The 30% Rule That Predicts Your Next Layoff

A contraction shows up on the P&L months before anyone schedules the meeting to announce it. Jessica Hart runs a fractional HR practice in California and spent years on post-merger people work, including when Heineken acquired Lagunitas. Her argument on this episode is that the warning sign is a ratio, and it is visible long before anyone calls it a layoff.

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How can HR see a layoff coming before leadership announces one?

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Take labor cost and divide it by operating profit. When that number climbs above 30 percent, Hart says a contraction is close. "And if it's greater than 30%, I guarantee you they're going to go through a contraction very soon," she says. "If it's not led by a board, it's led by someone else." The ratio only holds if the inputs are honest. Total compensation is not base salary. It includes vacation carried on the books and workers comp, which settles in arrears, so the number budgeted in January is rarely the number paid in December.

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What does org design look like when a company is shrinking?

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Start with a grid, not the org chart. Hart maps who owns what, function by function, then walks the grid to find the work that stopped when the market changed. Only then do the names come off. "now we take the names out of the boxes and we're just literally talking about who's responsible for what," she says. The sequence keeps the conversation about work that disappeared rather than who is well liked.

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Where can HR add value without spending money?

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Leaders tend to underrate flexibility. Bringing everyone back to the office looks free on the company P&L and expensive on the employee's, so Hart treats return-to-office as a pricing question, not a culture one. Travel is another example. Let people book flights on a personal card so they keep the points and status, then reimburse fast so a perk does not turn into a credit card fee. She also explains why travel budgets get cut every July. Bonuses, the audit, performance reviews, and raises eat the first quarter, so the first discretionary line anyone finds in Q2 is travel.

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Who should deliver a reduction, and why not HR?

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Hart splits a company into a bike and its kickstand. "The kickstand, the things that support the bike, that's your HR, that's your finance, that's your IT," she says. The trouble is that the same person who runs engagement surveys and builds trust is the one sent to end roles. "I literally had a past employee tell me that I should be a grim reaper for Halloween because that's what I did for a living," she says. Her case for an external partner is not only cost. It protects the internal leader who has to hold the culture together afterward.

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What breaks on day one after an acquisition?

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The people who were just acquired usually had no warning. "now you've got all of these employees that didn't know they were for sale, because that's how they hear it," Hart says. Her fix is unglamorous. Everyone gets a new job description, a new offer letter, and formal onboarding into the acquiring company on day one, even when the buyer thinks of itself as too informal for that.

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The thread across the hour is timing. The contraction is legible on the P&L before it becomes a mandate, which makes the ratio the earliest point where an HR leader can stop reacting and start planning.

Guest: Jessica Hart, Founder and Principal, Jessica Hart Consulting. Host: Logan Rivenes.

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Logan (00:00): What else is new since we chatted?

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Jessica Hart (00:02): It's kind of funny that we're chatting today, 'cause I literally was on a client call. Well, I don't know if I should call it a client call. I was on a discovery call with a potential client that came my way. They have fifty-five employees. They're on track to do seventy million in revenue. Next year they're slated to do two hundred million in revenue, and grow from fifty-five employees to a hundred and twenty, and go from one state to nine states in the next year and a half. So they're going through this major sprint. And what I found really interesting about the call is that they came to me from a referral from another consultant I know, to help them do this correctly.

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They've been growing through acquisition. They've bought three family-owned businesses that they're now merging right into the place. And they go, we're growing so fast, but we don't even have a benefits plan. We don't have employee structure. We want to hire the right talent to get us where we've already got committed bills coming in. They've got committed revenue streams coming in. And nada. They don't even have a handbook. And what was really entertaining, they run their payroll on QuickBooks.

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Logan (01:13): That's common. I've researched that. That's actually pretty common for companies scaling up. PE firms run into that often when they're acquiring, even at a decent revenue size.

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Jessica Hart (01:23): Yeah. But it's one of those things where I'm like, you don't operate in a low-risk state as it is, and you don't have a handbook and an onboarding process and all those things. So it's great you haven't gotten in trouble yet, but it makes sense why we're on this call.

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Logan (01:40): So they're 55 employees. In your space, and I come from SaaS, what did you say the revenue was, 40 million?

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Jessica Hart (01:50): Seventy.

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Logan (01:55): 70 million at 55 employees, in the SaaS world, is unheard of. Is that common for you, that people are doing that much revenue at that employee size?

