Lauren's wardrobe.(Instructor's Note)

Whisenant, Warren ; Kavanaugh, Joseph

CASE DESCRIPTION

The case highlights the many human resources issues that challenge small business owners, including the sensitivity of conducting business in a predominantly ethnic community. Among the issues raised are job abandonment, willful misconduct, employee theft, hostile work environment, hiring practices, termination practices, progressive discipline, the importance of clearly promulgated employee policies, and constructive discharge. The case is appropriate for use primarily with undergraduate and graduate courses studying Human Resources Management in a small family owned business.

CASE SYNOPSIS

Lauren's Wardrobe is one of two stores owned and managed by Kelly Brown. The stores are located in a heavily Hispanic border community in Texas. Kelly employs eight to twelve employees depending on seasonal demand. One afternoon, three of the four employees in both stores walk off the job, leaving one store abandoned, and the other covered by only one employee. The precipitating event seems to be prejudicial comments made by Kelly's mother (not officially an employee) regarding the Hispanic employees, and her conduct toward them. After addressing the immediate issues of covering the stores until closing, Kelly talks with her one remaining employee, Rosie, who gives Kelly insight into the conditions faced by her employees. Now, Kelly must decide what actions to take before the stores reopen the next day.

INSTRUCTORS' NOTES

Case Objectives and Use

The case highlights the many human resources issues that challenge small business owners, including the sensitivity of conducting business in a predominantly ethnic community. Among the issues raised are job abandonment, willful misconduct, employee theft, hostile work environment, hiring practices, termination practices, progressive discipline, the importance of clearly promulgated employee policies, and constructive discharge. The case is appropriate for use primarily with undergraduate and graduate courses studying Human Resources Management in a small family owned business. Through the case, students can meet the following learning objectives.

* Identify the essential human resources considerations one encounters in small business management.

* Identify the appropriate steps that should be taken in the recruitment and employment of personnel.

* Determine constructive human resources actions that must be taken to keep the business operational.

* Detail the steps to be included in a discipline system appropriate for a small business.

* Gain insights into the unique human resources challenges facing family-owned and operated businesses.

* Understand and appreciate the importance of racial/cultural/ethnic sensitivity in relations with employees.

TEACHING PLAN

The case has been taught in a graduate human resources seminar. The approach utilized was to assign the case and questions to teams to review the case and prepare written analyses of the case. The teams were assigned the case at the end of class and presented their analyses the following week. The team presentations were limited to ten minutes; each team was assigned one of the first six questions to present. Following team presentations the entire class was permitted to offer additional comment on questions they did not present, and to jointly answer question seven regarding what else Kelly might have done to better manage the human resources issues in her business. In this way the discussion can be handled in a seventy-five minute class session.

Students were quite able to identify the major human resources issues in the case and were quick to grasp the broader considerations of diversity embedded in the case.

For graduate classes where not as much direction may be needed, question 6 might be dropped and incorporated into a more general question 7.

QUESTIONS AND ANSWERS

1. What are the human resources issues that Kelly faces in this case? Multiple human resources issues arise as a result of the employees walking out.

a.. Employment-at-will: Texas, like many other states, is an at-will employment state, meaning that employees do not have a right-to-employment other than that granted to employees through contract (and the 26 exceptions to at-will employment provisions, mostly based in civil rights statutes).

b. Job abandonment: Under Texas statutes, an employee who leaves work and fails to return is given three days to appropriately notify the employer with regard to the employee's intentions regarding returning to work. After three days' with no communication, the job is considered abandoned and the employee may be officially terminated.

c. Progressive discipline processes: Lauren's Wardrobe has no established disciplinary procedures, either formal or informal. Implementing a progressive discipline system is one option available to Kelly, if she chooses to extend such rights to her employees.

d. Employee grievance processes: Similarly, no clear procedure is in place for employees to express their concerns to management. While often done informally in such small environments, it would be advantageous for Kelly to establish a clear procedure so that employees understand that management seeks such expressions.

e. The need to have formal policies that clearly outline what benefits are extended to employees: This pertains not only to policy issues, but specifically refers to employee discounts and clothing allowances.

f. Employee selection processes: There is no clear employment process, and their needs to be one.

g. The roles/responsibilities of family in family-owned businesses: Much of Kelly's consternation arises over her relationship with her mother and her mother's interference in the business. Yet, policies are not in place that address family-member rights and prerogatives in the business. These are much needed.

