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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