What I’ve learned from these negotiations & dispute resolution processes is that in most private sector industries unions aren’t needed. Sure, in any vocation involving mining, long distance transportation or any other heavy industrial or physically & mentally dangerous activities, unions serve a valuable safety purpose (i.e., monitoring, inspection & enforcement), but short of safety, unions don’t do much for private sector businesses & employees.

With one client, which is a decades old small business that had a handful of union employees, we were forced to layoff most of the union employees in order to prevent bankruptcy. We did this knowing that these layoffs would be litigated. It took almost a year to get this case to trial before the NLRB.  Finally, on the day that trial was supposed to start, and all of the threats and innuendo had been set aside to discuss reality, we settled the case. My client won very, and I emphasize the word very, favorable terms. Thus, this decades old business will remain open and bankruptcy is no longer being discussed.

Many of the businesses I deal with, including the above-mentioned client, have no history of union grievances or unfair labor practice charges, & some rarely communicate with their union at all. Furthermore, due to continuing influences of racism, sexism & religious bias, unions these days often serve as a barrier for minority & female hiring. Although, out of desperation & reality, unions have improved in their egalitarianism, many of the reasons for which they were founded (e.g., wage inequality, hours & conditions of employment) no longer exist to the extent that unions can remedy or assist with the current state of these concerns. For example, unions have been largely silent when it comes to the “glass ceiling” that still confronts many women, immigration issues, & they’re too slow reacting to job classification changes & economic conditions.

Essentially, unions today are largely pension fund managers. They exist to fulfill their pension obligations. They need new & existing members in order to keep their pensions funded so they can stay current on payouts. Most of the unions that I’ve dealt with have pensions which are significantly declining in value since economic shakeup 2008.  Some funds that I’ve examined lost billions in less than a year. A few are doing well considering the circumstances. Nevertheless, like Social Security & Medicare, these pensions have dismal long term prospects.

Moreover, many of these funds are plagued by corruption regarding fund management choices.  For example, many funds invested in risky securities (with the hope of a kickback or insider information like investment advice). Some funds have a lack of oversight to the extent that their officers & directors often take expensive trips to resorts & similar destinations for meetings amongst themselves, investment advisors & potential investors (part of the kickback they receive). Some of this information is discoverable through these funds’ federal filings (not the insider information/kickbacks of course).

Also, many private sector employees will never receive their pensions & many will get only pennies on the dollar due to government takeovers (PBGC-Pension Benefit Guranty Corporation), bankruptcy & other refinancing schemes. Many future pensioners don’t plan on staying in America, which means that they’ll have to arrange to receive their pensions in other countries. Some of these future pensioners will probably forget that they’re owed a pension, won’t know how to retrieve it from another country, or realizing that the pension is a ripoff, they’ll take an early withdrawal for a fraction of what they’ll be owed if they waited until they’re fully vested. In short, many of today’s private sector workers who are covered by these pensions don’t understand their rights & obligations. Some employees I speak with even believe that somewhere out there is a  retirement account with their name on it. With pensions, that’s not true. It’s a fund that has tens to thousands of enrollees & all that money is commingled.

When you add this to the multi-employer pension withdrawal liability that’s mandated by ERISA–Employee Retirement Income Security Act, any reasonable person should see that these many of these funds don’t have the wherewithal to survive.

Generally, severance refers to giving an exiting employee a monetary bonus or settlement above and beyond their regular compensation. A separation agreement usually refers to an agreement wherein the exiting employee promises not to sue, file a regulatory agency complaint, take business or information with them, or compete with their former employer. In return, the employer gives the employee something of value (usually money).

So, a business could give an exiting employee severance without a severance or separation agreement, but usually doesn’t use a separation agreement without awarding some form of severance (i.e., consideration). If this is confusing, the below will hopefully clarify my point.

Recently, a client asked me about a separation agreement for an employee over the age of 40. This makes an interesting topic for a blog post (at least for a labor & employment law related blog :-) ).

