employment;
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Promises relating to corporate commitment to any new department
or division for which you are recruited.
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When you confirm the promise, recite your concerns on which you
are relying and what you are giving up. For example indicate, “Your
promise that the Company will not close the new division for at
least the next 12 months is very important to me because I am requiring
my family to relocate and that will cause considerable hardship.”
Or specify, “Your promise that I will not be terminated without
cause prior to the vesting of my options is key to my taking this
position because I am leaving a secure position and forfeiting valuable
stock options that would otherwise vest in 60 days to take this
job with you.”
Sirens prey on employees who are in line to receive
exceptionally large commission income. If your company or manager is greedy,
they may try to take your commission away from you if they can get away
with it. This is likely to occur where:
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There
is an exceptionally large, record-breaking sale that was not anticipated
by management;
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Where management discriminates and feels uncomfortable with a female
and/or minority or other “outsider” earning a large income;
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Where management does not perceive significant future value of your
efforts relative to their obligation to compensate you. This occurs
where the company perceives you have successfully developed most of
the new business in your territory and that you are being compensated
under your plan primarily by future commissions from repeat business
rather than from the initial commission derived from the first sale
from the customer. This also happens where the salesperson has landed
a particularly large single client whom the company believes will
continue to buy a large volume product without requiring a continuous
relationship with the particular salesperson involved;
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Where the sales person has larger income than his or her manager;
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Where the salesperson quits or is terminated;
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Where the company is shaky financially.
If your employer is refusing to pay you a commission
to which you believe you are entitled, you should consult an attorney.
Various state statutes often provide special remedies for employees who
are denied payment of wages and often commissions fall within the definition
of wages. Moreover, you should have a remedy for a breach of contract.
Remember, if you get in a dispute over wages, this
will probably not endear you to your employer. If you wish to dispute
a commission payment with your employer it is probably wise to consider
a future plan to pursue your career elsewhere.
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Read carefully and save any written policies concerning commission
payments. Pay particular attention to any provisions concerning
the payment of commission after your termination;
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Confirm in writing any verbal statement by management concerning
the payment of commissions;
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Don’t get too greedy. If the commission on a deal appears excessive,
consider renegotiating the deal with your employer;
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Employers often figure that once a solid client base is developed,
the salesperson is now dispensable. Terminating the salesperson
can be a means of saving expense to the company and meeting aggressive
budget targets and/or as a means of converting additional commission
income from the pocket of the salesperson to the pocket of the manager.
A prelude to this is often one’s manager becoming excessively involved
in personally dealing with your client. If your compensation depends
on future commissions, be sure that you either can trust your employer
or that you will continue to be perceived as indispensable;
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Do not sign a non-compete agreement that will keep you held hostage
to your current employer.
Sirens also like start-up companies. Because the owners of start-up companies
often don’t have the ability to compensate their employees fairly, they
give promises instead. In new businesses, owners frequently tell almost
every employee, that they are “key” and that they will be able to share
in future profits when the company is successful. These promises are made
to ensure that the employees will continue working in a dedicated fashion
without much compensation.
Based on promises from the owner/founders, employees who are part of the
original team are often willing to work long hours with minimum compensation,
expecting that there will be future rewards including significant equity
ownership when the company is successfully launched. More often than not,
the employees of start-up companies have unrealistic expectations, fueled
by even more unrealistic promises from the owners/founders. When and if
the company does become successful, employees may bitterly discover that
they are not, in fact, needed any longer and that they will not see any
share of the corporate profits.
If you are involved in a brand new business, beware
of promises from the controlling owners. Common promises include:
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You will own a share (or greater share) of the company;
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(If you are in sales), you will receive commissions in future years
for repeat business from the customers you develop now;
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When the company is sold or goes public, you will have valuable stock
options;
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You will be a partner in the business;
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You will receive much greater compensation in the future;
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You are essential to the success of the company and you will be assured
of a job here as long as the company is successful.
More often than not with new companies, these promises
are empty. Although the owner is usually sincere when the promise is made,
circumstances, greed and venture capitalists usually conspire to render
it very unlikely that these promises will be honored. If you find yourself
employed or considering employment with a start-up business, you should
NEVER believe a verbal promise such as the one above. Here is a situation
where the promise should always be reduced to a written contract drafted
by an employment attorney. If the owner won’t do that, beware. AT THE
VERY LEAST, confirm these promises in writing.
In writing these promises up as a contract or in
a confirming letter, you really need help from an attorney. Many of these
kinds of promises will not be enforceable even in writing if they are
not done in a legally correct way. For example, promises of stock grants
or stock options are meaningless without appropriate stock agreements
in effect. Promises of job security may be nullified if there is not a
term in the employment agreement or if there is “at will” language in
the agreement or in other corporate documents (See Power Paper Section
earlier). Some of these promises require a certain level of specificity
and details to be enforceable.
