The Increasing Use of “Institutional Leverage” In Resolving Workplace Disputes

“Seven months ago I could give a single command, and 541,000 people would obey it. Today I can’t get a plumber to come to my house.”

-General Norman Schwarzkopf III (Retired)

ACTUAL CASE HISTORY: Dina, 61, was the Senior Vice President – Customer Relations for a large, high-end, international jewelry retailer. She had taken the position three years earlier; though considering retiring, she took the position almost as a favor to the company’s chairman. Her position took her all over the world, and involved travel, organizing events and even mixing with celebrities. She was a widely known, universally respected veteran of the high-end jewelry industry, and had surely “seen it all.” Or so she thought.

As was common practice in her industry, Dina’s employer often used “celebrity placement” as a marketing tool. Permitting, for example, Angelina Jolie or Madonna to wear a diamond necklace to a “red carpet” event was accepted practice in high-end jewelry. The hope, of course, was that the jeweler’s name would make it into the press, gaining valuable cache, and publicity, without cost. Periodically, inventories of these “placed” items turned up a piece not yet returned. Though it was not her job, due to the sensitivity of the “reminders,” Dina was sometimes called on to “remind” the gems’ tardy borrowers that it was past time to return the precious baubles.

Only rarely, however, did the company have its experts examine returned placement items to make sure the necklaces, bracelets and other pieces had all of their original stones. It had just never come up; so it never became company policy. Therein lied the problem. In one examination, two gems in a necklace returned by a celebrity were found to be fake. The next examination – of stones lent to a museum for a show – also identified two fake stones. A widespread examination of all previously “placed” items was then ordered, which turned up widespread fakes. That was not the big problem. The big problem was that many of the previously “placed” items had already been sold to the public, and they might have contained fakes, as well.

The question – whether to notify purchasers who might have purchased items with fake stones – was presented to senior management, who discussed the issue behind closed doors. Against Dina’s suggestions, the decision was made to maintain silence, and deal with any complaints on a case-by-case basis, only as, if and when customers complained. The longer, it was thought, that a buyer failed to complain, the better was the argument that someone else was to blame. Dina protested, to no avail. She knew that what was decided was wrong, probably illegal, and surely a grave danger to the reputation of the company.

The Board did make one decision: Dina “had to go,” as the losses took place “in her department.” Though the company policy never included examination of individual stones, she “should have considered the risk.” Her arguments to the contrary had no effect. She was terminated for “poor judgment,” and denied any severance. First she wrote, then we wrote to the HR Director, the General Counsel, and even the CEO. She received a response from the General Counsel which said, “We have looked into the matter, and have found no evidence of wrongdoing.”

Our first letter – to the City Attorney’s Office – was treated differently: it was followed up promptly by a telephone call, and then a request for a meeting with the prosecutors. Dina really didn’t have a choice: it was the right thing to do. Also, it was her only alternative to filing a long, expensive lawsuit. Also, Dina had no reason to fear, she had done nothing wrong. She always did what was right, and now refused to be scape-goated. In the end, the company was forced by the City Attorney to admit to their errors, and do the right thing – notify customers – both under threat of indictment. The company’s admission would have made any lawsuit by Dina the equivalent of a legal “slam dunk.” As for Dina, she ended up with a significant severance, in exchange for a release of her now-more-significant claims against the company, and several of its senior managers. Oh yes, and an apology from the CEO, as well.

PROFESSIONAL OBSERVATION: In recent years, many employment attorneys have shared their observation that employment negotiations seem increasingly one-sided, involving less “give-and-take,” and more “take it or leave it.” Employment disputes seem to entail more litigation and arbitration, with fewer resolutions through dialogue, compromise, or mediation.

Necessity is the mother of invention. The need for cost-effective and time-sensitive ways to achieve a more “level playing field” in employment negotiations, and for more effective methods to produce fairness and accountability at work, has resulted in the use of what we refer to as “Institutional Leverage.” “Institutional” because it incorporates the considerable effects only institutions bring to the table. “Leverage” because it “makes things happen.”

Simply put, as employers have seemingly become less willing to engage in any sort of real dialogue, and increasingly act as if deaf to good faith concerns and valid differences of perspective, employees and their attorneys have more and more said to themselves, “What do senior managers really care about?” Increasingly, the answer has been “institutional leverage.”

By “institutional leverage” we refer to such things as (a) involvement of the Board of Directors, (b) coverage by the Press, (c) investigation by regulators and prosecutors, and (d) the expressions of concern by large investors and strategic business partners.