2. What considerations does the legal environment present to Kelly as she seeks to formulate a course of action?

a. Employment-at-will: Texas is an employment-at-will state. However, there are 26 exceptions within the Texas law, most of which incorporate the provisions of Federal laws governing employment. At will employment is defined as "a provision found in many employment contracts which suggest the employee works at the will of the employer, and which the employers insert in order to avoid claims of termination in breach of contract, breach of the covenant of good faith and fair dealing, or discrimination. Inclusion of such a term puts the burden on the discharged employee to show that he or she had reasons to believe the employment was permanent. The employer uses the "at will" provision to claim: We could fire the employee at any time, no matter what the reasons [www.thelawencyclopedia.com]

Citation: In Texas, "absent an express agreement to the contrary, either party in an employment relationship may end the relationship or change the terms and conditions of employment at any time for any reason, or even for no particular reason at all, with or without notice." Exceptions include statutory employment discrimination laws, protected activity, retaliation, voting, as well as military or jury duty. Common law exceptions include public policy and contractual agreements.

(Texas Workforce Commission. Retrieved on June 27, 2005 at www.twc.state.tx.us/news/efte/wrongful_discharge.html.)

Rights associated with legal concepts of implied contract also impinge upon at-will constructions; in this case, verbal agreements between management and sales personnel.

Citation: "Texas courts have never ruled that handbooks are binding contracts for employment." Texas Workforce Commission. Retrieved on June 27, 2005 at www.twc.state.tx.us/news/efte/termination.html.)

Citation: "The employment-at-will doctrine has been eroded through a series of court rulings that restrict the right of employers to fire workers. Because this is a common law issue, the rules vary from state to state. The trend among the states has been to recognize exceptions to the employment at will doctrine....those expectations include those based on contract theory, public policy, and tort law" (p. 677).

Jentz, G., Miller, R., & Cross, F. (1996). West's business law Alternate Edition, 6th Ed. West Publishing Company; New York.

b. Job abandonment: An employee who is absent for three consecutive days without notification to his employer is considered to have abandoned his job. The employee can initiate separation from his/her employer through job abandonment. If the employee abandons his/her job, the separation can be considered voluntary. In a voluntary termination situation, if the employee makes an unemployment claim, the employee "faces the burden of proving good cause connected with the work for leaving the job."

(Texas Workforce Commission. Retrieved on June 27, 2005 at www.twc.state.tx.us/news/efte/types_of_work_separations.html.)

c. Constructive discharge: Constructive discharge occurs when an employer deliberately seeks to make the working conditions for an employee so undesirable that it forces the employee to quit. If the employee quits, and the court finds that the working conditions were such that a reasonable employee would also quit, the employee is determined to have been constructively discharged. An employee is required to give the employer notice and seek to resolve the issue prior to quitting. "Under the constructive discharge doctrine, an employee's reasonable decision to resign because of unendurable working conditions is assimilated to a formal discharge for remedial purposes." Pennsylvania State Police v. Suders, 542 U.S.; Faragher v. Boca Raton, 524 U.S. 775, 808

d. Applicability of federal laws: As a small business with fewer than 15 employees, Lauren's Wardrobe is exempt from coverage by many of the federal laws governing employment. However, state laws and local ordinances often replicate the substantive provisions of federal laws, and may have differing numbers of employees that trigger their applicability. Beyond this, increasing awareness among employees and the public in general regarding issues of "fairness" suggests that prejudicial conduct within the management of Lauren's Wardrobe may create liability exposure for the enterprise. Finally, even modest growth in employees will trigger federal thresholds. It would be advisable for Kelly to plan accordingly.

e. In-kind compensation: Kelly (and all small business owners must be concerned with in-kind compensation, the providing of goods or services to employees where the fair-market value of these goods are not reflected in their earnings statements filed for tax purposes. Federal tax law does make provision for discounts to employees. The amount of the discount is capped by the gross profit percentage of the business (IRS Publication 15-B (1/2005) Employer's Tax Guide to Fringe Benefits). The law also provides for exceptions where the benefits are provided for the benefit of the employer. In this case, if Kelly required employees to wear styles sold in the store while they were working, this may qualify as a tax-exempt benefit. However, this was not a store requirement.