Why
Founder Promises Often Turn Out to be False (Even
When Made by Your Best Friend):
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Differences naturally arise between the owner and other founders
as you work together. These differences make it less likely that
the owner wants you to own part of his business.
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You may be indispensable at the beginning of the operation of the
company, but quite dispensable at a later date. In fact, the very
same skills that make you invaluable originally (flexibility, creativity,
willingness to forego salary in exchange for doing “meaningful”
work) often mean that you will not fit in when the company becomes
more established;
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Vague
promises of stock options or “equity ownership” mean little until
actually awarded;
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Even if you have a great relationship with the original owner, he
or she may not be in control later on. As the business grows, the
company usually needs more investment capital. The capital comes
at a price. Angel investors give way to venture capitalists. Venture
capitalists often make it easy for owners to commit to unrealistic
short-term financial goals. When these goals cannot be met within
the time frame specified and a further capital infusion is required,
the outstanding shares are dramatically devalued. Bingo, the venture
capitalists end up in control;
- The
owner doesn’t really want to give up his power, money and control
to you if he doesn’t have to.
This variant of a start-up involves a new division
of an old company. Employees are often lulled into this situation by being
led to believe they can rely on the financial stability of the old company
when they make a career move into a new division. This is not always the
case.
Often new divisions are, like other kinds of start-ups,
under-capitalized. Moreover, recruiters often misrepresent the commitment
of the parent company to the new division. Frequent misrepresentations
include:
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Glowing statements about financial strength or financing;
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Statements that their parent company is committed to backing them
until they get off the ground;
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Statements that their product is fully developed (or that all the
defects have been worked out) and ready for production when, in fact,
additional development time is required);
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Statements about future bonus plans, profit-sharing and stock options;
The motivation for these misrepresentations is
often strong. Like the start up companies, the young companies need talented
strong employees in place to achieve their goals (and sometimes to secure
additional financing from investors), yet are not usually in a position
to compensate them adequately for the risk involved.
It is wise to proceed very carefully before accepting
an offer to work with a company or division without an established track
record. The following are some things you may want to explore first:
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Do not accept representation that the financing is actually in place.
Check the documents for yourself. Question different people;
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Travel to your new work site and inspect it carefully. Try to talk
to employees who do not have a financial interest in the company and
who are not promoters or recruiters. Judge for yourself how ready
the company is to commence production;
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Remember, a new company backed by a large successful corporation may
not mean much. If earnings are down for the parent corporation or
if the parent requires capital for some other priority, the parent
may suddenly terminate all funding for the new company, despite prior
verbal assurances to the contrary;
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Check out the history of the key principals in the new company;
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Get your promises in writing or if that is not possible, confirm them
in writing;
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Try not to overly rely on the future success of the company for the
first few years. Keep other career options open. Remember production
schedules and marketing plans for start-up companies are often unrealistic.
Sales and Mergers
The Sirens are almost always at work when the management
of your company is in transition. When companies are in the process of
being sold and the management and control of companies is being negotiated,
false promises to employees are common. Companies in the negotiation process
tend to be very nervous about employees abandoning ship because, generally,
the company’s value is based on it being sold as a going concern with
a full complement of experienced employees.
In fact, once the company is sold, the new owner
will probably make significant changes to management within the first
year. But -- and this is crucial -- the new owner does not want employees
deciding this for themselves. In order to get top value for the business,
the prior owner needs to prevent existing managers from bolting prematurely.
You see the problem.
Owners and corporate officers are usually protected
by contractual terms negotiated for them during the sale of the business,
but everyone else is usually unprotected. It is common for companies involved
to try to reassure employees with general statements like the following:
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The value of this company is its employees. You have nothing to worry
about;
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We
are not planning any changes in management;
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We do not want to make any changes;
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We
want to work together to make this company grow.
Don’t believe these statements. Remember, most
companies are purchased by owners who believe they can significantly increase
profits by managing the company in a different way. Moreover, as a result
of the high price paid to the old owners in the sale, the company often
has significant new debt that is not related to improving or increasing
production. This debt makes it much more difficult for the company to
have a healthy balance sheet. As a result, the new owner is likely to
be less interested in long-term goals and in product quality. Short-term
financial goals may be paramount. This is even truer where the new owner
overpaid for the Company.
