Relocations: Lawsuits Now More Common, Especially if You Don't Deliver What You Promise
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Employee relocations have come a long way since the days when a "relocation package" consisted of a vase of flowers at the new worker's desk and a little help on moving expenses. And, with the increasing complexities of the packages has come an increase in related lawsuits. Legal pitfalls for employers who relocate workers include: Discrimination Breach of contract, wrongful discharge Misrepresentation Detrimental reliance Real estate law Tax liability These problems arise from any part of the relocation process -- employment agreements, payback contracts, "make me whole" agreements, etc.
Some examples: An employer fires a worker six months into a new job after an interviewer told the worker that the company "never fires anyone." An employee, told he would be "made whole," is hit with major tax payments because the employer didn't "gross up" the relocation costs. The employer moved an employee's household goods, but refused to pay for moving 10,000 pounds of books, claiming they were not "reasonable and customary goods." A newly transferred worker finds out that the spouses of male transferred employees received spousal job-finding assistance. Her husband received no assistance at all.
Types of programs
Today's programs have become increasingly sophisticated and extensive. And with the average cost of a move around $50,000, policies and legal issues need some scrutiny. Reimbursements range from basic costs of moving to finding the best day care, paying for the move of a wine collection, and buying out workers' homes, sometimes at a loss.
Lump-sum allowances
Many employers today use lump-sum allowances, where employers pay a certain amount to the moving worker based on an estimate of costs. This cuts down on excessive reimbursement and reduces administrative headaches. Employees have the advantage of immediate access to funds and the discretion to allocate them however they want.
Tiered relocation policies
About two-thirds of employers now use a tiered relocation policy that depends on the employee's salary and grade level, and/or experience, according to a 1999 survey by the Employee Relocation Council (ERC). For example, a first-tier relocation package may include only moving expenses, travel, lodging and meals during homefinding trips. A higher tier package for a high-level executive or a highly desirable new recruit may include job-finding assistance for spouses, child-care assistance, homefinding assistance, homesale assistance, closing costs for a new home, loss-on-sale reimbursement for the sale of the old home, and many other benefits.
Cafeteria-style menu
A few companies offer a menu program for new hires, allowing the employee to select assistance options from a list. This helps personalize assistance while keeping costs down.
You need a policy
Every employer who relocates needs a policy. Without a policy, employers immediately fall into legal pothole #1 - discrimination. If there is no written policy, the likelihood is that different managers will provide different benefits, with possibly discriminatory effect.
Appearance of discrimination
Furthermore, even with a policy, there is the potential for potholes. Employers who offer multiple-tier relocation packages, for example, must be aware of the appearance of discrimination. If it looks like any aspect of the program is based on a prospective or current employee's race, age, sex or other protected status, that practically guarantees a lawsuit. For example, if the effect of the policy is that the employer buys the homes from white employees, but requires that black employees sell their own homes, the employer appears to be discriminating illegally on the basis of race.
An actual case arose when General Dynamics laid off a number of workers shortly after moving them from Missouri to Virginia. In connection with the layoff, General Dynamics instituted an outplacement program that provide various benefits, but fewer benefits to employees over the age of 50. The laid-off employees sued for age discrimination in a class action lawsuit, and the company settled the case, agreeing to pay 31 employees involved about $2.5 million, and to revise their outplacement program. Thanks for coming -- bye
And what about after the move? On occasion, an employer moves an employee or group of employees to a new locale and then, for one reason or another, fires or lays them off. Employees in this situation have sued their employers for breach of implied contract and other legal theories, and sometimes they have won.
For example, a radiochemist in Connecticut accepted relocation to Connecticut. When the employer realized son thereafter that it had made a mistake and fired the employee, the worker sued for breach of contract and wrongful discharge. The Connecticut Supreme Court decided that the radiochemist had accepted a "contract," as implied by several factors, including his move across the country. The employee had said on several occasions that he would not move across country without a promise of job security, and interviewers had said such things as "the company will take care of you." The court ruled that he was wrongfully discharged. Toraysan v. Boehringer Ingelheim, 234 Conn. 1 (1995).
Misrepresentation In another lawsuit, a California federal jury awarded $2.64 million to a woman who moved from California to Massachusetts to take a specific job she discovered was filled when she arrived. Although given another job, she filed a complaint with the federal Equal Employment Opportunity Commission (EEOC) and was then fired. She sued for intentional misrepresentation and negligent misrepresentation, and the jury awarded her $590,000 in damages and $2 million in punitive damages. Behne v. MicroTouch, ND CA No. C97-21012 EAI (1999).
Detrimental reliance cases based on "detrimental reliance" also show up in the courts. Some courts have denied that an employer has responsibility in such cases. For example, in Minnesota, an appellate court reversed a jury award to an employee, saying that the employee's relocation was not proof of his reliance on a promise of employment. Nuetzel v. Saatzer, C3-99-314 (1999).
Real estate misrepresentation
Another source of problems can crop up when an employer takes intermediary title to a relocating employee's property prior to purchase by another. The employer may be held liable (or at the least, sued) for misrepresentation of a property. In other words, if one of your employees relocates and can't sell his or her house immediately, and the employer (or relocation company) takes title to the home temporarily, it may be held liable for undisclosed defects in the property. Get real estate pros involved in this type of transaction.
Tax liability
There are tax breaks and liabilities for both employer and employee. Issues may include tax liability for moving reimbursements, "gross-ups" to avoid employee tax liability, treatment of costs for selling the old residence and buying a new one, settling an unexpired lease, househunting trips, and temporary lodging and meals in the new location. (Gross-up refers to an additional payment to the employee sufficient to cover the employee's tax liability on the reimbursement.) As tax is a technical area, specific cases may need to be referred to an employer's tax attorneys.
Employer: protect thyself
Employers need to set up relocation programs to protect themselves legally, and this means using a contract. Courts generally will uphold what is unambiguous and clear in a contract. However, if agreements are ambiguous or vague, courts are liable to rule in favor of the employee.
Make yourself at home
It's worth it to make newly moved employees comfortable in their new communities. If, for example, you can help new employees make new friends, find doctors, dentists, hairdressers, and schools, you can help make a successful relocation. And employees who are happy with their new situation are much less likely to sue.
Payback agreements
Some employers require employees to sign a contract that the employees will return a pro rata portion of the moving costs if they voluntarily leave the organization within some agreed-upon time period.
A final contract
One of the most recent and innovative ways to assure valuable worker satisfaction has been a "job back" or "move back" contract. With this agreement, the employer promises to pay the costs to move the employee back to his former community (and his old job if within the same company) if the new move doesn't work out. Generally, the agreement would be valid for one year. A number of organizations can be helpful with the relocation. The most prominent and extensive is the Employee Relocation Council, a non-profit organization (www.erc.org), located at: 1720 N Street, NW, Washington, DC 20036, (202) 857-0857. There are also regional relocation groups in many states. Contact ERC for information on resources in your state.
This article was reprinted with permission of Ransom & Benjamin Publishers LLC, which helps organizations to comply with complex employment laws and to avoid expensive employee lawsuits. In addition to the well-known HR Manager's Legal Reporter, they publish Best Practices for HR Managers, the HR Legal Encyclopedia, and the best-selling pocket trainer, Stop Sexual Harassment. Call at 1-800-334-3352, visit the website at www.rbpubs.com, or e-mail at rbpubs@aol.com. Relocation Journal & Real Estate News is an online publication of Mobility Services International (www.msimobility.com).