Unintended consequences of virus-related cutbacks at dealerships

The COVID-19 pandemic has wreaked havoc on most sectors on the economy, and auto manufacturing and sales have not escaped its fury. Shutdowns of manufacturing hubs across North America impacted the supply of new vehicles. Even as states reopened, manufacturers were compelled to keep their production output limited or closed because of the shortage of parts imported from Mexico and other countries.

The pandemic resulted in reduced demand for new and used vehicles. This, coupled with state policies to address the pandemic, resulted in the closure of many showrooms.

The dealers' obligation to meet financial responsibilities in the face of the pandemic's onslaught often has resulted in significant adverse employee actions, such as layoffs, furloughs and reduction in hours and/or compensation. These actions, though unavoidable, can lead to legal and costly trouble for automotive employers if not executed carefully and thoughtfully. As Automotive News reported, 88 percent of dealerships took Paycheck Protection Program loans, allowing many to avoid furloughing or laying off staff. But questions about loan forgiveness remain and what will happen when the program's 24-week period expires while the pandemic continues to explode across many U.S. states.

Auto dealers may be protected against Worker Adjustment and Retraining Notification Act stipulations, which require employers with 100 or more employees (may vary by state) to provide at least 60 days' notice of layoffs or furloughs of 50 or more employees, by claiming the "unforeseeable business circumstances" exception.

However, if any necessary reductions in force, hours and/or compensation are not designed and implemented carefully, they can make dealerships vulnerable to increased scrutiny and potentially trigger discrimination litigation. For example, dealers may believe that it would be sensible to lay off, furlough or reduce the hours of older employees or those who have disabilities first. These employees are more vulnerable should they contract the coronavirus and also are likely to represent the highest payroll costs. But dealers could be susceptible to age-discrimination complaints and litigation.

Even in cases in which filing for Chapter 11 protection becomes necessary, dealers will need to be mindful that this action will not protect the dealership against Equal Employment Opportunity Commission injunctions. Thus, it's necessary for dealers to be mindful of the disparate impact of any action affecting employees even after filing for bankruptcy.

To avoid this kind of situation, it is advisable that dealerships involve their legal team and any necessary independent support to design and implement an employment-adjustment plan that meets all the EEOC requirements, as well as the dealers' needs. This plan must minimize any exposure to discrimination complaints and corresponding legal action. According to Claudia Gonzalez Martinez, a GlassRatner managing director:

"This sort of plan is based on a careful econometric analysis of the dealers' historical payroll records. The analysis would also involve modeling and simulating several potential post-adjustment scenarios. For each of these scenarios, the disparate potential impact [if any] for each protected group would be estimated.

"A similar course of action would be implemented just prior to calling back or increasing hours of furloughed or laid-off employees. The plan in such situation would ensure that no particular group is discriminated against when this delicate process is implemented. Particular attention should be paid to older and disabled employees."

These steps may help prevent scrutiny and discrimination-related litigation, which can be costly in both monetary and reputation terms.