Immediately following a merger or sale, employees
will often see the following changes:
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The workforce may be significantly reduced;
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Long-term older employees with good benefits are particularly likely
to be reduced. Age discrimination is particularly rampant after a
corporate sale or merger. New management, once they are sufficiently
familiar with the operation of the company (generally within the first
year), will often terminate employees with old loyalties, traditional
ways of operating, and expensive benefits;
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Existing employees may be required to do more work;
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Salaries may be frozen and benefits eroded;
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Younger employees may be hired;
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Managers
from the acquired company may be replaced with employees from the
new parent company;
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Employees may be asked to focus on short term financial and budget
goals;
- Managers
who are product quality oriented may be frustrated by lack of corporate
support and resources.
If the company where you work is being sold or
is under consideration for sale, here are some things to consider:
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If it’s not in writing, don’t believe it. If you receive any promises
that are going to rely on, confirm them in writing;
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Negotiate for job security before or immediately after the company
has been sold and you still have leverage because new management has
not yet taken over;
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Be realistic. Aggressively check out the job market for other possibilities.
See
Case Study: Sean Is Not Deceived in His Company's Acquisition
Companies
in Financial Trouble
When companies are in financial trouble, the Sirens
sing loudly, Enron is the most recent dramatic example.
In the old days, if your company was struggling,
you generally knew about it and could factor that in your planning. Today,
with New Age Accounting, your previously seemingly huge and secure employer
can close the door tomorrow and file for bankruptcy. Pensions invested
in company stock become worthless. You can find yourself terminated without
notice, severance, pension or legal claims against the company. That’s
tough.
How can employees best protect themselves when
they suspect their companies are in trouble? Here are some suggestions:
- Work
on early detection concerning your company’s true financial prospects
so you can get out before your company goes out;
- Don’t
rely on your employer's assertions about its financial condition;
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Know your legal rights.
Without question, you are better off if you can
detect that your company is in trouble and leave before it leaves you.
This is not necessarily very easy to do. Failing corporations generally
attempt to look like successful businesses right until the very end,
hoping that a piece of new business or a large receivable will come
in and stave off creditors. This deception may be critical to their
continuing operation to reassure employees, banks, insurance companies,
creditors and shareholders of their financial soundness.
Besides obvious signs that your employer may be
in big financial trouble such as the existence of unpaid taxes or judgments,
creditors calling, or delays in meeting payroll, pay attention to the
following:
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Efforts to bring in new business partners;
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Significant reduction in purchasing of new inventory or in necessary
capital expenditures;
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Delays in developing or bringing anticipated new products to market;
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Sudden changes in high level management;
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Overly aggressive accounting practices;
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Significant sales of stock by upper management.
Don’t forget to do your own simplistic evaluation
of the strength of the company business based on common sense. Consider:
The
Market
Is the market for your company product currently healthy? Is there some
reason to suspect the market for your company product is going to decrease?
Is there any reason why competition will not increase in the future?
Is there or will there be a new competitive product that could be superior?
Is the market getting saturated? Are consumer/business needs or tastes
changing or likely to be changing in the future in a way that will impact
your company’s business? Are patents expiring? Are corporate customers
having financial problems with their business?
Cost
and Profit
Is the cost of production going to increase significantly because of
an increase in price of raw material? Is the company likely to have
to decrease product price to successfully compete because of lower production
cost of competitors elsewhere in the world? Does the company seem to
be lax in cost or spending controls particularly with respect to expenditures
and compensation for senior management? Is there excessive compensation
for senior management?
Corporate Growth
Is the company over-expanding into areas where they lack expertise or
market share or where there is no synergy with their core business?
Do you work at a company that has grown exceptionally fast? Is fast
growth a fundamental mantra of the company?
Remember, what goes up very fast can also go down very fast.
Corporate
Financial Records
Is the company generally conservative with respect to its accounting
methods? Is there pressure to exaggerate corporate sales?
Your
Own Situation
Are you being rewarded enough to compensate for the risk you are assuming
with your company? Will you be all right if your company fails?
Don’t
Rely on Management Promises
Above all, if you suspect your company may be in
bad condition, do not trust reassurances or rosy pictures painted by
management. You must make your own evaluation of the situation.
The sorriest situation occurs when a new employee
unwittingly wanders into the storm on his own i.e., leaves a secure
position to take a new job with a troubled company. Companies with financial
problems often recruit new employees to replace employees leaving the
sinking ship to acquire new high-level managers and other talent in
the hope that these employees will pull them out of their troubles.
In this process, companies may conceal their true financial condition
to the new employees they induce to come to work there. Beware! If you
are being recruited by another company that makes an offer that is too
good to be true, it may be!
Be particularly leery of compensation packages
that are very heavily weighted with respect to future bonuses and stock
options. Insist on seeing financial statements and try to find an independent
knowledgeable source of information about the financial condition of
the company. Obviously, once a company files bankruptcy, even if you
have a contract, enforceable promise or viable discrimination claim,
unless there is insurance, there are not likely to be any corporate
proceeds available to pay the claim.