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Jessica Hart (02:02): No. It was shocking for me too. And then when they're like, we're gonna double our employees and go from seventy to two hundred million by the end of next year, and their fiscal year is January through December, I'm like, you've got eighteen months. My brain was like, this is a fast-moving rocket ship, and you can either crash it or try to do it the right way. But it's a lot. My brain was surprised too.

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Logan (02:34): That is a lot for you as well. For a lot of people, in the new world order with AI, that's where they want to see revenue and employee size go. But not everybody is having that happen right now. It's almost like the winners are winning way bigger, and everybody else is really struggling. I do want to get into that as our first topic, but I'll let the audience know I'm here with Jessica Hart, fractional HR. Jessica, is there anything you'd like the audience to know about you before we continue?

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Jessica Hart (03:19): Let's see. First, I'm based in California. From a professional background, I've worked in some big brands that even your children would know, and some smaller brands for clients and customers. Probably most noted would be my life and experience going through a very big merger, where Heineken bought a local brewery I worked at, which is called Lagunitas. Again, some brands people are very much aware of. Then going through the whole post-merger people aspect of it across the United States. It was a moment in time, and we all know the craft beer industry has done a pivot, and wine is doing a similar one, and consumer packaged goods too. The shelf is only so big, so you see a lot of consolidation. When I left corporate, I went into the food and bev and elk space, specifically helping more brands there, because I felt like I got a crash course in life. I got my MBA at twenty-three, and I learned way more in that experience than you'd learn in a book.

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Logan (04:32): Good. What is the elk? I don't know.

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Jessica Hart (04:37): Elk? Did I say elk? Elk. Alcohol. Sorry. A-L. Surprise.

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Logan (04:37): You said food, beverage, and elk. Alcohol. Okay. Food, beverage, and alcohol. And then what's the consumer goods pivot that's happening? I'm not aware of that one.

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Jessica Hart (04:50): Well, it's just difficult to find some different pieces of the supply chain. So when you're in consumer goods, you've got stuff like, do you sell to Target, do you sell to Walmart, do you sell to the mom and pop instead? Do you go into Amazon? There's a big push to get on TikTok Shop with a lot of different products. So the market and the place and the positioning is so important. I mean, you can speak to that way better than anyone. You're the marketer on the call. But it's helping the clients understand what people have to do now in that process, and what teams you need to have set up to get that process set up, and what do you keep in house, what do you not keep in house.

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Logan (05:30): Yes, and distribution. So from a marketing perspective, we would call all of that distribution being flipped on its head, and marketers are going a little bananas trying to figure it out because it's quite congested. But with that, the first topic I want to talk about. You talked about a rocket ship that you've been with, but that's not happening for a lot of people right now. Especially in, I'd probably say definitely alcohol, it's a bit of a contraction. And in tech, it's a bit of a contraction. So we can extrapolate some of your experience in watching a market contraction happening, which has probably been occurring for quite some time now. But I want to ask you, you've done org redesigns, and you've done them as markets are consolidating. I would imagine org redesigns are much funner when it's a bonanza, but that's not what everybody's doing right now. So what are some of the things you think about as you're thinking about org design and market contractions?

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Jessica Hart (06:35): Sure. So I think the first thing is that the markets are gonna do what the markets do. You and I can go and try and figure it out, but I will never say that I'm the economist of the things. What I will say is that no matter which way the markets go, fast or slow or contract, it's more about what are people doing. And so regardless of what lane you're in, the buzzwords that I say are, what do you want to start, stop, and continue doing? That's not rocket science, but it puts it very plainly for the team. Because if I literally just draw a grid, and I'm not talking like here's the pyramid and the CEO's up here, no, I'm talking a legit grid, and talk about who's responsible for what. Who's in marketing responsible for what, who's in finance responsible for what. There's going to be a moment that, because the market is changing and contracting, there's stuff that we're going to stop doing.

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So who's responsible for that stuff that's stopping? We're stopping that. And then, do they have bandwidth? Do they have ambition? Do they have responsibility? Are they interested in learning to take on something else to fill that bandwidth? If they don't, is that role necessary? And I know it sounds really rude to say it so bluntly. But when you take it as a grid and you see the contraction happening, and you know that from a strategy perspective you're not going to do those things anymore, now we take the names out of the boxes and we're just literally talking about who's responsible for what. And then we talk about, okay, then we go to the person, hey, do they have ambition to learn and grow? Then we can look at that again.