LESSON TO LEARN: At work, employees should not live in fear, act in fear, or work in fear. That is why companies have policies approving – even inviting – feedback and concerns about apparent wrongdoing, and most companies have established avenues for employees to report apparent violations of law.

However, sometimes internal procedures do not work the way they are supposed to. Sometimes employees’ efforts to raise concerns and resolve disputes are ignored, even resented, leaving employees with no sole option but to hire an attorney or go to court. Yet, the traditional routes to resolution – litigation and arbitration – are beyond financial reach, or years-too-slow. In appropriate circumstances – such as where someone may be acting in violation of the law, or with gross insensitivity to common decency, or in ways that represent a conflict of interest with the interests of the organization – “institutional leverage” may be the best route to achieving legitimate ends in employment negotiations.

The potential advantages of using institutional leverage in workplace negotiations are legion. When honesty, good faith and the requirements of law do not suffice to achieve minimally necessary responsiveness and responsibility, institutional leverage is often the best way to go.

At the same time, however, the use of institutional leverage requires great care, and special skill, experience and judgment. As powerful as it is, if institutional leverage is used carelessly, it can even backfire. The use of institutional leverage in employment negotiations should be both carefully considered, and thoughtfully approached. We almost always recommend its use only with the advice, counsel and oversight of experienced legal counsel. Issues of confidentiality, defamation, even extortion (a crime) can arise.

Institutional leverage should be considered when facing a particularly intractable workplace problem, but only in limited circumstances, and only with extraordinary care and experienced counsel.

WHAT YOU CAN DO: Here are some thoughts, precautions and suggestions when considering the use of institutional leverage in resolving your own workplace disputes:

1. Boards of Directors: If and when senior management does not respond, or does not respond appropriately, to being notified that wrongdoing, impropriety or illegality seems to have taken place, or other serious workplace problems, consider bringing the matter directly to the Board of Directors. In recent years, we see greater accountability of Board Members, greater scrutiny of Board Members’ conduct, and greater accountability of Board Members’ actions, omissions, and judgment. Warren Buffet is reported to have told a friend that he uses this same approach when he is trying to “get the attention” of Board Members, and, as the saying goes, “if it’s good enough for Warren Buffett . . ..” Appeals to Board Members are potential institutional leverage for both former and present employees, and should usually include a clear summary of the several prior attempts you’ve made to solve the problem with senior management, HR, or General Counsel’s office. However, be particularly careful of potential charges of extortion and defamation, discussed below.

2. The “Press”: Reporters for newspapers, magazines, radio, and TV – and even bloggers – are always searching for stories that may be of wide interest. Workplace stories are among their favorites. We have found that a clear summary of the problem, along with names and contact information of other potential witnesses, to facilitate the press’s efforts to get “the other side,” help a lot. You must be very clear as to what you are willing to say “on the record,” that is, on what, if anything, may be quoted with your name, and what you want to be “off the record,” that is, quoted as a “reliable source.” An email sent to the reporter before speaking with him or her setting out what (if anything) is “on record” and what (if anything) is “off record” is a smart idea. Working with the press to “get the story out” has to be done with the greatest of care. You must be especially careful about: (a) confidentiality and (b) defamation, both of which are discussed below.

3. Regulators and Prosecutors: In Dina’s case, we found the City Attorney’s Office quite interested and eager to find out what had happened. In a similar case some six months ago, we found the same City Attorney’s office disinterested. Prosecutors’ and regulators’ decisions regarding which matters they are willing to devote their scarce investigative resources to, are perplexing to non-prosecutors. The good thing is that there are often multiple, overlying jurisdictions; if the City Attorney is not interested, the State Attorney General, or possibly the Federal Prosecutors just might have more interest. It is crucial that employees seeking “assistance” of prosecutors and regulators first meet with an experienced criminal defense attorney to ensure that you have no potential of being a “target” yourself.

One thing you cannot do is threaten your employer or former employer that, in effect, “I will go to the police unless you give me severance, or more severance, etc.” That, in itself, would likely be viewed as the crime of extortion by you. (See below.)

4. Important Investors: In our experience, private equity investors in companies are very sensitive to issues at their companies that concern either: (a) their return on investment, or (b) their reputations for careful oversight. The very last thing in the world a private equity investor wants is to have his investment and the word “fraud” next to each other when someone runs a Google search. Requesting private equity or other important investors to look into an employee concern or complaint is a sensitive matter. In particular, concerns regarding (a) confidentiality, (b) defamation, and (c) extortion, all reviewed below, must be carefully addressed.