3. What issues must Kelly address if she decides to allow Yolanda, Estelle, and Carla to return to work on Wednesday?

Kelly must be very cautious in the actions she takes, yet must act decisively. Failure to respond appropriately to the circumstances presented could amplify any liability exposure she faces, especially pertaining to the conduct of her mother and how she responds to her employees who walked off of the job. It would be appropriate for her to immediately consult with her attorney, even if she needs to close the stores for a day to do so. Some of the issues she would want to discuss with her attorney include the following:

a. Kelly will first need to address the issue of job abandonment, which occurred when the workers walked off the job. If the employees do not return within three days, the employees may be terminated for job abandonment. The date of the incident, date of termination, and the events of the day will need to be documented in the event the employees attempt to claim unemployment benefits. As the employees engaged in job abandonment and willful misconduct when they walked out, it is most likely they will not be eligible for unemployment benefits.

b. Kelly must decide what disciplinary action, if any, she would take against each individual, if Kelly determines she would permit any of the employees to return to work. In making the determination, she must adhere to the essential tenets of procedural fairness, beginning with hearing the employees' reasons for the walkout. Her final determination of appropriate action may reflect each employee's past performance history if there is reasonable documentation to support differential action. Given the informality of Kelly's approach to managing employment practices, it is unlikely that such documentation exists.

c. Regrettably, Kelly has no formal disciplinary process in place. While Kelly could simply terminate employees for transgressions, an established progressive discipline plan could provide the framework for a more formal disciplinary program that specified what actions to take. With such a process, her first step would be to make contact with each employee to fully investigate the incident. She would then need to determine the intent of the employees with regards to their return to work. If they do intend to return to work, Kelly could allow them to return with the understanding that some form of disciplinary action would be taken. A common progressive disciplinary process includes: an oral warning for the first offense; a written warning for the second offense; a suspension from work without pay after a third offense; and possible termination of employment for a fourth offense. Regardless of her decision as to whether or not to allow the employees to return to work, she must ensure she conducts an investigation and keeps notes of the incident. Kelly will need the notes in the event she needs to take disciplinary action against the employees in the future or defend her actions at a later date.

d. Kelly must acknowledge that employee theft (and family theft) is a notable issue. The installation of security devices may be a partial answer, within limits.

e Finally, Kelly must be prepared to answer the question that is sure to come from the employees, "What are you going to do about your mother?" Here, Kelly has a difficult choice; either she honors her mother and likely loses the employees, or she "reins in" her mother and risks her personal enmity.

4. What steps must Kelly take with regard to her mother? Is there an appropriate role for her mother within the business?

a. Kelly must address the issues pertaining to her mother's behavior in the store. While her mother may not carry a title indicating she is a manager, her relationship with the owner may imply she has authority over the store employees. The mother cannot discuss employee issues with the customers. If she is permitted to continue, it may be interpreted as a situation of constructive discharge. If so, then the employees would be eligible for unemployment compensation as well as civil legal remedies. The employees may also have a legitimate privacy complaint if they can establish that Kelly's mother was talking about individual performance issues with anyone other than management.

b. First, Kelly must get clear in her own mind what she wants and what she perceives as her obligations to her mother. As the major financier for the business, Kelly's mother likely believes that much is owed to her and that she has a financial investment to protect. Her actions may be predicated on this belief. In some way, Kelly may share this belief. Alternatively, Kelly may envision the relationship as an "arm's length" transaction, where her mother provided the financing but, Kelly believed, was to have no direct (or indirect) involvement in the stores. This fundamental issue must be resolved before a preferred course of action emerges. Regardless, Kelly and her mother must have this discussion and, if her mother is to be involved, they need to construct an agreement that officially delimits the scope of authority and job responsibilities of the mother. Potentially, there are several possible roles in the business for Kelly's mother, given her prejudicial attitudes; however, these should not include contact with customers or employees. Possible opportunities might be serving as the bookkeeper or as a buyer.

