Contributors

Department: HRO Compliance:The Election’s Impact on HRO

As this year’s politics play out, how will the industry be affected by the outcome? Employers should carefully pay attention.

by William B. Bierce

The forthcoming presidential election reminds us of the legal changes that occur as part of the ebb and flow of the political process. For HRO providers and enterprise customers, the election reminds us that employment is a regulated function, that changes in laws and regulations occur regularly, and that outsourcing contracts need to provide flexibility to redefine the scope of services, change management, force majeure due to change in laws, and the allocation of costs and risks relating to compliance.

The Democratic Party agenda would increase the costs and complexities of being an employer, further limit the unilateral right of termination of employment “at will,” and impose new compliance obligations on employers. Most importantly, its legislative agenda will extend the reach of laws imposing obligations on ever smaller employers, who will thus become increasingly pushed to turn to HRO providers for more services.

More specifically, Sen. Barack Obama proposes to expand paid-time off (at the employer’s expense) and promote “equality” in compensation based on sexual orientation or gender identity or expression. He would expand the Family Medical Leave Act to cover businesses with 25 or more employees. He would extend PTO under FMLA for managing elder care needs, for victims of domestic violence, and for parents to participate in their children’s academic activities.

If a Democratic president were to adopt other worker-friendly legislation, he could significantly expand the WARN Act to increase penalties, reduce certainty, enlarge the number of protected workers by applying it to units of 25 affected employees (now 50) affected by a mass layoff or plant closing, and increase the number of employment-related events that would trigger mandatory notifications. Like the Civil Rights Act of 1964, a new civil rights bill could shift to the employer the burden of proof of compliance with non-discrimination duties, add state attorneys general as enforcers, and support the plaintiff’s bar through mandatory use of an attorney in settlement of rights in terminations of employment governed by the WARN Act or new civil rights laws.

Even a Republican president can be expected to sign laws demanding new, cradle-to-grave controls and protections for personally identifiable information. Service providers in any outsourced function will have to assist customers, for example, to “develop, implement, and maintain reasonable security and notification procedures and practices appropriate to the size and nature of the enterprise customer and the nature of the information to ensure the security and confidentiality of the personal information and protect it against any unauthorized access, destruction, use, modification, or disclosure.”

Indeed, far beyond the usual scope creep in a healthy, evolving outsourcing relationship, new legislation portends the ultimate in scope creep. Like major laws such as SOX, ERISA, COBRA, ADEA, FMLA, and Title IX, it is safe to anticipate that a wave of new employment-related legislation would give new meaning to the phrase “full employment” because it would produce a form of “HRO Service Provider Full Employment Act” that enlarges the HRO industry. Employers will need more guidance on whether individual situations come within the new rules. Professional advisors and HRO service providers will need to provide professional advice and software to support a new legal framework.

• Impact on Employers.
If implemented, these changes would increase the dependency of employers upon third-party providers of software and services to support the HR management functions in recruiting, hiring, training, promoting, disciplining, re-deploying, compensating, setting career paths, and investing in the future of their employees.

• Impact on Providers.
Pending or contemplated legislation would impose several costs on employers. Such costs could be shifted to providers. These include the costs of redesigning or licensing newly updated HR administration software, verifying that such software and the related business processes follow regulations, and assuming responsibility for fine tuning and responding to regulators’ changes.

As employers recognize their dependency on third-party experts to administer legal compliance, they naturally are asking those third parties to assume some liability for non-compliance. Service providers have encouraged this dependency by offering to lift the administrative operations from the HR department’s task list. In return, enterprise customers of HRO services have broadly shifted to the providers a broad responsibility for compliance with the law. Indeed, HR service providers need to be clear on what roles they want to assume. HRO

Bill Bierce is an HROA award-winning attorney practicing HRO law with Bierce & Kenerson, P.C., in New York City.

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