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J. Robert Brame and David S. Fortney, Editors
McGuireWoods LLP and Fortney & Scott, LLC
Vol. 5, No. 5
January 2008
WORKPLACE ISSUES
Companies find SOX compliance costly, ineffective
According to a survey by the U.S. Chamber of Commerce, most small companies find compliance with the reporting and auditing requirements of Section 404 of Sarbanes-Oxley (SOX) ineffective and costly. In addition, most expected their compliance costs
to increase over the next two years, with nearly half of the respondents expecting their costs to exceed $100,000.
The majority of respondents work in the financial and manufacturing industries and reported the following highlights:
- Nearly two-thirds (64%) of respondents expect an increase in costs in 2008 and 2009 because of compliance with Sections 404(a) and 404(b).
- Almost half (47%) of the respondents expecting an increase in costs because of compliance are
anticipating those costs to exceed $100,000.
- Approximately nine out of 10 respondents (89%) expect costs will "greatly exceed" or "moderately exceed" the benefits of SOX 404 compliance.
- Fifty-nine percent of respondents, when asked, "To
what extent do you expect compliance with SOX 404 will allow your company and your company's auditors to detect and prevent material fraud?" indicated "very little at all."
- The majority of respondents (84%) have engaged an auditor as they
prepare to comply with SOX 404(a) requirements to be filed in 2008, and two-thirds (66%) have engaged an auditor to comply with SOX 404(b) requirements to be filed in 2009.
- Over half of the respondents (52%) expect internal and external costs to
implement SOX 404(a) this year to exceed $200,000, while 44 percent of respondents expect implementation costs of 404(b) to also exceed $200,000.
- The majority of respondents (79%) feel a delay in the compliance deadline for SOX 404(a) and 404(b)
would be helpful to their company.
The Chamber of Commerce successfully lobbied this past summer to give public companies with a market value of less than $75 million more time to comply with Section 404 by extending for one year the exemption
from reporting and auditing requirements.
Employer's dispute resolution program struck down
The First U.S. Circuit Court of Appeals struck down a class-action waiver inserted into an employer's arbitration program on the grounds that as introduced, it was unconscionable and therefore unenforceable against the employees. In reaching its
decision, the court focused on how the employer initiated the program and called into question both the method and timing the employer used to communicate it to the employees.
The class-action suit, Skirchak v. Dynamics Research Corporation, involved two managers who filed suit against a defense contractor employer under the Fair Labor Standards Act and the Massachusetts Fair Minimum Wage Law, seeking overtime pay. The
employer asked the court to compel arbitration, citing a dispute resolution program it initiated via a five-line e-mail with three attachments sent two days before the Thanksgiving holiday in 2003. Among the appendices to the attached documents, the
employer had inserted a "class action waiver" provision whereby the arbitrator was stripped of any authority to hear class claims.
The district court issued an order compelling arbitration but striking down the class-action waiver. Both parties appealed. The parties ultimately agreed to the arbitration, leaving the class-action waiver the only issue for the First Circuit's
consideration.
The First Circuit upheld the district court's decision to strike the class waiver, citing Massachusetts state law unconscionability standards. The court noted that the documents would cause significant confusion for employees.
As an example, the court referred to the first e-mail attachment, a letter introducing the program that stated the program didn't limit or change any substantive legal right of employees. In addition, the second attachment, a 15-page description of
the program, made no mention of the class-action waiver and instead stated that an "arbitrator has the same authority as a judge or jury in making awards or granting relief to an individual employee." Finally, although the program was binding, the
employees weren't required to respond to or acknowledge the e- mail.
The court ruled that the timing, language, and format of the presentation of the program obscured the waiver of class rights and that Massachusetts law considers as part of its unconscionability analysis whether the provision is "obscurely worded" or
"buried in the fine print" of a contract. It also noted that Massachusetts law considers whether there was an opportunity to consult or demonstrate acceptance of a contract's terms when a waiver of statutorily defined rights is involved. In this
case, the employer didn't require any sort of affirmative response or acknowledgment by the employees.
Finally, the court ruled that the employer's handling of other personnel issues, including "face-to-face training sessions, mailings to employees' homes, and announcements at company-wide meetings," was different from the e-mail method used to
initiate the dispute resolution program.
This decision illustrates not only the dangers employers face in attempting to avoid employment class actions but also the pitfalls in the particular methods they use when attempting to roll out any type of dispute resolution program. Employers
seeking to institute such programs must be very careful in crafting both the content of the program and the methodology in executing it.
Do ADA accommodation obligations require reassignment to vacancy?
On December 7, 2007, the U.S. Supreme Court agreed to consider whether the Americans with Disabilities Act (ADA) requires Wal-Mart Stores Inc. to reassign an employee with a disability to a vacant job that was equivalent to her regular job or whether
it reasonably accommodated the employee by placing her in a lower-paid job.
The Eighth Circuit held that the Arkansas warehouse worker wasn't automatically entitled to be reassigned to a vacant equivalent position as a reasonable accommodation under the ADA or state law because Wal-Mart had an established policy of filling
vacancies with the most qualified candidates.
Stating that the ADA didn't require Wal-Mart to turn away a superior applicant to provide work for the disabled worker, the Eighth Circuit concluded that the employee "was treated exactly as all other candidates were treated for the Wal-Mart job
opening, no worse and no better." Wal-Mart cited its policy of hiring the most qualified applicant for every job and declined to transfer the worker into the vacant position. The Supreme Court's ruling is expected to be issued in spring 2008. Huber
v. Wal-Mart Stores Inc., U.S., No. 07-480, cert. granted 12/7/07.
Copyright 2008 M. Lee Smith Publishers LLC
FEDERAL EMPLOYMENT LAW INSIDER does not attempt to offer solutions to individual problems but rather to provide information about current developments in federal employment law. Questions about individual problems should be addressed to the federal
employment law attorney of your choice.
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