Relative to dealing with an employee who’s 40 or older, if the employer is seeking a release of all claims pursuant to the Age Discrimination in Employment Act (ADEA), there’s a 21/7 rule that applies. Under the rule, which is actually contained in Section 201 of the Older Workers Benefit Protection Act, a release of claims under the ADEA is only valid if the employee’s release is “knowing and voluntary.” More specifically, in order to be “knowing and voluntary,” the exiting employee has 21 days to review the agreement, with or without legal counsel, and has an additional seven days in which to revoke their signature (beyond the initial 21 day review period). Other requirements may apply given certain considerations. In short, depending on the nature of the separation agreement, the 40 and older employee might have rights not afforded to younger employees.

Regardless of the exiting employee’s age, a separation or severance agreement that’s intended to release the employer from all known or unknown claims is essentially the employer’s purchase of the employee’s agreement not to sue or file a complaint with a government agency, not to take business or information to a competitor, or sometimes, to not even work for a competitor.

When I’m initially contacted about this type of employment agreement, I ask the client why they think they need such an agreement. More specifically, what are your goals/purposes: to reward an exiting employee for tenure and/or quality of service, to prevent a lawsuit or complaint from being filed, to protect the confidentiality of company secrets and information, to prevent an employee from competing with them, or a combination of the aforementioned?

Businesses often ask:

• Should we offer severance to an exiting employee?
• When should we offer it?
• How much should we offer?
• Are the terms negotiable?
• Should we ask an exiting employee to sign a separation agreement that includes noncompete and confidentiality clauses?
• What about protected class considerations (e.g., race, sex, age, disability, etc.)?
• What will my other employees or competitors think if they find out that an employee signed such an agreement or received severance?

In order to help the employer focus on what issues they need to resolve, a business should analyze whether the exiting employee has been contentious or dropped hints of a lawsuit or complaint, or commented about the competition or competing with the employer. In order to help focus the employer on what issues they need to resolve, a business should analyze whether the exiting employee has been contentious or dropped hints of a lawsuit or complaint, or commented about the competition or competing with the employer. If an employer believes that an employee will sue or complain to a regulatory agency, then a separation or separation agreement should be strongly considered. If a lawsuit, complaint or any other factors of the employee’s exit isn’t a concern, then a severance or even no action might be appropriate.

Keep in mind, that unless there’s a contract or agreement to the contrary, or obligations under the Worker Adjustment Retraining & Notification Act (WARN), severance isn’t necessarily required, and in many instances an employee can just leave.

Clients typically ask whether by offering an employee a severance, separation, or some hybrid agreement, they’re setting a legal precedent within their company or creating a feeling or belief of entitlement to such a benefit among employees. In short it’s not likely that the company will be legally obligated to offer the same to other employees. However, if other employees learn about such agreements, there’s a greater degree of possibility that a sense of entitlement will result. So, when deciding whether to use a separation or severance agreement, a business should consider the impact on employee morale, and to at least some extent consider the legal ramifications of using such an agreement.

One way of reaching a bottom line for these agreements is that an employer should not enter into an agreement with an employee, and have to engage an attorney, unless the employer is reasonably sure that they’ll obtain a benefit from the transaction that they wouldn’t get in the normal course of business. Ultimately, as with most business decisions, whether to utilize an agreement or not is a cost versus benefit analysis.

Consistent with my Disclaimer the above is a general discussion–i.e., every specific issue or case leads to its own specific resolution and should be handled accordingly.

2008 Per-Employee Health Care Costs To Exceed $9,300; Wide Disparities Foreseen

By Stephen Miller, October 2007

[From SHRM Online's Compensation & Benefits Focus Area]

The average corporate health benefit expenditure in 2008 will be $9,312 per employee “an increase of 7 percent over 2007″ with annual per-employee contributions exceeding $2,000, according to Towers Perrin’s 2008 Health Care Cost Survey.

But while the cost trend is broadly holding steady, there are significant cost differences for companies that are actively and effectively managing program performance. Those “high-performing companies” will see annual per-employee costs of about $1,500 less than low performers in 2008, or nearly a 20 percent differential, according to the firm’s analysis.

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‘High-performers’ will see per-employee health costs
nearly 20 percent lower than ‘low-performers.’
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The survey database includes information on the health benefit programs provided by more than 300 of the nation’s largest employers, covering nearly 6 million U.S. employees, retirees and dependents.