Know
your Legal Rights
A company can file for bankruptcy under either
Chapter 7 or Chapter 11 of the U.S. Bankruptcy Code. If your company
files under Chapter 7, your company is closing its doors forever. If
your company files under Chapter 11, it can, if creditors allow, work
out a plan to limit its indebtedness and then reorganize itself and
continue in business.
While you don’t have many meaningful rights with
a failing company, you do have some. These include:
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If your company has more than 100 employees and has a layoff of
50 or more employees at one facility, they are required under federal
law (the Worker Adjustment and Retraining Notification Act) to give
employees 60 days notice before a layoff absent an “unforeseen business
event.” This right is only important if your company is still in
business;
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If
you continue as an employee while the company is undergoing its
reorganization in Bankruptcy Court, you have a priority right to
be paid your wages;
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If you are terminated and your company files bankruptcy, you have
a priority right to be paid unpaid wages and any accrued vested
bonuses. This right has priority over other bankruptcy claims by
creditors;
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While most legal claims are extinguished in bankruptcy, some are
not. Fraud and claims involving corporate wrong doing may not be
extinguished;
- If
you are terminated as a result of your company’s failure, you have
the right to unemployment payments.
See
Case Study: Ethan Escapes a Deceptive
Employer
Some companies run like they are desperate, regardless
of the reality. Although their bottom line may be fine, these companies
operate with unrealistic profit expectations. This may occur while the
company is undergoing a major transition. Perhaps there has been a major
change in the industry. Perhaps there is new management. Perhaps there
has just been a change in the incentive plan for top executives.
In any event, the focus suddenly becomes short-term
profits above other goals. Employees are expected to work excessively
long hours. Benefits are trimmed back. Sometimes employees are given incentives
to exaggerate sales. Layoffs and reorganizations may be chronic. The company
may outsource work to foreign employees and/or outside contractors.
Other signs that characterize companies with corporate
cultures that stress short-term greed goals include:
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Managers become bean counters and bean-counting a pervasive corporate
value;
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Older and long-term employees, especially those with large salaries
or benefits, are treated poorly in the hopes of forcing them to quit;
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Employees who use benefits (i.e. those with significant medical problems
or family members with significant medical problems) are treated poorly;
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Employee compensation is tied to unrealistic performance goals.
These companies are not nice places. You should
consider finding other employment. Also, if you are a long-term employee,
remember these types of companies are breeding places for Age Discrimination.
Younger and new employees may well thrive in these companies, but
long-term experienced employees are prone to sudden dismissals. Consider
the following advice:
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Find another job.
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Accept the changes in the company. This is not the place it used
to be and it’s not likely to ever change back. Either look for work
elsewhere or if you really want to keep your job, accept that you
may have to work harder for less money permanently. There will be
no reward for past sacrifices, loyalty or dedication.
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To avoid being laid off, try to position yourself within the company
to stay as close and as indispensable as you can to core revenue
production. If you think the company considers you too highly paid,
consider volunteering for a decrease. In any case, be careful about
complaining about general work conditions. Be supportive of management
regardless of how you feel.
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If
you are an older employee, look out for evidence of age discrimination.
Pay attention to comments from management such as, “We need fresh
blood”; “We need energy”; “Only hire new graduates”; “We don’t want
to hire someone with too much experience”; “The average age of our
workplace is a problem;” “Our benefits are too expensive”; “We need
to look at the potential for future development in our candidates
for promotion (or in ranking for a potential RIF).” Network with
other older employees who are being forced out, befriend them, find
out if they feel they are being treated unfairly, and be sure to
keep contact information after they leave the company. Pay attention
to the ages and situations of the individuals being hired vs. those
being rejected. Also pay attention to those individuals being retained
and those being terminated.
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If you think you are being treated differently than other employees
because of your age, consult an experienced employment attorney.
Remember, knowledge never hurts and going to see an attorney and
bringing a lawsuit are two different things. You can visit with
an attorney and get helpful advice and your company may never be
the wiser. This is not a do it yourself deal. You need to be very
savvy and for this you need help. Don’t wait until you’re fired.
-
If
you are being treated badly because of taking legitimate medical
leave, FMLA leave or vacation time, consult an experienced employment
attorney. Don’t wait.
-
Consider whether you may have an overtime issue. Employees may be
classified wrongly as exempt to avoid being paid overtime. If you
are not a management or professional employee, you are probably
entitled to time and a half if you work over 40 hours a week. Consult
your State Department of Labor or a private attorney.
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