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May 01, 2014

The end of the world as we know it

By: Paul Ebeltoft

Death? Destruction? Disease? No, worse. Rumor has it that companies, big ones, are dumping their HR departments. The Wall Street Journal reported on April 9, 2014 that “[c]ompanies seeking flat management structures and more accountability for employees are frequently taking aim at human resources.” Why?

According to the Journal, the trend puts resolution of employment issues at front-line managerial level. It also lowers administrative overhead. The Journal pointed to a 2012 study by the Society for Human Resource Management that found U.S. employers had a median of 1.54 employees dedicated to HR for every 100 employees under contract. The median wage for each of these workers is $51,000. The math is simple. A company starting up small can save $75,000 dollars per year, plus benefits costs by just not “doing” HR. And, doesn’t it make sense to have managers deal with the employment issues of those they supervise every day, by-passing the one-step-or-more-removed HR middleman?

Cooler heads may prevail

Thankfully, there is overwhelming evidence that abandoning HR is both legally dangerous and economically unsound. Nancy Koehn, historian at the Harvard Business School, interviewed three weeks ago on National Public Radio finds that settling work place disputes and handling the onslaught of employment law compliance issues are reason enough to have a human resource department. Ms. Koehn, in an engaging style that sets her apart from the prototypical stodgy Harvard professor said, “An engaged, satisfied, non-bickering workforce that’s legally compliant is critically important to the ka-ching, ka-ching of winning in the marketplace.” Good for you, Professor Koehn.

And good for HR. I don’t have to tell HR professionals how much trouble they go through to steer managers in the right direction on matters of harassment, discrimination, equal pay, FMLA, employee classification, ADA and … the list is long indeed. Similarly, no one should doubt the economic value of the HR function. Even the Wall Street Journal cited the well-known Outback Steakhouse EEOC case. In it, a company that started and grew large with no HR department, paid $19 million dollars to crawl out from under a train wreck of discrimination claims. As a part of the settlement, the restaurant chain agreed to add HR to the executive suite. Bottom-line driven executives need look no further for incentive to count the cost of HR as an investment in company profitability.

So we are okay, right?

Complacency is not wise. An “HR as we know it is here to stay” attitude limits your ability to shape your work into what will most beneficially serve your company. Then too, speaking practically, serving up a bad run-in with the government by a company that had no HR department is a cold and unsatisfying dish for your company’s executives to consume when they meet to consider the importance of your department. Each owner could point to equally large verdicts and settlements shelled out by companies with huge HR staffs.

Perhaps, in our robust economy, the time seems far off. But make no mistake. At some time, even HR departments in healthy North Dakota-based companies will have the Sauron-like eyes of executive bean-counters turn toward them. When this happens, Human Resource professionals will need to have already become more than a line item in their company’s budget justified by the cost-savings of not being sued. These Human Resource Professionals will already need to have established themselves as deliverers of real value to the company enterprise.

Should we reframe the issue?

Perhaps reducing traditional HR functions through outsourcing or internal redistribution is not the trump of doom. Perhaps a potentially worrisome development in some companies is an opportunity for you to reconsider how you do business and how to “do HR” even better.

In a November 2013 LinkedIn post, David Marr, a British management consultant offered a proposal. Suggesting that HR needs to reform itself into its most valuable functions, he postulated a system whereby HR abandons its name and becomes the People Support Team and the People Analytics Team. The former, tasked with “helping employees with their development; ensuring staff engagement; identifying issues with morale and culture and generally looking after the well-being of the people in the business” adds value by its single-minded direction toward the “humanness” of human resources. Helping your employees become the “engaged, satisfied, non-bickering workforce” described by Professor Koehn will capture true value for even the most numbers-driven of senior management.

The People Analytics Team of which Mr. Marr speaks directs its attention to the “resources side”, the more management oriented side of human resources. According to Marr, this team “is to look at people more scientifically and support the company with insights and analytics. The kind of questions this team would help to answer includes: What are our talent gaps? What makes a good employee in our company and how do we best recruit them? Which employees have got the highest potential? How can we predict staff turnover?”

But David Marr also makes another recommendation, which brings us back to Wall Street Journal’s reportage of those who question the need for HR departments. Mr. Marr suggests outsourcing everything in your HR department that does not add value to the enterprise. What might this include? Payroll functions, which often are delivered as well by out-sourced data-collectors as with in-house HR, might be one. Policy creation and training for compliance purposes may be another in an age where any business over 15 people will need to have legally compliant policies and an informed workforce.

The take-away

You probably need not fear that your HR department will be gone tomorrow. Human Resources professionals add value to your business each day. However, the key to your productivity and longevity may be to concentrate your department’s work on certain tasks that are uniquely within HR’s wheelhouse. Your senior executives will readily appreciate the value you add, particularly after you recommend cheaper, more efficient ways to accomplish some of the functions that you perform, even if it means that you no longer do them.

Where are we anyway?

Ebeltoft . Sickler . Lawyers is at home and very comfortable in its beautiful (if we say so ourselves) new building at 2272 Eighth Street West, Dickinson, ND 58601. We are all excited about our prairie style building with wide eaves, strong horizontal lines and open air patio spaces. You will like its sleek, modern interior, too. Please visit us. I would love to show you around.

The address is a little deceiving and it is not yet on Google Maps. You can find us at the corner of Fairway Street and 23rd Avenue West, Dickinson, across the street from the West River Community Center and kitty-corner to the new St. Joseph’s hospital. The beautiful landscaping will not be done until the weather makes a decided turn for the better.

Our interest in serving you

My law firm’s goal is to give understandable information and to foster discussion about real-life issues facing human resource professionals. If we are not achieving that goal or if you would like us to address other employment law issues, please email me at We promise to take your comments and ideas to heart.

(Otherwise known as “the fine print”)

I make a serious effort to be accurate in my writings. These articles are not exhaustive treatises, though, so do not consider them complete or authoritative. Providing this information to you does not create an attorney-client relationship with my firm or me. Do not act upon the contents of this or of any article on our homepage or consider it a replacement for professional advice.

Reprinted with permission from an article submitted for publication in the May, 2014 Southwest Area Human Resource Association newsletter.