How?

Since no one really seems to care to understand how the global financial
crisis happened, I took it upon myself to find out why. There are two main
factorthe June ruling in the case of Meacham vs Knolls Atomic Power Laboratory
and the Subprime crisis. Most would be probably familiar with the second and
would have never heard of the first. The ruling in Meacham vs Knolls Atomic
Power Laboratory has affected companies in both the industrial East and the
software West Coast of US.

Governor Schwarzenegger has cases pending against him because he tried to
trim down the size of the government in California in August 2008 by laying off
seasonal, part-time and temporary state employees and initiating pay cuts for
others. ImagineA politician tries to cut down needless government expenditure
and thus saves taxpayer money and the unions sue him for it! On December 1,
2008, the terminator declared financial emergency in California as the state
would run out of money by February 2009 if they continue to keep deadbeats in
the government. This is despite the fact that Californians are stuck with
highest taxes in the USA, be it sales, corporate or income tax. This development
should matter to Indians as the bulk of the IT industry is on the West Coast of
the USA, especially in California. Moreover, what happens there will have a
bearing on the Indian IT and ITES sectors. The crisis has been building up for
sometime ever since the energy crisis of 2000.

So what exactly is the case of Meacham vs Knolls Atomic Power Laboratory?

In 1995, the US government ordered its contractor, defendant Knolls
Laboratory of New York to reduce its workforce. In implementing the reduction in
force, Knolls managers rated employees on various criteriaperformance,
flexibility, experience, critical skills, and laid off thirty-one
employeesthirty of whom were over the age of forty. Twenty-six of these
employees decided to sue their former employer.

These former employees (Meacham and others) sued Knolls alleging that the
criteria used had an unlawful adverse impact on older workers. The jury agreed
with Meacham, awarding $6 mn in damages to the laid-off employees. However, the
Second Circuit Court of Appeals reversed the jurys verdict because the
plaintiffs had not proven that the criteria were unreasonable. Reversing the
Appeals Court, the US Supreme Court made it clear that while employers may
choose layoff criteria that have an adverse impact on older workers, the
employer must demonstrate that its selected criteria are based on reasonable
factors other than age.

This case will have a major impact on US employers and under California state
law, the employers are bound by an even worse testthe Ninth Circuits rulings,
which foreshadowed Meacham.

Simply put, lets assume two case scenarios

Scenario 1 Your company needs to get more efficient to cut losses. You lay
off people and either automate their work or stop supply to an area where the
majority of people are defaulting on payment and this results in excess workers.

Now you cannot do it as courts will use the Meacham vs Knolls ruling to make
the employer prove it was a business necessity. Courts determine business
necessity! By what standard? No one knows. Now, not even the state can lay off
as governer Schwarzenegger tried to lay off employees to cut costs. He has
lawsuits filed against him by state employee unions. Therefore, he is passing
the burden to private companies and contractors. However, the government can
demand that the subcontractors or companies who provide services to the state
become leaner and meaner. The only way out is by filing for bankruptcy though
whether you are fit for bankruptcy will be determined by the bankruptcy
commission. Meanwhile, the business owner cannot lay off people, as it is
illegal as a third party determines business necessity.

Therefore, if your business is labor intensive like the auto, utility
companies or banks, then you would either have to file for bankruptcy and if
denied beg the government for a loan which they will decide to grant or not. If
they agree, they might decide to include atrocious clauses in the loan that
gives them power to nationalize it. For tech companies, this is a problem as
power and infrastructure is fundamental to their operations. If your local power
company or your bank goes bust, this will affect you.

Scenario 2 The employer finds a person not competent enough or lazing around
at work and wishes to lay him/her off.

The employer cannot do this as the employers definition of competence is
now open to interpretation and the employers interpretation has to be proved
right in court for the employer to lay off a person as per this ruling. Who
determines it? No one really. Simply put, there has to be an enormous accident
so you can fire the person for being technically incompetent but it will be too
late as youll have a liability and damages suit filed on you for not preventing
the accident in the first place!

The Greed Argument

It is simply monstrous. Any surprise the financial crisis is happening?

It is only natural that with such a monstrous Supreme Court ruling most of
the top institutions and industries went under or were effectively nationalised
by the government, since June 2008. All the while, we had economic experts
tell us that it is due to some greedy people on Wall Street! Really? When did
this greedy people suddenly decide to wreck their golden nest? Were these not
the same greedy people who started the institutions, founded the companies,
and developed it and made them rich? They didnt wave a wand but did it through
hard work. Now we are supposed to believe all these greedy people woke up one
day and decided they want to be poor or turn over their companies, so that it
becomes government owned. Moreover, it is not just a few people but the entire
bunch of industrialists, bankers and CEOs who are doing this suddenly in 2008.
The greed argument does not make any sense. Even a respectable conspiracy
theorist would not try to put forth such a stupid argument knowing that it
defies all reason and all logic. However, here we are hearing it over and over
again from respectable sources who are silent on Meacham case or the ones that
came before it. It is much easier to blame the mythical few greedy CEOs whose
very livelihood depends on the survival of the company/institution rather than
take on unions who have been making unreasonable demands for the past decade.

Even in India, it has not come to that though a government organization can
only suspend a worker and not fire him/her once made permanent. I dont know how
this would pan out in India though as companies here arent even protected by
bankruptcy laws. However, if the parent company in the USA has to suffer through
this, it can either relocate to other countries or close shop. India has an
opportunity here if we can throw out our antiquated tax system, and reform it to
make it more investment friendly. However, this is highly unlikely as Indian
politicians dislike and are extremely suspicious of industrialists. In
addition, we have to re-haul and improve our infrastructure like power and other
facilities that are fundamental to the functioning of companies. With the lack
of power that is killing our manufacturing sector, it is optimistic of me to
think we would be able to get the movers and shakers to shift here. Indian
energy companies, especially private ones might consider manufacturing and
selling small capacity power plants to the US. Maybe with upcoming elections and
an awareness of what needs to be done, we will act and hence attract.

The author is the founder-moderator of the IndianWISE e-group.

(c) Deepa Kandaswamy. First Indian serial rights, CyberMedia 2008.

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author Deepa Kandaswamy and Dataquest.

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consent from the author. Deepa Kandaswamy