HRM SEMINAR 6 – LEGAL ISSUES AT XYZ SOFTWARE

XYZ ltd is an independent software house employing 150 staff. Its business involves the
production and ongoing maintenance of specialised software which is used by car
dealerships for stock control and accounting purposes. New versions of its core products
are developed every two or three years. The business is fiercely competitive, XYZ being
relatively small players in a large international market. They survive by maintaining their
500-strong customer base, serving these businesses well and involving them in ongoing
developmental and maintenance issues through a 'user group' which meets each month.

XYZ employs a ten-strong sales team who are seen by senior mangers as being central
to the organisation's success and future survival. Their role is to maintain good
relationships with established customers, to seek out new business wherever possible, to
ensure that clients are happy to invest in new versions of software packages as they
come on stream and to liaise with the 'user group'. The latter involves running formal
meetings which are always followed by social events at which XYZ managers entertain
their clients late into the night in pubs, clubs and restaurants.

Alan McSlick has been the Sales Director at XYZ for as long as anyone can remember. He
is widely considered to have managed the sales team very effectively, while also
maintaining excellent relations with major clients. Despite attempts to persuade him
otherwise, he has now decided to take early retirement. He and his wife now plan to use
the substantial commission he has earned over the years to travel the world in some
style. A replacement thus needs to be found.

It is decided that an exclusively internal recruitment exercise will take place, that Alan's
job will not be advertised outside XYZ, and that a relatively informal selection procedure
will be used to install a replacement quickly. No formal advertisement is drawn up.
Instead a meeting of the ten sales staff is called at which Alan McSlick's retirement is
announced by the Chief Executive, Paul Double-Barrel. At the same time he states that
while Alan is working his notice a replacement will be appointed to work alongside him
for a few weeks before he leaves. 'If any of you are interested in being considered for
the position' he says ' drop me an e-mail'. Later that day he receives four e-mails from
long-standing members of the sales team putting themselves forward. The next day Paul
meets with his Finance Director, his Company Secretary and Alan to make a decision
about who should be promoted to the vital role of Sales Director.

The first candidate they consider is Julie Keene. Julie is a very good recent recruit and
one of only two women currently employed as sales people at XYZ. The senior mangers
quickly decide to reject her application. She is a good deal younger than most of the
team she would be managing and they doubt that a predominantly older male team
would take at all kindly to being managed by a young woman. They are also concerned
about the impact Julie's appointment would have on the mainly older, male customers
who make up the user group and who are used to being entertained by others of a
similar ilk after the 'user group' meetings.

The second candidate is Aldo Viscida. He is in his early forties and is a brilliant salesman.
He has been employed at XYZ for some years, having emigrated from Milan in the
1980s. He regularly tops the monthly table for sales commission, having won many
bonuses and prizes over the years. He is respected by the other employees on his team.
However, his written English is poor and the Sales Director's role involves writing regular
reports as well as much more written communication with clients than is required of the
sales team. Aldo's application is thus also rejected.

The third candidate is Derek Constant. He is the longest-serving member of the sales
team after Alan, and is generally considered to be his deputy in all but name. He is well-
liked among the user group members and would do a competent job in the Sales
Director's role. On the downside, from the panel's point of view, is the fact that Derek is
now 60 and so can be expected to retire soon. He has also recently told them in
confidence that his wife has been diagnosed with multiple-sclerosis and they fear that he
will have to devote himself to her care sooner than he thinks. This would inevitably mean
that he has less energy to put into the more senior role.

It is thus decided that the fourth candidate, Mike Replica, will be appointed to succeed
Alan. Mike is 40 years old, very professional and has long been considered a possible
future senior manager. He has plenty of interesting ideas about how to develop both the
role and the team. The fact that he is married to the Finance Director's niece and
regularly plays golf with Paul Double-Barrel are not considered to be problematic issues.
After all, why should he be prevented from being promoted simply because of these
relationships? It would be unfair to bar him on that account, particularly when he has the
innovative ideas required to take the sales team forward and improve its performance.

Among Mike Replica's ideas are the following:

 Move to a payment arrangement that is wholly commission-based. At present the

sales team add, on average, 20% or so to their monthly salaries in commission
payments. Mike would like all pay to be at risk so that 100% of earnings were
dependant on sales targets being met. Mike plans to introduce this new system with
immediate effect.

 Dismiss, as a matter of policy, the poorest performing members of the sales team
each year and replace them. The identity of the leavers should be determined purely
on the basis of the value of new sales achieved (or not achieved). Not only should
this policy result in poorer performers being replaced over time with stronger ones, it
should also boost energy-levels generally and increase the hours the team puts in.

 To require all members of the sales team to undergo regular medicals with the
company doctor with a view to establishing their fitness levels. Those who are
overweight would then be required to diet until they reach a target weight, while
smokers would be required to attend classes aimed at persuading them to give up.

QUESTIONS FOR DISCUSSION

1) What legal risks might XYZ be taking in following the course of action outlined in
this case?

2) What defences are available for XYZ to deploy should an aggrieved employee or
would-be employee decide to bring a tribunal case? How strong a case could be
mounted?

3) What advice would you give the senior management team when running an
exercise of this kind in the future? Justify your answer.