5. Business Partners: We are presently handling a dispute between a former employee and her former employer over commissions due. She claims that she brought into the company its largest client. The company claims she did not. The client has been contacted, told of the dispute, and has agreed to provide us with an honest answer on the issue: that our client is correct. If that does not convince the employer, who stands to lose the client, not much will.

6. First Important Caution: Do not commit Extortion: More than anything else, it must be understood that it is a very serious crime to say or write to someone words to the effect that “I will say or write things to other people about you unless you give me what I want.” That is illegal, even if what you are threatening to say is true. And it is illegal, as well, if you threaten to report them to regulators or law enforcement. You can say that, if matters are not resolved, you intend to take further steps that you believe are proper to take. You can say that, because things are not resolved, you plan on raising these issues with investors, or business partners, because they are victims of a fraud. You can also say that you believe you have a legal claim, and that you may take this claim to court. Query: Is there a clear line between saying or writing those things, and saying or writing “I will tell your investors you are stealing unless you give me $10,000?” There is not such a clear line, but attaching a demand for money or other things of value will surely put you over that “line,” wherever it is.

To prevent extortion, we: (a) never say or write what is described just above, and (b) give careful thought to what we do write and say, and consider whether anyone could reasonably claim it is extortion.

Our view is this: for an employer to say “Give us a release from any claims you may have, and we will give you severance,” is no different than an employee saying “If you don’t give me more severance, I will not give you a release.” The grave error would be in tying the money to the threat to say or write something to another person or group, other than filing a claim in court, the recognized avenue of resolution. Thus, you can always say, “I believe I have a claim against you. Pay me $10,000 or I will go to court against you.”

Your best preventive is to have experienced legal counsel before using institutional leverage.

7. Second Important Caution: Do not commit Defamation: Defamation is the intentional statement or writing of a false statement about another person that does harm to their reputation. So, if you say “Dan stole money,” and you cannot prove that he did so, Dan could sue you and you may be found liable to Dan for a lot of money. On the other hand, if you say “I have reason to believe that Dan might have stolen money; I think you should investigate to find out whether or not he did” is not defamation. Nor is the statement “I think Dan is a jerk,” for that is not a matter of fact, but instead a matter of opinion. To proper authorities – such as court authorities, prosecutors and regulators – nothing you say is considered defamation, because society wants people to feel unafraid to make such reports to such people, even if mistaken.

Your best preventive is to have experienced legal counsel before using institutional leverage.

8. Third Important Caution: Maintain Confidentiality: During the employment relation, it is very common for employees to learn valuable secrets belonging to their employers. These might include secret formulas, strategic business plans, and customer lists (if not available to others). During the employment relation, employees owe a duty of loyalty to their employers to guard such secrets. If an employee signed an agreement to maintain that secrecy after the employment relation ends, under most circumstances that employee would be bound to maintain confidentiality in the future. The duty to maintain confidentiality of such secrets would not likely be violated by their being shared with Board Members, regulators or prosecutors, or even in court papers if a lawsuit was commenced. But sharing them with other third parties in many circumstances could be considered a violation of confidentiality obligations.

Careful consideration should be given to this duty of confidentiality, as its breach could give rise to a legal claim against you. Your best preventive is to have experienced legal counsel before using institutional leverage.

With these three cautions in mind, give consideration to these and other kinds of “institutional leverage” in employment disputes. Its increasing use is testament to its effectiveness in employment dispute resolution.

If you would like to obtain a “model” memo to help you request or negotiate severance [click here].

SkloverWorkingWisdom™ emphasizes smart negotiating – and navigating – for yourself at work. Negotiation of work and career issues requires that you consider all kinds of leverage potentially available to you. You shouldn’t fear using “institutional leverage,” but you should take great care in doing so. Those considering using institutional leverage to resolve employment disputes are urged to first confer with experienced employment law counsel, in light of the considerable risks entailed in doing so.

Always be proactive. Always be creative. Always be persistent. Always be vigilant. And always do what you can to achieve for yourself, your family, and your career. Take all available steps to increase and secure employment “rewards” and eliminate or reduce employment “risks.” That’s what SkloverWorkingWisdom™ is all about.

A note about our Actual Case Histories: In order to preserve client confidences, and protect client identities, we alter certain facts, including the name, age, gender, position, date, geographical location, and industry of our clients. The essential facts, the point illustrated and the lesson to be learned, remain actual.

Please Note: This Newsletter is not legal advice, but only an effort to provide generalized information about important topics related to employment and the law. Legal advice can only be rendered after formal retention of counsel, and must take into account the facts and circumstances of a particular case. Those in need of legal advice, counsel or representation should retain competent legal counsel licensed to practice law in their locale.

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