“The good news is that, for the first time in over a decade, we are seeing a number of companies keeping cost growth near the Consumer Price Index for medical services (medical CPI), which currently stands at about 4 percent,” said Dave Guilmette, managing director of the Towers Perrin health and welfare practice.

In flat dollar terms, 2008 gross health care expenditures are expected to rise by an average of $577 per employee, to an average total cost of $9,312. Employers are expecting to subsidize 78 percent of next year’s premium costs, and employees will have to cover the remaining 22 percent, plus usage-based co-pays, deductibles and co-insurance.

While Towers Perrin foresees the employer-employee premium cost share remaining the same as the 2007 split, the accelerated increase in the actual employee contribution “combined with decreasing benefit values” means that the 22 percent employee share actually buys less coverage than in past years. For example, the incremental out-of-pocket cost employees will assume in 2008 because of plan design changes is approximately $200.

Employee contributions, on average, will jump by $156 per employee per year to $2,040, an 8 percent increase that is roughly twice that of annual employee merit increases. The combined effect is that over the past five years, out-of-pocket costs for employees have essentially doubled, a clear indication of how pronounced the affordability issue remains, particularly for low-wage workers.

Coverage Levels Breakdown

Analyzing the data by coverage level, the average reported 2008 cost of medical coverage will be:

• For active-employee-only coverage: $4,704 per year ($392 monthly).

• For employee-plus-one-dependent coverage: $9,660 per year ($805 monthly).

• For family coverage: $13,704 per year ($1,142 monthly).

The total cost for retirees under age 65 is the highest in the survey, at $569 per month for retiree-only coverage ($6,828 annually), and more for coverage that includes dependents.

Employers continue to shoulder most of the burden. Of the total 2008 premium increase of $577:

• Employers will pay, on average, $421 more per employee.

• Employees will pay, on average, $156 more.

In addition to premiums, active employees and their dependents can expect a co-pay of about $20 for regular doctor office visits and a $30 co-pay for specialist visits.

Under plans with co-insurance, employees will pay about 35 percent of the cost of an office visit. Active employees and their dependents will pay, on average, $10 for generic prescriptions and $25 for brand-name prescriptions in 2008.

Active Management Matters

Among positive news for employers and employees, the survey shows that, for 2008, a number of companies have succeeded in keeping a tight rein on the cost of their own programs and, as such, are helping to keep the overall rate of increase dramatically lower than the double-digit jumps experienced four to eight years ago.

Many companies, however, remain unclear on how to balance health care cost pressures with workforce goals and continue to experience cost increases more characteristic of the late 1990s. The result is wide variation in employer and employee cost burdens among similarly sized companies. For example, the 2008 data show that nearly a quarter of companies (22 percent) are still experiencing increases of 11 percent or more.

To better understand the factors that contribute to cost variation for the past three years, Towers Perrin divided respondents in its annual health care cost database into three categories: low-performing, average-performing and high-performing companies. Performance designations are based on relative costs and cost increases, as well as whether an organization is meeting its health benefit objectives in such areas as efficient purchasing, employee engagement and managing health risks in the employee population.

The Art of the Possible

While nearly a quarter of the survey respondents continue to struggle with double-digit cost increases, nearly half of the high performers are managing to get their increases much closer to the medical CPI of about 4 percent.

Among high performers, 45 percent have cost increases of 5 percent or less evidence, in Towers Perrin’s view, that active management of program performance is an exercise in the “art of the possible,” and an increasingly urgent mandate for companies still experiencing double-digit growth rates.

High-performing companies aren’t simply shifting costs to their employees to keep their costs low but rather are employing a broad range of tactics and strategies to hold the line on costs for both the company and employees. In fact, employees at high-performing companies will pay significantly less than employees at low-performing companies “approximately $1,836 per year (on average) vs. the $2,256 employees at low-performing companies will pay in 2008, according to the survey report.

Retiree Health Trends

The survey data indicate that organizations are taking a different view and exhibiting different commitment levels to programs for retirees. Less than half of the companies Towers Perrin surveyed (47 percent) currently subsidize retiree medical coverage for current or future retirees. (SHRM’s 2007 Benefit Survey Report showed that 35 percent of SHRM members provide retiree health benefits, although 53 percent of large employers did so.)

