Regulatory Updates

Tough Economic Times: Employment Law Issues Facing Indian Gaming Employers

Scott A. Wilson
Scott A. Wilson

The nation’s political campaign is now over. However, during the months leading up to the election, both Democrats and Republicans referred to the United States economy as facing the most difficult time since the Great Depression. Independent economic analysis certainly establishes that the U.S. economy is in a slowdown. This impact has been felt throughout the United States, including the hospitality industry and tribal gaming employers. To the extent that consumers have less “disposable income,” this clearly impacts spending on recreational activities such as gaming.

As a consequence of the economic slowdown, Indian gaming employers (like other employers) are facing the prospect of reducing their workforce. There are a number of employment law implications that should be taken into account when such a reduction in force (RIF) takes place. Unfortunately in today’s litigious society, an employer’s decision as to who should be laid off in the face of declining business is often times subject to challenge.

Legal Overview
Common questions that often arise in the course of a RIF which are subject to a potential challenge include:

1. Who decided an RIF was necessary?

2. What economic conditions established the necessity of an RIF?

3. Is there a way to reduce the workforce voluntarily, i.e., exit incentive programs, etc., as opposed to involuntarily layoffs?

4. Was the layoff focused upon personnel, i.e., the highest performing employees as opposed to functions, i.e., elimination of certain departments?

5. Which individuals in management were responsible for selecting the employees subject to the layoff?

6. What criteria were used in selecting employees for layoff?

7. Were the layoffs related directly to the stated justification for the RIF, i.e., a reduction in business?

8. Were records maintained as documentation to support the selection of employees laid off?

9. Was there any adverse impact as a result of the RIF on protected classes of employees and were management personnel trained to avoid such an adverse impact?

10. Did the RIF involve severance payments to employees? If so, did employees receiving such severance pay sign legally binding releases for all future claims against the employer?

To the extent that a legal challenge is brought concerning the RIF, the above are obvious questions that need to be answered.

Relevant Statutes
There are certain federal statutes that are likely to be referenced regarding an employer’s planning and implementation of an RIF.

Title VII 1964 Civil Rights Act (42 U.S.C. 21)
This is the federal statute that prohibits discrimination on the basis of race, color, religion, sex or national origin for individual employees or groups of employees who have been “adversely impacted.” Title VII expressly exempts from the definition of employer an “Indian tribe.” Despite this exemption, Indian gaming employers are strongly advised to avoid practices that could be perceived as discriminatory under Title VII. Certain state compacts prohibit such discrimination as well as government contracts and grants. Finally, from a personnel practices standpoint, having existing/potential employees believe that an employer is acting in a discriminatory manner can create a highly negative and volatile situation among the workforce.

Age Discrimination In Employment Act (29 U.S.C. 621)
The Age Discrimination in Employment Act/Older Workers Benefit Protection Act protects employees from discrimination on the basis of age and sets forth very detailed requirements for employees over 40 entering into binding release agreements when there has been a group layoff. These statutes are silent as to their applicability to Indian tribes. However, the Ninth Circuit Court of Appeal in EEOC v. Karuk Tribal Housing Authority 260 F.3d 1071 (9th Cir. 2001) distinguished between the applicability of the statute to the operations of a “tribal government” to which the statute was inapplicable as opposed to the
commercial operations of a tribe such as a casino where the Ninth Circuit would likely apply the law.

WARN ACT (29 U.S.C. 2101, et seq.)
The WARN Act was passed in the 1980s and essentially requires 60 days notice for a “mass layoff” and/or plant closing. Does the WARN Act apply to Indian gaming employers? The WARN Act statute itself is silent as to its applicability to Indian tribes. However, the regulations promulgated by the U.S. Department of Labor interpreting WARN excludes “Indian tribal governments.” Keep in mind, however, that the term “tribal governments” vs. commercial operations of an Indian tribe has taken on new meaning in light of the decision of EEOC v. Karuk Tribal Housing Authority, supra, as well as San Manuel Indian Bingo and Casino v. NLRB, 475 F.3d 1306.

Because failure to comply with the WARN Act can result in significant liability for a tribal employer, this issue should be reviewed carefully if the WARN Act requirements otherwise apply. These requirements apply to employers with 100 or more full time employees (and different variations for part-time employees). The most likely scenario for an Indian gaming employer would be to face the situation defined as a “mass layoff.” Under the WARN Act a “mass layoff” is any layoff during a 30 day period, which involves 50 or more full-time employees (provided those employees constitute at least 33% of the full-time workforce) or 500 or more full-time employees regardless of what percentage of the workforce they constitute. Should this occur, a 60-day notice is required and failure to provide such notice can result in significant penalties.

Consolidated Omnibus Budget Reconciliation Act (COBRA)
(Pub.L. 99-272, 100 Stat. 82)

As employers are generally aware, employees subject to a layoff who are covered by the employer’s health insurance plan are entitled to COBRA notification informing them of their rights to continue health insurance coverage by absorbing the cost of the premium.

Advance Planning of a Reduction In Force
Because of the statutory implications as well as the types of questions an employer will face, as noted above, when implementing an RIF advance planning is critical. Factors to consider would be as follows:

• Personnel policies’ impact on RIF. Obviously an employer needs to examine its personnel policies to see if there would be any restrictions on a RIF.

• Severance pay. Is an employer considering severance pay? If so, what are the criteria? It is based upon performance? Years of service? Or other factors?

• Enforceable releases. To the extent that severance pay will be provided to employees, it is advisable to obtain a signed release from each employee receiving such severance pay whereby the employee waives possible legal claims against the employer. The ADEA/OWBPA have very specific requirements for employees over 40 to enter into binding releases particularly when there has been a group layoff.

• Documentation. Establish a layoff procedure which is documented. If the layoff is a result of a slowdown in the employer’s business, it is advisable to create documentation of the employer’s business justification for the RIF, i.e., a slowdown in business and in particular, how the selection of those specific employees for the RIF relates to the employer’s business justification.

• Selection criteria. It is important to establish selection criteria for those employees subject to the RIF which can be explained in an objective nondiscriminatory manner. This should include conducting an “adverse impact” analysis, i.e., is any particular protected class disproportionately impacted by the RIF?

• Voluntary separation/internal placement. To the extent employees will leave as part of a voluntary incentive plan and/or can be placed in another position internally, this is advisable. Also, normal attrition based upon past experience and should be factored in while making decisions for an RIF.

• Announcement implementation. Employee terminations can be an extremely emotional experience and can create resentment and hostility, particularly on a group basis. It is extremely important to develop specific instructions as to what employees are told and how employee termination meetings are conducted.

• Consult with counsel. It is imperative to the extent an employer is going to engage in any organized RIF to carefully review the entire process with legal counsel. This is particularly so with tribal employers because, depending upon their location, there may be different legal opinions as to the applicability of various federal statutes.

Hopefully for the nation’s economy and Indian gaming employers involved in the hospitality industry, economic conditions will improve. Until conditions change, cost savings through employee layoffs remain a fact of life. Because there can be significant legal complications to a RIF, adequate steps must be taken to avoid such problems.

Scott A. Wilson represents employers in labor relations and employment law, including Indian tribes. He can be reached by calling (619) 234-9011 or email at