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But from a positioning standpoint, when you've got this giant organization and the economy is changing and you're contracting, you can go a couple different ways on it. The first thing that I would say is a trigger for most of my clients is when I ask them, when you look at your P&L, when you look at your numbers, you go, okay, your labor cost over your operating profit, what is that percent? And if it's greater than 30%, I guarantee you they're going to go through a contraction very soon. If it's not led by a board, it's led by someone else. You have to have a healthy mix there, or you know that you're going to be running some crazy numbers for a long time and you've got the capital to do that, and that's a decision that you've made. But if you don't make that decision, the decision's gonna be made for you if you don't have the cash hanging out in the background. So with all of that, when you're either scaling up or scaling down, it's more about who's gonna be accountable to what, and if you need to keep doing those things.

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Logan (09:07): So the 30% number is interesting. A lot of our audience would be in PE-backed companies where this is probably going to happen, or it's going to be mandated. So my follow-up question is, what advice would you give HR folks to see that, so they can be a little bit ahead of knowing where they're at as far as labor costs and operational costs, to be a strategic partner to the business? Because often labor costs are one of the largest costs in companies, and people are finding that out a lot right now. So what advice would you have?

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Jessica Hart (09:47): So I would think about your total compensation package. I would write it out like, this person makes this base salary, their vacation is this much on the books, workers comp is X amount. You need to also keep in mind that workers comp starts at one number, and at the end of the year it's another number, because it's always paid in arrears. It's always after the fact. So you kind of keep a certain amount there. But then, if you find this go-getter that's incredible and you didn't budget for them, but we're gonna figure it out because that's something that happens, let's be honest. Sometimes they're the great person, I need them on the team, okay, we're gonna have to figure it out. And when you go to figure it out, if your workers' comp skyrockets through the roof, well, now your labor cost total experience just went really high.

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So I think about things like, how can you add value without adding dollars? Some things there would be, there is a push for a lot of people to go in office. There's this, we've gotta come in office because that's gonna save everything because people like being together. Well, with the cost of gas right now, maybe they're not really happy with you making them come in office. Maybe they were able to walk with their kid to school, and then jump on that 9 a.m. call, instead of having to get in the commute lane at 7:30. There's these different things that allowing people to have a flexible work life doesn't cost dollars on your total experience, but it can help you retain or attract other people. Same thing with, if you have a bunch of team members that travel a lot, you might say, our travel and expense budget's out of control.

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You know, they always put the... I'm kind of on a tangent, but I promise I'll land this plane. You start with, we've got this giant travel budget. And then everyone's cutting travel budgets in July. They're like, no, we gotta do some cutting and blah blah blah. So they live this fancy lifestyle January through July, and then everyone's cutting July through December. Well, one of the things that you can do to add value to the employee experience that doesn't add dollars is, and you better pay them on time, but when you allow the employee to use their personal credit card to book the flight, to book the hotel, then your AP and AR team needs to be on it to reimburse them timely so they're not getting hit with like a credit card fee, or an interest charge. You allow your employee to start playing the miles game. And that's a big thing for employees right now, is how can they get points, how can they get miles, how can they travel hack? Because they want to live a life that is getting very expensive right now for them to live. And so if you have people that are traveling, look at how can they get their nights on hotels, or anything along those lines.

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But for the HR people that are listening to this and they're like, my team isn't gonna go for that, they're not gonna reimburse people, we ought to use company credit cards, okay, fair. They're not gonna do, we've already tried to keep them hybrid and they're like, we're coming in office, okay, fair. I would say that you have to have a real conversation of lining up all of those numbers. Because just telling people they don't like being in the office, no, people are gonna look at you like you're crazy. You have to lead with the dollars and the value there.

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Logan (13:02): There's a lot of non-cost value stuff in there. You talk about the remote and the hybrid and all of that, that obviously gets a lot of hot topics. And it's interesting that you mentioned the miles and everything for people that travel a lot. That's a good one. The thing that I'm curious about, you've mentioned that you see this often, that everybody cuts in July. Why is it that everybody does that? Everybody lives lavishly and then they can't make it through the year. What do you see that's something there?

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Jessica Hart (13:36): I think, honestly, our holiday season runs, as human beings in our culture, typically November and December. So we're not really focusing on annual planning then. We say that we are, or goal setting, but also I'm just trying to measure the goals that I have right now to decide if we're paying out bonuses. There's a lot of hygienic cleanup going on right then. And people are either on site, off site, working different time zones, whatever it is. There's just a lot of stuff going on in that season.

