Friday, June 5, 2015

The Law Isn’t Trendy

On March 24, 2015, Zappos took its embrace of a new form of organizational structure called holacracy to a new level by giving employees the option to leave with severance pay if they didn’t want to work within the holacratic structure.  According to media reports, 14 percent of Zappos' workforce chose three months’ severance rather than make the shift to holacracy, which may reflect the fact that not everyone is comfortable with the elimination of many layers of management.
Holacracy is trendy.  Rather than a traditional hierarchy with several levels of management, holacracy requires a flat organizational structure that promotes self-management.  It is designed to empower employees to make decisions without the direction or assistance of managers.  Zappos adopted the holacractic approach in the hope that employees would “act more like entrepreneurs and self-direct their work instead of reporting to a manager who tells them what to do.”  Without managers, holacracy advocates assert, employees have the authority to accomplish more and address issues directly.
Holacracy is not without critics.  Called “cultish” and “unlikely to work,” holacracy comes with its own constitution and requires regimented meetings intended to produce innovation and otherwise further the organization’s goals.  Traditional human resources decisions, like hiring, firing, and setting pay, are made by committee instead of by managers.  If more employees are needed, for example, a group or “holon” will make staffing decisions, even if that particular “holon” does not control or have a broad understanding of the organization’s overall business needs.  Holacracy is built on the theory that “holons” will work seamlessly, and that conflict will be minimized by “tension proceedings” in which each member has a chance to discuss problems within the group until the group is satisfied. 
Despite the discussion and interest surrounding holacracy and the rise of other innovative workplace management structures, it’s essential to remember that  employment law is built on the assumption that business decisions are made by individuals who are empowered to bind an organization. “Holons’ may or may not be deemed to be managers in some future case against Zappos, but somebody at Zappos is going to be deemed responsible for the hiring, firing, or other personnel decisions made by “holons.”  Organizational responsibility and liability are created by the actions and decisions of those designated as managers and supervisors.  Simply put, the legal buck stops somewhere, with someone. 
Most employment disputes center on whether or not management authority has been exercised reasonably and lawfully.  That’s not likely to change because organizations adopt new ways of doing business. Whether faced with a Faragher/Ellerth affirmative defense in a sexual harassment action, a dispute over whether a manager had authority to enter into a contract, or a simple determination of exemption status under the FLSA, courts will continue to apply traditional – very non-trendy – legal analysis when employees sue employers.  We predict that the holocracy constitution will not be consulted when those court decisions are made.

Posted by Kate Bischoff