On 12/8/05, Dr. Tom Rogers and Jim Velos of The Rogers Group interviewed me on their Voice America Business channel program Business Dis-eases: Cure Them or Die. The direct link for the interview is here. The website URL for Voice America’s Business channel is business.voiceamerica.com. For 45 minutes, the duration of the interview, we examined how labor and employment legal costs can cripple or kill a business.

I thought that for my blawg it would be great to summarize the interview and provide additional commentary, which couldn’t be included in the interview due to time constraints. This might help educate readers about the importance of human resources (HR) and HR cost containment.

However, I think the first order of business should be to provide you with a definition of HR, labor and employment law and labor and employee relations. This will give greater context for my interview remarks and commentary. This will also help to keep my summary somewhat shorter and simpler.

My definition of HR is that it’s the management of employees as if they’re a capital asset.

Employees are human and they are a business resource. In the same way that other resources such as machinery or equipment is capital that appreciates or depreciates in value, and which can be improved, sold or discarded, HR relates to the management of employees in a similar manner. Although this explanation may seem callous, under closer examination it is evident that HR pays as much attention to the “human” half of its name as it does to the “resources” aspect.

HR involves the approach and ideology a business adopts for the life cycle of its employees and its business culture. Recruiting, selecting, compensating, motivating, maintaining and promoting employees are all part of HR. HR further includes strategic, budget and succession planning. Consequently, to some extent, all businesses with more than one employee practice HR. Furthermore, a business’ HR philosophy may be multidisciplinary or singular in approach.

For example, an HR ideology may focus more on labor and employee relations than on organizational culture and development. Yet, an effective HR philosophy has to acknowledge that because employees affect every facet of business, and are the human face of business, employees have the greatest impact on productivity and profits.

Therefore, in order to improve productivity and profits and decrease HR related expenses, management must know how to treat its employees in a fashion which enhances their value. Ultimately, effective HR helps to increase profits and productivity by minimizing employment related expenses and maximizing employee performance.

In U.S. industry, modern HR theories date back to the Industrial Revolution. Moreover, since the Industrial Revolution, HR has evolved along with changes in production, distribution, finance and, perhaps most importantly, legal and civil rights. HR poses problems for a business when it fails to understand how these changes influence macro and micro HR practices.

Macro & Micro HR

Macro HR is the strategic function of HR in a particular work environment. Macro HR encompasses the understanding of what HR means to a business; i.e., how HR fits into an organization’s structure, mission and planning. Macro HR further incorporates policy and practice development and designating who administrates HR. Additionally, collective bargaining and union avoidance campaigns are generally considered macro related concerns. Change in company leadership may also be a macro HR matter. Some of the vernacular related to macro HR is strategic planning and organizational design and development.

Micro HR is the actual execution of duties as delineated at the macro level. These duties include the administration of policies regarding the selection, hiring, compensation, placement, performance management, promotion, conflict resolution, discipline and discharge of employees. Some of the terms commonly associated with micro HR are operations planning, practices, procedures and administration.

How Macro and Micro HR Impact the Bottom Line

As stated above, a business will encounter difficulties when it fails to account for changes to its own macro and micro HR practices and changes to our labor and employment laws. Such difficulties include an unsafe workplace, attendance issues, conflict, misconduct, union organizing campaigns, high turnover and litigation. Simply stated, when a business encounters HR related problems, money is lost.

Businesses have money coming in through the “front door” via revenue, venture capital, grants, investors, etc. However, much of this money can leave through the “back door” because of poor HR practices. For instance, time and money is lost when a business realizes, after-the-fact, that it hired the wrong employee and may now have to discharge that employee. Consequently, that business now has to spend money and time finding and training a new employee and may even have to defend its treatment and discharge of the former employee.

Recognizing and efficiently resolving these problems often costs a great deal of time, energy and money. However, time and energy spent upfront, proactively, on HR related matters could help to reduce, and in certain instances eliminate, the loss of money out the “back door.” Thus, HR ideology is transformed into an investment in capital. Time, energy and money will be saved and increased productivity and profits will result. This ideology is commonly referred to as preventive, positive or proactive HR. Also, this is sometimes referred to as the human capital management philosophy.

It is knowing which HR practices to adopt and which HR disciplines to focus on that is crucial in resolving macro and micro HR issues. Labor and employment law and labor and employee relations fall into both the macro and micro categories of HR.

Labor & Employment Law

These are two distinct categories which are often confused with one another because they somewhat overlap.

Generally, labor law refers to the body of laws and rules regulating labor unions and associations and their relationship with management. Such laws include the National Labor Relations Act and other state and local labor laws or ordinances. These laws and regulations permit employees to organize, elect representation and enter into legally binding contracts with management.

Generally, employment law concerns the body of laws and rules regulating civil rights and non-union related conduct in the workplace. Civil rights include a workplace free from discrimination and harassment for people (it need not be an employee) who fit into one of the legally protected classes (e.g., race, gender, disability, national origin, religion, military status, pregnancy, and in some instances sexual or gender orientation). Conduct laws refer to equal and fair pay, immigration and employment-at-will laws. Like labor laws, these are federal, state and local laws.

Labor & Employee Relations

On the macro HR level, labor relations refers to the philosophy a business adopts for dealing with labor unions, union organizing and employee associations. On the micro level, this refers to practices and rules for dealing with individual employee issues relative to unions and associations.

Employee relations refers to the ideology (macro) a business adopts for dealing with harassment and discrimination and other employee issues, unrelated to labor unions or associations. This may include communication, discipline, recognition and payroll policies. On the micro level, it generally refers to how these laws and rules are applied to individual employees.

Examples of Labor & Employee Relations and Law in the Workplace

A company hears of a union organizing campaign. In order to prevent unionizing, the company commences an overly aggressive prevention campaign which incorporates talk of layoffs, relocation and creating new compensation and benefits policies. Consequently, the prospective union fights back by proliferating fear and filing agency complaints (e.g., unfair labor practices charges), which the company now has to defend. Thus, productivity decreases, expenses increase, morale deteriorates and the potential for unionization is significantly increased.

A supervisor receives a complaint from an employee concerning racial harassment in another department. Thinking that this has nothing to do with her department, the supervisor tells her employee to ignore it, and let the supervisor of the other department handle it. The issue “falls through the cracks.” Subsequently, a fight breaks out between employees in the other department. One employee is hospitalized with injuries. Another employee is arrested and fired. The arrested and fired employee is a minority who files a civil rights complaint for racial harassment and a lawsuit for wrongful discharge, intentional infliction of emotional distress and negligence. The company has little to no supporting documentation to show that it did anything to determine whether or not racial harassment existed in the workplace. Even if it wins the civil rights complaint and lawsuit, it will either have to pay thousands in legal fees or its employment practices liability insurance premiums may skyrocket.

Poorly aligned macro and micro HR practices led to the above discussed problems. It could be as simple as a business not recognizing that its HR philosophy is out-of-synch with its business strategy. Subsequently, policies are misinterpreted and incorrectly applied, and costly mistakes occur. Such mistakes further include improperly administered performance appraisals and improperly allocated wage and salary increases; all which could lead to legal exposure and liability.

The fact is, in order to prevent money from escaping out the “back door,” a business needs to understand and anticipate HR related issues before they arise or escalate. Usually, these issues are best resolved through means such as effective communication, policies and practices, the utilization of successful diagnostic and investigative techniques, and via effective legal counsel and representation.

My next post will summarize my recent radio interview and relate the above discussed concepts to my interview remarks.