Of those that are continuing a subsidy, the share they are asking retirees to provide is rapidly increasing, Towers Perrin found, particularly for retirees under age 65. In 2008:

• Retirees under age 65 will pay, on average, $3,324, an 8 percent increase.

• Retirees over 65 will pay, on average, $1,500, a 5 percent increase.

The long-term effect of cost shifting to retirees could be to encourage older workers who want to leave the workforce to stay in their jobs primarily to receive company-subsidized health care, the report predicts.

Crain’s Chicago Business recently published the following article about wellness programs. It cites a program implemented by my associates over at The Horton Group for their own employees (I’ve published some of Horton’s materials on this blog).

To fight back against rising health care costs, employers are rewarding workers who lose beer bellies, flabby fannies

Employees at Horton Group in Orland Park have been bypassing prime parking spaces near their office’s entrance for spots deep in the lot.

It’s not that they’ve enjoyed February’s single-digit temperatures. The more they walk, the more points they earn toward up to $400 a year in free stuff at retailers like Amazon.com. Horton, an insurance brokerage, is betting the new program, which uses pedometers to tally steps, will help its 350 workers get fit – and eventually pay for itself by taming health insurance premiums.

Frustrated by traditional “wellness” programs that suffer from low participation, more employers are dangling incentives – gift cards, discounts on health premiums or even cash – to persuade workers to shed pounds. They’re giving preventative health care a second chance, viewing incentive programs as a last resort after years of shifting runaway health care costs to workers.

“Employers have begun to realize that discounted Weight Watchers programs or health club memberships have been dismal failures,” says Larry Boress, CEO of the Midwest Business Group on Health, a coalition focusing on health care issues. “They’re finding that you need real incentives to get people engaged.”

Horton Group‘s walking rewards program requires employees to tally daily steps using a pedometer and track progress at an office kiosk.

In a national survey of almost 150 CEOs conducted last year by PricewaterhouseCoopers, more than 80% said offering financial incentives for workers to live healthier is the most promising option for keeping a lid on health care costs. But far fewer actually offer them, partly because the return on investment is fuzzy.

Executives must swallow hard before spending cash to goad already healthy workers to live healthier, says Dee Edington, who studies corporate wellness programs as director of the Health Management Research Center at the University of Michigan.

“We can’t show them definitive data yet,” he says. “But employers want to believe this will work because they’re so frustrated with rising costs.”

Employers’ health insurance costs in the Midwest have grown an average 11% annually since 2000, according to the Menlo Park, Calif.-based Kaiser Family Foundation.

BOOSTING INCENTIVES

Some companies are plowing ahead anyway, guided by the belief that enticing workers to shape up will boost productivity and keep rates in check. According to a national survey of almost 3,000 employers conducted by New York-based Mercer Health & Benefits, 19% offered such incentives last year, up from 13% in 2005.

Chicago-based Grant Thornton LLP last year began offering $600 off annual premiums for employees who filled out an online health questionnaire and then signed a pledge to exercise more and eat healthier.

“Absent that money, it probably would have ended up buried in my e-mail,” says Cincinnati-based manager Chip Von Lehman. Instead, he filled out the questionnaire and learned he was “grossly overweight” at 6 feet tall and 242 pounds.

Mr. Von Lehman, 35, says he took the pledge seriously and, also motivated by a weight-loss bet with a friend, dropped 39 pounds over four months last year by counting calories and working out on a treadmill in his basement.

At Navistar International Corp.’s truck and engine division in Warrenville, less than 40% of workers took advantage of a free health screening in past years, unimpressed by the promise of a free sweatshirt or gym bag. So the company upped the ante two years ago: Workers now get $200 off their annual premiums if they get screened and then take steps to improve their health, such as signing up with a health coach. About 90% of the 5,000 eligible employees jumped at the chance.

Kenneth Olson believes the cost of Horton Group’s rewards program will be offset by reduced medical claims.

