Q: For the past six months, I was working as a manager for an Internet start-up. The principals of the corporation had also launched two other start-ups in the same time frame. About two weeks ago, the company manager walked in and told all of us the board of directors had voted to close down the operation the previous evening. He handed us a check for our work up to that day and said goodbye.
The way it was done was unique in my over 17 years as a professional. Isn't it a federal law that all employees receiving benefits be given a COBRA exit interview, and what about severance pay?
The suddenness of how this was done left me high and dry, without so much as the option to work at one of the other companies. Certainly they had seemed impressed with my abilities, and they had given me a 25 percent raise. Isn't this a little strange?
A: Joining an Internet start-up is like high-stakes gambling. Sometimes there's a fabulous payoff. Sometimes you're out of luck.
About 70 percent to 90 percent of start-ups eventually will fail, said Geoff Baum, director of marketing for Garage.com, which helps start-up companies get financing and provides them with management advice. But companies handle shutdowns with varying levels of finesse and planning, he said.
It was "obviously abrupt and unfortunate" in this case, Baum said, but it wasn't unprecedented. He said he's heard of companies where the boards of directors shuttered operations even when they had millions of dollars in the bank.
That's why it's important for workers who join start-ups to carefully consider the risks of working for a novice operation and do some steely-eyed evaluations of both the team running the company and the potential market strength of the concept. Baum recommends that highly sought-after workers consider having a contract drafted that provides for insurance coverage or a severance package if the business fails.
"You want to negotiate for as much as you can with a small start-up, particularly in a tenuous enterprise like an Internet start-up, compared to working for an established company," Baum said.
As for severance pay, companies have the legal right to choose whether they will offer a severance package, unless the issue is spelled out in a union bargaining agreement or other contract.
COBRA, formally known as the Consolidated Omnibus Budget Reconciliation Act, is a federal law that allows workers to pay for their own health coverage through the company's health plan for an extended period of time after they are terminated from employment. But COBRA applies only to companies with 20 or more employees, so a small start-up company may not be covered. Moreover, you can't buy coverage through a company's health plan if the company has gone out of business. On the other hand, some state laws governing health insurance are more favorable to workers than is federal law, so it's worth taking the issue to the state labor department.
Q: I have worked as an automobile-dealer parts man for 24 years. My present employer pays me a salary with no commission and no overtime, with a workweek that ranges from 45 to 55 hours, though in the past at other companies I used to earn overtime pay. The mechanics here are paid hourly, with time and a half for any hours over 40, which means they make more money for working fewer hours. There is a big wage gap between parts and service where we work, and I feel I'm not being adequately compensated. The Labor Department said I fall into a group that was exempted from the Fair Labor Standards Act. Why?
A: When the Fair Labor Standards Act, which provided for a basic 40-hour workweek and a 25-cents-an-hour minimum wage, was passed in 1938, it was seen as an almost revolutionary act. Industry groups had fought its passage vigorously, saying it would lead the country toward socialism and bankrupt businesses. It also made some labor groups nervous, because they feared it would undermine hard-won wage and hour concessions. A conservative Supreme Court, meanwhile, had viewed such regulation as an unconstitutional imposition on business owners, though it gradually dropped its opposition.
To overcome opposition to the act and win its passage, President Franklin D. Roosevelt and his New Deal supporters made numerous compromises and removed many groups of workers from its provisions. Former Labor Department historian Jonathan Grossman, writing in 1978, estimated that ultimately only about one-fifth of the U.S. labor force, or about 11 million workers, was covered. One of the most prominent exceptions to the law was, and continues to be, salaried professional and managerial employees, who can still legally be asked to work 24 hours a day, seven days a week, without additional compensation.
Consequently, at many workplaces, some workers get time-and-a-half and others do not. "It creates a tension in the workplace because there are two classes of people working together," said Judson MacLaury, the current Labor Department historian.
Many business groups still oppose some provisions of the Fair Labor Standards Act today and argue that increased global competition and the growth of telecommuting and flexible scheduling make the 40-hour workweek an anachronism.
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