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And then you come in after the new year, and January's there, but then from a finance lens, you're probably doing an audit on the closing of your books. So then your audit's going on, and no one can give anyone raises because we're making sure we close the year correctly. So then we get into February and we're probably doing performance evaluations. And when you do the performance evaluations, we say, maybe your merit increase or whatever it is, we got to do that audit and then I'll tell you how much money we can afford to go up in the increase. And then all of a sudden it's March. We're giving people raises in March, maybe bonuses in March. We either are or are not prorating it back to January. We've already gotten through Q1. And now all the people are running around for all of Q1 without any feedback based on where their travel budgets or wherever landed. So you've got Q1 where people came out the gate ready to roll. And then by the time you start Q2, we're like, I think we spent a lot of money on these things, and I just gave them feedback on that, but I told them they were exceeding expectations last year. I just lost a quarter of the year, and I'm gonna tell them what they need to do for this year, but you've already lost. And so by the time you realize what happens in Q2, they're like, break, hold on, we got a course correct, and the best thing that we can do, the easiest thing to do, is to cut T&E. That's what I've lived.

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Logan (15:23): I've lived that at every company.

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Jessica Hart (15:25): Okay, I was like, am I crazy?

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Logan (15:27): No. And what's funny is the planning one is interesting, because you started in October, but then you're out for two weeks in December and two weeks in November. So planning is really like a four-week deal spread out over two and a half months. It's a start-stop kind of thing. I knew of a company that had shifted their fiscal year because of that. They saw the holidays and all the seasonality, and they're like, we're just gonna shift our fiscal year and it's gonna end in March. And so then they had all of March to close out the books and close everything out. And so it made all their seasonality pieces look a lot better, or be able to compensate for some of that.

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Jessica Hart (16:10): A lot of retail businesses out there make their Q4 November, December, January for a reason, because you're buying stuff on Black Friday, you're buying stuff for holidays, and then you're returning it all in January, and you're going dry January, whatever, I'm a fitness guru. And that's all these very quick flash-in-the-pan transactions. So they need to offset that extra return cycle.

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Logan (16:34): That makes a lot of sense. At least the fiscal year is matching what they're experiencing, rather than, we're just gonna do a calendar year and call it a day.

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Logan (16:46): Okay, so you mentioned in all of this around the labor costs, things that sit internal and external to the company. And you have a bit of a controversial take as to what should sit inside the company and externally. Fractional is definitely on the rise. I see it in marketing, I see it in HR. I talked with a lot of fractional HR professionals. Before you say what should be internal and external, what should you think about when you have certain departments or positions that you're gonna hire direct as W-2s versus contract them out?

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Jessica Hart (17:23): Yeah, so first I think you need to think about that people are people. And a lot of times we forget that...

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Logan (17:29): The people are people.

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Jessica Hart (17:30): The people are people.

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Logan (17:32): People are people. Okay, not people.

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Jessica Hart (17:35): People are people. They're always going to be a variable. So if we know that to be true, then we look at our business and we go, what makes our inputs and our outputs, what makes our product, service, whatever, and what things are completely crucial to making that widget? Do you need internal operations? Do you need internal HR? Do you need internal IT? It really depends on the business. But what I would say is that there's a core, and then there's support. And so when I think of supporting functions, I think of HR, I think of IT, I think of finance. These places support the business that's going on.

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I think that when you've got the people that, I don't know if it's politically correct to say drink the Kool-Aid, but you've got the people that get it. The people that get it are your feet on the street, your sales team. The people that get it are your marketers that speak your brand, that put you in all of the platforms and all of the distribution channels that bring the money in, that'll leverage the sales team to do the things, give the sales team credibility to do the things. And then you've got the people that are in operations that make the thing. And so it's very hard to outsource those three things, or I wouldn't jump to outsource those three things right away.

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Now, when it comes to risk behavior, this goes into what happens in IT, what happens in finance, what happens in HR. Yes, you can make a risky play on social media and content, but is that the same risky play as what happens when someone holds someone's social security number? I don't know. That's up to the business to decide. Same thing with finance. If someone's risky decision holds the company's bank account information, they are an authorized signer and they can just take money out at any time because they're authorized to do so, versus someone that maybe forgets to do an SOP on cleaning a machine, and now we've got a machine that needs to have maintenance come in, and it's a different risk decision. And again, that goes back to the business model. So I think of it kind of like a bike, where you've got the core things that keep the bike rolling. You've got your marketing, you've got your sales, you've got your operations. The kickstand, the things that support the bike, that's your HR, that's your finance, that's your IT. That could be internal or external. It's not crucial that it's one or the other.