In small, privately held business, especially, the lines between one's role as an owner and as an employee-manager become blurred. Many well-run family-owned businesses have established handbooks or charters that specifically address the responsibilities and authorities that pertain to each role. Owners are those who have invested capital and generally have responsibility for establishing policy and making financial and capital budgeting decisions above an established threshold. Managers are employed by owners to operate the business and fulfill specific responsibilities for which their talents and abilities qualify them.

5. What issues might Kelly face if she decides to install hidden security cameras?

Organizational climate issues such as privacy, trust, security, and safety may become an issue for employees with the installation of security cameras. Initially, the employees may feel uncomfortable about the cameras being installed. The installation may be perceived as a lack of trust on Kelly's part towards her employees. It may also be viewed as a retaliatory act based upon the comments of Kelly's mother. Prior to installing the security system, Kelly should frame the discussion of the installation in the context of providing for the employees' safety and security. The installation of the cameras would create a safer workplace by providing deterrence to shoplifting and robbery.

The Electronic Communications Privacy Act allows videotaping, however the employees should be made aware of the activity. However taping should not occur in restrooms or dressing rooms. Viewing of the tapes should only be allowed to occur by authorized personnel and the tapes should remain private. (Texas Workforce Commission. Retrieved on June 27, 2005 at www.twc.state.tx.us/news/efte/video_surveillance.html.)

6. Kelly was obviously quite surprised to hear that Yolanda had been terminated from her last three jobs. How might Kelly have constructed her selection process to do a better job of identifying and employing the right people for these sales positions?

The discussion should center on issues pertaining to the selection and hiring of employees and the need for checking references. Going forward, Kelly should implement a formal hiring and selection process.

1. Conduct job analysis

2. Write job description

3. Application process

4. Interview process

5. Check references

6. Conduct a formal background check

7. Extend formal offer

Conduct job analysis: Before hiring anyone else, Kelly should do a thorough job analysis of the sales position to determine the knowledge, skills, and abilities of the person she should hire for this position. Sales aptitude, attitude, customer service orientation, product knowledge, prior sales experience and the importance of being bilingual are all factors that should be considered.

Write job description: Once the job analysis is complete, translate these findings into concrete job requirements and specifications. Be certain to include a section that details the physical requirements of the job, and identify those functions that are essential to the job (for ADA compliance purposes).

Application process: Kelly should have each prospective employee complete an employment application. Applications ought to be accepted at all times, even when an opening does not exist. Having a pool of candidates to draw from will provide her with some degree of security in the event she has a need for a new hire. She can make staffing decisions from a position of strength, rather than being held hostage by employees who may think their unacceptable behavior must be tolerated since their departure would deal a sever blow the stores' ability to operate. In this case, the employees probably knew their actions would create basic operational problems for Kelly. Without a candidate bench to draw from, the employees may have anticipated Kelly would have to ask them to return to work on their terms. A candidate pool will also help to reduce the turnaround time in the event she has unplanned turnover. Kelly would have a sense of security in knowing she has other candidates in the event she does make a planned turn. Maintaining a pool of candidates would reduce future recruitment costs associated with advertising for an open position. The applications will provide her with a work history for each candidate, aiding with future staffing decisions, which may involve identifying individual development needs.

Interview process: Kelly should utilize behavioral interviewing to screen candidates. Understanding that past performance is a good predictor of future performance, behavioral interviewing may have provided hints that there may be issues with Yolanda.

Check references: While Yolanda may have looked like an attractive hire when she was working for the competition, had Kelly conducted a reference check, Yolanda's past work related performance issues might have surfaced. Then, Kelly could have made an informed decision as whether or not to hire Yolanda.

Conduct a formal background check: Since the store employees handle cash, all job offers should be made contingent upon a background check for past criminal activity. Someone with prior legal issues may not be suited for a position handling large sums of money on a daily basis. If Kelly did decide to hire a person with a criminal background, she would at least be aware of the past behavior and could take the necessary steps to monitor that person's performance pertaining to cash handling activities.

