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When a layoff is the reward for experience

Circuit City's move to replace veteran employees with cheaper workers results in anguish and lawsuits.

By Marilyn GardnerStaff writer of The Christian Science Monitor / April 16, 2007

During his 11 years as a salesman at Circuit City in Oxnard, Calif., Dan Weidler received regular raises and laudatory performance reviews describing him as "great" and a "superstar." He worked hard, liked what he did, and expected to stay until he retired. He is in his mid-50s.

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But those plans ended late last month when Mr. Weidler's boss delivered bad news: Weidler was being laid off, one of 3,400 experienced employees – 8 percent of the staff – whose salary levels made them a liability. They will be replaced by lower-paid workers.

Although large-scale layoffs have become a fact of life in corporations – Citigroup announced last week that it is cutting 17,000 jobs – the move by Circuit City has attracted particular attention and, in some circles, criticism and anger. What sets this layoff apart from most others is the fact that some of the best employees are being replaced. That raises questions about the role and value of experience in an increasingly competitive workplace.

Weidler and two co-workers have filed suit against Circuit City, charging age discrimination and wrongful termination.

"In California, a law specifically states that if a company decides to make a decision based on wages, and that decision adversely impacts the older population – those over 40 – that is an illegal action on the part of the employer," says Nathan Goldberg, a Los Angeles attorney representing the plaintiffs.

"Essentially, the people affected by this were those earning the most money, and, by definition, those are the people who have been there the longest," Mr. Goldberg says. "Some had been there 30 years, 25 years, 20 years. They thought they were being valued for experience, service, dedication, loyalty. They were told they were expendable, simply because they earned too much money."

Weidler was making $15.01 an hour. Although he can reapply for a job after 10 weeks, he would earn only $10.22 an hour.

Circuit City expects to reduce expenses by an estimated $110 million this fiscal year and cut costs by at least $140 million annually in the future, says Jackie Foreman, a spokeswoman. Calling retail "an extremely competitive environment," she says, "For companies to grow, and for us to continue to offer consumers products at the prices they've come to expect, retailers must control their costs." Wal-Mart is also instituting wage caps.

Some business analysts see the Circuit City move as simply a necessary "wage adjustment."

"In any market economy, market corrections occur," says Bernadette Kenny, chief career officer at Adecco Group North America, a staffing organization. Noting current market corrections in the mortgage business and in residential real estate, she adds, "There are also market corrections in how people are paid and what people are paid for what work. Pay corrections are a normal part of our economic environment. This isn't about any one company or any one person's value. It's in the context of a broad market supply and demand phenomenon."

But critics question the electronic retailer's decision. "Circuit City's new approach of laying off experienced workers and then offering them the possibility of being rehired at lower wages may be the start of something big – big and bad for the American worker," David Cadden, a management professor at Quinnipiac University in Hamden, Conn., says by e-mail. "It is fascinating how this miser mentality is never directed towards top management. Cost-cutting must be carried on the back of those who have frontline contact with customers."

A better solution is to "fire the nonperformers," says Roberta Chinsky Matuson, president of a human resources firm in Brookline, Mass. "That's where you start. You don't start with the people actually bringing in the revenue."

Dennis Payette, associate professor of business at Adelphi University in Garden City, N.Y., also suggests other ways to reduce costs and staff, such as early retirements, hiring freezes, and attrition.