Introduction

Several recent trends are combining to create both greater legal risks and increased opportunities for employers seeking to improve their strategies for attracting, hiring, promoting, and retaining the best employees.

Businesses driven by an emerging consciousness of the need for overall talent management energies are making changes in employment practices, while simultaneously broad-based legal challenges to such practices are on the rise.

The holistic approach favored by wise talent management advocates suggests substantial roles for legal counsel and human resources ("HR"), in addition to a larger role for upper management in what have traditionally been HR functions. Yet involvement of HR may be limited by lack of appreciation for the HR knowledge base, negative stereotyping, and HR outsourcing. Legal counsel also may be given only a secon dary role as talent management becomes seen as a central business function.

"Talent Management" Comes to the Fore

Enlightened management increasingly recognizes the extent to which the value of a business derives from its people -- its "human capital." With such recognition comes new management jargon -- "talent management" -- which has been defined as "the strategic management of the flow of talent through an organization . . . to assure that the supply .

. . is available to align the right people with the right jobs at the right time based on strategic business objectives." This requires "a tight link between business objectives and organizational processes for selecting, developing, appraising and rewarding people."

Who can best forge this necessary link, bringing these employment processes in line with business objectives and ensuring the needed supply and alignment of talent?

What About HR?

As a management employment lawyer, I have tended to see HR primarily in its legal compliance and administrative roles, but I recently began discovering some of its other dimensions. HR is a profession and academic discipline with its own body of knowledge, including practical information on best practices for employment functions such as recruiting, interviewing, testing, and selection of employees; development of compensation systems and incentives; training of new and existing employees; and employee evaluation, performance improvement, and promotion -- all vital to successful talent management. Adopting such HR best practices can have a measurable impact on the bottom line, and much effort is being devoted to "HR metrics" for evaluating such impact.

Those in the forefront of the HR profession seek to move beyond administrative and legal compliance roles and to participate in "strategic business-HR alignment." However, such efforts may confront resistance from management that views HR as competent at "administrivia," but "uniquely unsuited" to such a strategic role. Other stereotyped criticism of HR professionals ranges from lack of intelligence to going into HR "for the wrong reasons" to not being "particularly interested in, or equipped for, doing business."

The Legal Risks

Development of new talent management strategies is taking place in an employment litigation landscape that has recently become more hazardous for such activities. Ambitious employment trial lawyers have found most individual employment discrimination cases insufficiently lucrative and are now turning to large race, sex, and age discrimination class actions challenging employment practices affecting hundreds or thousands of people.

Recent highly publicized cases of this type involving talent management practices such as hiring, promotion, and compensation have concluded with huge settlements including millions of dollars in attorneys’ fees, virtually assuring such cases will plague American business for years.

These class actions typically rely heavily on statistical evidence and the disparate impact theory of discrimination, which does not require proof of discriminatory intent. Instead, a sufficient statistical disparity, often fairly easy to establish, requires employers to establish a valid business justification for a challenged employment practice. HR experts can help provide the needed justification, if sound HR principles are applied in the development or modification of the practice.

Outsourcing HR

Another trend impacting talent management efforts is that many businesses are outsourcing various HR functions. Such arrangements may deliver greater administrative efficiency and expertise, particularly for small-to-medium businesses. But on the down side, they may also diminish opportunities for coordination of overall talent management strategies and for employment law risk management, while leaving significant exposure. Outsourcing may also involve the layoff of experienced HR staff, diminishing in-house HR expertise.

Conclusion

Management, Legal Counsel, and Qualified HR Professionals Should Join Forces in Crafting Talent Management Strategies.

As corporate leaders increasingly recognize the bottom-line importance of talent management strategies, they may be reluctant to fully involve HR in top-level talent management strategic planning, particularly if they view HR as mere administrators lacking business acumen, rather than key strategic players possessing valuable knowledge. In-house HR expertise may be less available with the outsourcing of various HR-related functions. Outside employment counsel may also not be fully utilized in this vital area of business planning, particularly if viewed as cost-effective only for litigation. Both HR professionals and legal counsel may also be underutilized if they are perceived as unacquainted or unconcerned with vital business objectives.

The result may be that new strategies that are governed by a variety of employment laws are designed without sufficient input from two sources of expertise vital to employment law compliance. Such expertise is needed now more than ever in the current employment law environment, with its widespread and costly class-action challenges to fundamental talent management policies. Bottom line interests are not advanced through employment practices that appear to make business sense but leave the company unduly vulnerable to legal challenge.

The better approach is for upper management, HR, and legal counsel to work together to carefully develop talent management strategies, based on proven HR best practices, that further vital business objectives without unduly increasing legal risk. HR and legal expertise is more effectively and efficiently utilized if brought in relatively early in the process, rather than used only to review and implement decisions made by others.

HR and employment counsel can contribute much value to the development of talent management strategies. HR professionals bring to the table knowledge of practices that are supported by research and expert consensus, and therefore more defensible. Employment law counsel brings valuable experience bearing not only on substantive issues, but also on litigation realities that must be taken into account.

For example, many employers find that personality, honesty, or physical ability tests have much common sense appeal as hiring screening devices. A competent HR professional will know such tests could become the basis for discrimination class actions and will recommend consultation with employment counsel. Counsel will help evaluate the legal risk of various options, and might also make recommendations regarding documentation of the decisional process and the justification for the decisions in anticipation of potential litigation.

Avoiding such input for reasons such as "HR doesn’t understand business" or "our employment lawyers are too expensive" will only leave the company more vulnerable to predation by ambitious class action lawyers with big war chests -- who are on the warpath.

See Hammonds, Why We Hate HR, supra. Turf warfare may be anticipated as business leaders gain interest in traditional HR functions. "CFOs think they should be more involved in human capital decisions." But although there is a growing consensus that "managing human capital is now a strategic responsibility increasingly shared by all an organization’s leaders," "historically, relationships between the finance and human resources functions have too often ranged from adversarial to mutually uncomprehending," and "there still remains an undercurrent of discomfort." Mercer Human Resource Consulting, Human Capital Management: The CFO’s Perspective (February 17, 2003), http://www.mercerhr.com/.

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BIOGRAPHY

George Lenard, the originator of George’s Employment Blawg,has over twenty years of experience in all aspects of labor and employment law, including preventive law as well as litigation. His special interests include employment discrimination, sexual harassment, and noncompetition agreements. He is currently a managing partner with Harris, Harris, Dowell, Fisher & Harris, L.C.,., in St. Louis, Missouri, and lives in the suburb of University City with his wife, one daughter and two sons.