7. What additional changes should Kelly make in the immediate future to better manage human resources in her stores?

Gain a clear strategic understanding of her business: The most important issue that Kelly must address is to get a clear strategic understanding of her business and its processes. This is perhaps the fatal flaw for many small business owners. Kelly must understand what market she is in, who her competitors are, who her customers are, the kinds of goods they seek, the price points of her clientele, the types of marketing that attract her clientele, and how she can be profitable within that environment. Once she determines where her businesses are positioned strategically, then she can staff her stores to meet the needs of her customers, hire employees who will be able to sell into those markets, and design jobs and compensation that will attract the sales staff that she needs.

Clearly, the fact that she is located in a community bordering on Mexico makes diversity issues important to her and her business success. Does she seek to cater specifically to the Hispanic community, or does she see this as an after-market? Do her staff and store managers need to be bi-lingual? She must make a strategic choice with regard to the Hispanic market and operate her stores consistent with this vision.

Having said that, there are immediate issues she must address.

Employee grievance processes: There also appears to be an issue associated with the work environment. Some level of animosity exists between Kelly's mother and the other employees. Kelly can address the issue or at least surface issues for discussion by implementing some process to get feedback from her employees. Kelly could implement regularly scheduled meetings with the employees at each store. These sessions could serve as a platform for the employees to vent and provide Kelly with meaningful information about the activities within the store. Had Kelly known about the conflict between her mother and the other employees, she may have been able to resolve the issue before the incident occurred.

Formal employee handbook: Kelly may find it necessary to create a small employee handbook that highlights any special discounts or perks to which employees are entitled. It appears that store policies are not formalized, creating situations of uncertainty and inconsistencies for employees.

Family member's handbook: Kelly also needs to commit to writing the policies that govern the conduct of family members in relationship to the store. It should detail the rights, responsibilities, and obligations, and perquisites of family members, both for those who are employed and those who are not. In addition to the immediate questions raised in this case, such as employee discounts, it should address issues related to qualifying for benefits, access to business cash, personal use of store inventory and other assets, access to business properties during non-business hours, etc. A policy barrier needs to be constructed between the business and the daily routines of family members so that the assets of the business are not seen as personal property, and abused.

Manage Proactively: Many of Kelly's problems emerge do to her lack of being proactive in the management of her business. She needs to be in greater contact with her employees, discussing business issues with them more frequently, and follow through on issues that are of concern to her, such as the clothing smelling of smoke and perfume. Open lines of communication and proactively addressing issues as they arise can resolve many issues before they become problems.

EPILOGUE

In the days following the employee walkout, Kelly met with each of the girls individually. She asked several of the girls to return to work and assured them that she would speak to her mother about her behavior towards the customers and employees. As Kelly expected, her mother was upset after their discussion. Feeling that Kelly had sided with the employees, despite her best intentions, Kelly's mother decided it was best if she was no longer involved in the operation of the business. From that day forward, Kelly's mother never returned to either store.

Nearly a year after the incident, Kelly found herself unable to find the time to manage the two stores. Kelly had failed to realize how much work her mother was actually doing to support the stores. Her mother had been doing all of the bookkeeping, payroll, and monthly inventories. Her mother had also provided a great deal of emotional support to Kelly. The next year Kelly closed Mind's Eye and eventually sold Lauren's Wardrobe to Rosie. Kelly financed the sale of the store to Rosie. Despite her best efforts, Rosie was too young and lacked the business savvy to operate the business. She defaulted on her note to Kelly and was unable to pay her suppliers. Kelly was forced to liquidate the business and used funds from her husband's business to repay the loan she had taken from her mother to open the business.

REFERENCES

IRS Publication 15-B (1/2005) Employer's Tax Guide to Fringe Benefits, http://www.irs.gov/businesses/index.html.

Jentz, G., Miller, R., & Cross, F. (1996). West's business law Alternate Edition, 6th Ed. West Publishing Company; New York.

Texas Workforce Commission. Retrieved on June 27, 2005 at

www.twc.state.tx.us/news/efte/termination.html

www.twc.state.tx.us/news/efte/wrongful_discharge.html.

www.twc.state.tx.us/news/efte/wrongful_discharge.html.

www.twc.state.tx.us/news/efte/types_of_work_separations.html

www.twc.state.tx.us/news/efte/video_surveillance.html

Warren Whisenant, University of Miami

Joseph Kavanaugh, Sam Houston State University