Horton Group wants similar results from its new walking rewards program, which is offered by its health insurer, Humana Inc. The program from Boston-based Virgin Life Care Inc., a new division of billionaire Richard Branson’s Virgin conglomerate, supplies the pedometers, tracks points and coordinates rewards.

Employees earn points by walking at least 7,000 steps on a given day, roughly double the average. They can measure their weight, blood pressure and body mass index at an office kiosk and upload results to a Web site, where they track their progress on a private account.

Kenneth Olson, president of Horton’s benefits division, believes the program’s cost – roughly $6 per employee per month, or $25,000 a year – will be offset by a reduction in medical claims related to inactive lifestyles, including those for heart disease and high blood pressure. And he expects savings will be at least triple the annual cost after a few years.

“Without some proactive involvement, we’re at the mercy of the marketplace in terms of what our renewal rates are going to be,” Mr. Olson says.

For more information about work site wellness programs, feel free to contact the Horton Group’s Paul Shaheen at 312-917-8623 or by email.

The following is a selection of topics from the survey which a business should examine prior to choosing an employee benefits plan.

If you’d like a copy of the complete survey in PDF format, please don’t hesitate to contact me.

Assessment & Review

• Do you have a formal process to survey employees annually for feedback and rate their satisfaction with the plan?
• Is your plan aligned with your company’s business plan?
• Have you implemented or reviewed alternate funding options, such as transplants or specialty pharmacy?
• Have you forecasted the current cost over the next five years?
• Have you defined your benefit philosophy?
• Have you benchmarked your cost sharing with employees against industry averages?
• Does your plan maintain 75% or greater employee participation after valid waivers?
• Have you benchmarked your plan rates against industry averages?

Your Plan Design

• Do you offer more than one plan design?
• Is at least one plan consumer directed?
• Do you allow for employee pre-tax premium contributions?
• Do you have a separate program for retirees?
• Do you have a voluntary Medicare migration strategy?
• Does your plan include affordable options for low-wage earners?
• Have you had more than 2 carriers in the last 5 years?
• Do you provide an EAP with work/Family Program?

Shopping Your Plan

• Are you aware of the carrier markets for your size and type of plan?
• Have you shopped both brokers and direct benefits vendors?
• Have you reviewed network alternatives, access, disruption and utilization?
• Does your contract include network discount guarantees?
• Does your plan include a proactive out-reach disease management program?
• Has your pharmacy benefit manager shown you all fees and rebates for your plan?

Is Your Plan Legal?

• Have you sent out Medicare Part D certificates to eligible participants and dependents?
• Have you audited your 5500 process?
• Do you outsource or have a tool to manage COBRA?
• Do you outsource or have a tool to manage FMLA?
• Do you receive legislative/Compliance updates monthly?
• Have you contained Personal Health Information to a Privacy Officer?

Communication/Administration Tools

• Do you track hits on your benefit website for employee/spouse?
• Do you annually update employee beneficiary elections?
• Do you provide a HIPAA compliant resource for escalated claim assistance?
• Do you provide tools for new hire and spouse to review options with guidance on how to make best use of the program?
• Does your HR unit operate in a paperless environment for open enrollment, life events, monthly adds and terms?

Proactive Wellness

• Does your plan cover an annual adult physical?
• Do you use incentives to drive participation in wellness activities?
• Do you hold an Annual Benefits and Wellness Fair?
• Do you use a Health Risk Appraisal and aggregate the data?
• Does senior management play a role in your wellness activities?
• Do you have a wellness committee working from a written business plan?
• Do you offer professional coaching assistance to employees at risk and/or wanting to improve?

Employee Education

• Do you use benefit statements to share the full benefit cost?
• Do you conduct annual open enrollment meetings?
• Do you offer lunch-and-team sessions on relevant topics?
• Do the employees / dependents know all the resources offered by your carriers and how and when to use them?
• Does your communication campaign reach spouses?

Claims Review

• Do you know the loss ratio for your plan?
• Do you annually benchmark utilization?
• Do you perform a claims audit on your carrier or third party administrator?
• Do you drill down into your claims to determine root causes?
• Do you review prognosis, diagnosis, and cost of large claims?
• Does your group use 90% in-network providers?
• Do you track the number of inpatient admissions with cost and average stay?