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Logan (20:03): On the risk profile of the things that you were mentioning, is it less risky to have it external than it is internal? Is that the argument that you're making?

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Jessica Hart (20:13): I would say so. And the reason being is because, as someone that's lived a life of post-merger, when you're an internal employee and you go through basically death by a thousand cuts, lots of change, lots of craziness. A lot of people probably hearing this felt that way during COVID. It's like, we had one thing and then we got another thing, and it was just a lot. We can all say that we've lived that crazy pivoting kind of life in corporate, or external, or what have you. But what ends up happening is that you have a person that is in play. So do you have a person that's supposed to be approachable, and I'll speak for myself, employee engagement, I'm supposed to help employee engagement, employee morale, we measure these things with some surveys, but also we've got risk assessments. But then also they become the grim reaper when they're delivering firing.

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They're doing a reduction. And so now you've got this person that's built trust, built culture with your organization, going out as the grim reaper. And I use the word grim reaper because I literally had a past employee tell me that I should be a grim reaper for Halloween because that's what I did for a living. He was really mad, and he's fine, but you know, that hits a little bit. And so when I think of that experience from a business and employee morale perspective, there were times where I would be walking around and people were wondering if I was coming to fire them. That's not fair to them. That's also not fair to me. So when you put a source of communication or something like that in a different bucket, external, it allows the business to also say, hey, that was a moment in time, that consultant's not here anymore, and now we can change and move on. Or we use an external company to do that for a bias perspective, to make sure that your internal person isn't putting people on that list that shouldn't be there. There's plenty of different reasons. Same thing with finance. You have one person makes one amount of money, the other person makes another amount of money, and then that person has that information, and we trust them to be professional, absolutely, but sometimes people do people things.

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Logan (22:19): Sometimes they do people things. That's interesting. Did you ever see the movie, I think it's called Up in the Air?

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Jessica Hart (22:25): Yes, everyone has asked me that question.

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Logan (22:27): I think it's because putting the firing external is exactly what the movie is. So that's what they do. Sorry if everybody's asked that question, but that is what came to my mind.

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Jessica Hart (22:40): Yeah, that's fair.

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Logan (22:41): But it makes sense. I hear this a lot from HR folks, is you have to go through the firing and all of the stressful stuff. I had a guest on, Stacie Baird, and one of her hot topics, because she worked in healthcare, was caring for the caregivers, as the HR folks, because they have to hear all of the difficult traumatic stories, and there's all the vicarious trauma and stuff. So there's that whole aspect of it that you have to then deal with if you're going through all of the grim reaper stuff, if you will. Which is unfortunate. It's just like, well, you guys go take care of it, we made this business decision, let's go deploy HR to take care of our dirty work for us, kind of a thing.

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Jessica Hart (23:24): Yeah. Well, and what ends up happening in that stance too is like, no one's ever prepared to be the one that's having that conversation. Even when you're a stellar employee, because here's the thing, you're getting fired, that's the real word. They're being fired in a reduction, not for cause. It's an involuntary termination, and they're just being told that their job doesn't exist anymore. And so there's a part where, when you're doing that specifically with people that have an identity in that brand, in that business, been there for a long time, institutional knowledge that's up here, there's a huge shift that happens. Then there's the person that's communicating it, that all you want to do is like, dude, I'm so sorry, but I can't be sorry, I just took your job away. And so that's where it's like, you put that in an external piece to also preserve your business. You gotta rip off the band-aid, and you engage someone that does that, and then you move on.

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Because I also believe that in the HR space, the term HR generalist is like a catch-all. That person doesn't know the in and out of benefits. They don't know the in and out of payroll process. They're a generalist. But if they're great generalists, then they bring in people that are experts in those spaces to protect your organization. And that's the choice that places have to have.

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Logan (24:46): And when we started this conversation, I guess we were very light on calling it contractions, but this is exactly what we were talking about. Contractions mean downsizing, unfortunately. And I don't know if you can lean on your time a little bit, in the contraction, the COVID example, where you had one site going contraction, one site growing bananas, and what that whole dynamic felt like, which it might be where this grim reaper thing came from.

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Jessica Hart (25:19): Well, so we had multiple sites, and in the moment during COVID, we can all agree that it was handled very differently depending on where you lived. It was a state issue, or there were cities coming. It's kind of like wages. You've got the federal wage, but then you've got state wages, you've got city wages, some have to have benefits, not benefits, if you allow a tip credit, blah blah blah. Same thing happened during COVID, where it was like, COVID exists, COVID doesn't exist, something in the middle. COVID is a thing, but it's not that serious. COVID is a thing, it's super serious. And every other matrix of levels of importance. And then what ended up happening is, we had one location where we had to furlough everybody in the state of California at the same time. In a different state, in Florida, they're doing a mass hiring event, because everyone's just living their life in Florida. And then in California they're closing these things down, or they were going backwards. And it was mentally, for me, a very confusing day, because literally I'm furloughing, off the top of my head, I would call it north of 40 people, in a mass conversation. And then at the same time I know that I'm gonna go back to my desk and have a bunch of hiring paperwork to process, because they're doing a mass hiring event in another state.

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And it's just one of those things that, even saying it out loud, I'm like, it just sounds so weird to just put it out there, of also being the one that survived that moment. I and the team, 'cause I was there for a while, there were a lot of different people that had to deal with different pieces and saw different aspects of it. I mean, both businesses are thriving today, which is great. That was a moment in time that people had to make tough decisions to get through that chapter. But I wouldn't recommend doing a mental pivot like that to anybody in one day. It was a lot.

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Logan (27:11): Yeah. And the interesting thing that I kind of want to segue into our last piece, you mentioned you had the process still being around during furloughs and things, and that often happens during an M&A, where you're combining companies, or one company's acquiring another, and then they have employees that are sticking around, and the survivorship bias is a huge piece of the people part of deals. I want to say, I think I saw a statistic around PE deals, like 90% have issues with the people integration portion. And this is one of those pieces. What advice would you give people for that? I think you said A plus B never becomes A, it was your comment, it always becomes C. How do you help people navigate the people portion of that to get to C, to where it can be functional?

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Jessica Hart (28:04): Yeah. Well, I think first it starts with just acknowledging that it will never be what it was. Little story. I had a client that came to me, they had one location, they were co-packaging somewhere else, and all of a sudden they were told that that co-packaging facility was filing for bankruptcy and they needed to secure their product that was work in progress. It was in that facility, and they were basically given like five days. They were told that there's gonna be a lock on the door, that's it, we're walking away from this business. The employees weren't told that, the employees that were running that whole facility. So my client ends up going, hey, let's do the math, it's cheaper for me to buy that business than it is for me to lose all that product that's a work in progress, and deal with my whole supply chain. Buys that business.

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Well, now you've got all of these employees that didn't know they were for sale, because that's how they hear it. I know that sounds really weird to say it, but that's what they hear, is I was just bought. And then they go, who do I work for? And then they go, what am I doing here? And then, because they also hear that when they're in that situation of whoever gets bought, they're like, wait, but we were doing so good, no one told me we were bad, why were we for sale? What? You got a screaming deal on us? What does that mean? It just sounds bad. And then you've got the other side where the client's like, we liked working with you guys, but clearly someone else made some really bad decisions, and so here we are, and let's try and merge these two together. It came from a very genuine place, but the grief cycle is real.

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And so all of a sudden one group's revolting, the other one's like, why do you hate us, you still have a job, what's going on? And all of that kind of thing that meshes. So to your point, as soon as you buy another business, what I would recommend, point one, is that everyone gets a new job description, a new offer letter. They're onboarded into whatever the business name is that they are. And it's very formal. Now you might say, I'm not a formal business. That's not the point. The point is that we're communicating to this new employee, things like, okay, does my hire date start over again? Do you give vacation time to people that have worked for your old business for five years, and that's the next tier of vacation? Or are you gonna honor my time at the past business? Because it's not my fault that I didn't work. There's all of that kind of stuff, that it's way easier to just start on the right foot.

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Because they're just gonna be spinning their brains somewhere else on what does this mean for me, if you don't tell them. So that's the piece that gets really important for me. It's like, okay, do these people have benefits? Because also sometimes your benefits broker is like, nope, they're new, there's a waiting period. Could you imagine you've worked somewhere for 10 years, and all of a sudden you're told you don't have benefits for ninety days, or sixty days, or whatever the number, I think it's sixty days now, because you were brought into a new EIN? It's not their fault.

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Logan (31:07): Yeah, no.

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Jessica Hart (31:10): So it's just like, you have to think of those things.

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Logan (31:12): Does that occur often, that that is how the acquisition happens?

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Jessica Hart (31:19): Yeah. And if the owner isn't communicating that, or the board or whatever isn't setting those up, then... So an example would be, if you have a customer that's in a PEO model, they control, the PEO is the one that writes the rules. You go and buy someone else, buy another business, those are technically employees that go into the PEO, not into your business model, you're just operating it. So then they're like, no, to be fair and consistent, this is the rule for everybody, and there's no negotiation there. So you have to get creative sometimes. That's where I defer to the lawyers.

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Logan (31:57): Deals are wild, I guess. Interesting.

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Jessica Hart (32:01): I mean, to add to the wild, that same client where they bought one, bought the other, did an asset-based sale. So basically the last entity didn't exist anymore. So you're buying stuff like the raw goods, the material, the machinery, the lease. You're buying things like access to the employees that they had, to offer them a job, to put them on your payroll instead. And in that, we also have to remember that it gets out that this company got bought by this company. So it sounds like you have a lot of money. Whoa, they just came in, they bought them, the new guys, they must have a lot of money. There's always someone from the past, some past employee that doesn't work there anymore, that comes through with a lawsuit all the time. And so it's something like discrimination, harassment, they're trying to prove something. But if you do an asset-based sale, that entity doesn't exist anymore. And so your lawyers can say, that entity doesn't exist to sue, we don't own that liability, and you move on.

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Logan (33:02): What's interesting, I had another HR professional on here, Suzanne Claveros, and she does the cases, now I'm completely blanking, but she's seen a huge skyrocket in them, and it was basically because of AI. What's that?

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Jessica Hart (33:14): PAGA claims? PAGA claims, maybe?

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Logan (33:19): Employment claims. So like, a lot...

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Jessica Hart (33:21): Like wage and hour claims?

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Logan (33:23): Yeah. ER, employee...

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Jessica Hart (33:28): Relations?

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Logan (33:29): There you go. I can't even believe it, but we go off the cuff here. So yeah, employee relations. She's seen a huge skyrocket in that. And I would imagine not only external of M&A, M&A is probably also fueling that, 'cause M&A I think is up, at least PE firms acquiring companies right now, or at least they were towards the end of last year and the start of this year. So all of that is stuff that you have to think about for this. Well, good. Jessica, is there anything else that we didn't cover that you would like to leave the audience with today?

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Jessica Hart (34:05): Maybe the only thing that I would say, which would be timely right now for the audience, would go, when you have employee relations issues that are going to skyrocket, like you're saying, they're already happening, you're hearing it from lawyers and stuff like that, you have to remember that your proof is either a handbook, a practice, a text message, all of those things. So what I would leave you all with is that, yes, a text message, regardless of your hourly salary, whatever, shows up in court. It doesn't need to be that your phone's paid for by the company. The text message still stands.

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And I would also say that we are in a political environment that, before the end of the year, many governors will either be on their way in, on their way out, people are getting voted on. And when that happens, there is a moment where people are people, and they want to leave their legacy on whatever it is that they did. And so we will see labor laws being written in and voted in. Right now, you're gonna hear them voted in. By probably September, you'll hear about everything that was voted on by whatever state you live in, especially if your governor is getting ready to be re-elected, or a new one. And then in October specifically, if you have governors that are on their way out, or transitioning into a new opportunity and they're not up for re-election, they will want to make their mark, and they'll sign in different legislation that will maybe have to go into play in January or in July. And so what we talked about on here is that all of a sudden we know that annual planning's gonna happen October, November, December. And we can't get that with a Jan 1 start. And then you're gonna have some labor law stuff that goes with a Jan 1 start. So hang in there, and take a deep breath, 'cause this is something that's cyclical. I just wanted to give everyone a reminder that that's the world that we're in right now, the chapter we're in.

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Logan (35:48): That is good advice. Gotta keep your ears to the ground and know what's coming. Well, good. Jessica, I appreciate you taking the time to chat with us today. Where would you like folks to connect with you?

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Jessica Hart (36:02): They can find me on my website. It's just JessicaHartConsulting.com.

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Logan (36:07): Great. Awesome. Well, thanks a lot, Jessica, and have a great rest of your afternoon.

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Jessica Hart (36:11): Thanks, you too. Bye.