Holacracy, Zappos and Employment Law (LMFTFY)

Holacracy is a non-hierarchical management philosophy that is getting a lot of attention these days.  As readers might know, Zappos recently adopted this ideology, famously eliminating bosses and job titles.  Although not strictly a technology, it has been called a social technology; more relevantly for this blog, it is a model used by a number of technologically-fueled enterprises.

Editor’s note 6/22: see also Kate Bischoff‘s excellent piece from 6/5/15: The Law Isn’t Trendy.

The Concept

While the concept is fairly complex, the idea is that particular company objectives (say, customer service) are divided among various circles (groups of employees) which assign roles to individual employees.  According to HolacracyOne

each circle self-organizing entity in its own right, and a part of a larger circle. As such, it has autonomy and authority to manage itself, but must also coordinate with other circles in the system.

To the extent it doesn’t conflict with other roles or tasks, circles or individuals have the autonomy to execute their work their work as they/it see fit. Conflict and tensions (between what is and what ought to be) are mediated through a rigorous process.   (Some may call this a democratic workplace or even an anarcho-capitalistic one – but it is not.  If traditional work environments are feudal, holacracy is a communitarian polity, replete with individuals striving toward a higher order of community-defined social good.)

In sum, “[h]olacracy uses a totally different type of hierarchy: a holarchy of roles, and not a hierarchy of people/managers.”

Readers should look at the HolocarcyOne website for a definitive account of the theory.

Employment in a Holacracy

This role-based approach, according to Zappos, “enables employees to act more like entrepreneurs and self-direct their work instead of reporting to a manager who tells them what to do.”  Consider:

While Holacracy doesn’t have managers per se, there are “lead links” who are responsible for assigning roles to their circle and representing their circle’s overall role. The difference is that lead links are not responsible for individuals.

This means that:

Rather than having static jobs, work is processed through “roles” that are always subject to change. For example, an employee wouldn’t be a marketer but could take on the marketing role, in addition to several other roles.

If tensions arise between employees over how work is being done, they can raise their concerns at a regular governance meeting, which covers big-picture ideas on accomplishing goals. Meanwhile, tactical meetings are meant to quickly get every member of a particular team on the same page.

Of particular importance, job descriptions are rejected as static representations of an employee’s duties; instead, employees perform roles which are fluidly and dynamically determined by the circle and its so-called “lead link.”

Round Peg, Square Hole: Generally

I’ll now to turn to the risks I see.  Again, I think they are surmountable – with a great deal of care.

The core legal issue is that holacratic organizations, while they depend on roles not hierarchy, exist in a legal environment that is built around hierarchy.

For instance, boards of directors have fiduciary duties that are personal to them and which demand their supervision of certain functions, regardless of how a circle sees it or a role elects to perform it.  Unlike in a holacracy which requires that senior managers cede their place in a hierarchy and adopt roles in a key circle, a fiduciary simply cannot do so.

Put differently, people, not roles, go to jail and are sued by shareholders.

While a holographic structure might work in some organizations for some period of time, when problems arise, the board will quickly need to resume its hierarchical responsibility.

I do think that with some care, a board can design a very holacratic-looking structure – but until the law catches up, hierarchy is going to be baked into any organization.

Round Peg, Square Hole: Employment Law

Next, and more relevantly to this blog, there are some essential hierarchies mandated by employment law.

As mentioned, in Holacracy, “[t]eams are self-organized: they’re given a purpose, but they decide internally how to best reach it.”  And the HolacracyOne folks say

Consider Holacracy the “operating system” for an organization — the core rules that regulate how power is distributed, and the decision making processes for changing that power structure. How compensations work, how to hire and fire, how to do budgeting, etc. are all “apps” that run on top of that operating system.

However, as Kate Bishoff reminds us:

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. [Ed note added 6/22].

Power can be exercised in a Holacrcy: the person whose role it is to approve expense reports has the ability to ensure that they are properly filled out with the right backing.  Should there be a tension between how the directive role is being exercised (how expense reports are being done) and how that role ought to be exercised (how expense reports ought to be done), there is a process for addressing that.

There is also a process for human resources.  A human resources circle might have an on-boarding role and a performance improvement role, for instance.  And it is not hard to imagine, despite what some have said, that there is an employee discipline role that is able to work with the employee to better align their efforts with the role they are to perform – or to separate them from the organization if they are unable to align performance and the required output of the role they are in.

The sticky issue for employment lawyers arises from the relationship of role to circle.

  • An ADA-based request for a reasonable accommodation, for instance, cannot reasonably be managed by the employee’s own circle. While there is a lead link, there are a much increased number of influencers whose views have to be considered — and the expanded number of decision makers and job-influencers, confidential health information is at risk of being widely shared and there is an increased risk of retaliation (or allegations about retaliation).
  • The resistance to job descriptions is a problem.  Job descriptions play an important role in a number of employment compliance matters.  (See, for instance, this letter from the EEOC). Without set job descriptions, an ADA defendant will have a very hard time showing what is an essential function of a job. As EEOC Commissioner Chai Feldblum says “[p]reparing job descriptions is one of the best ways to get ready for a reasonable accommodation request.”
  • Job descriptions (or something that plays the role of a job description, such as an emailed task or assignment) play an important part in litigation over discrimination.  For instance, in alleging discrimination in pay, the EEOC will work to identify employees similarly situated (comparators) to the charging party for purposes of comparing their compensation – and will often request job descriptions and org charts for analysis.
  • It may be harder to assess whether or not an adverse employment action has occurred.  While role reassignment is often rejected as an adverse employment action, where an employee’s job is so recast, it may be deemed that the employee has suffered an adverse action.  Moreover, it is often a fact specific inquiry as to whether reassignment of job duties within the same job description is materially adverse – it depends upon the circumstances of the particular case.  Clearly, in a Holacracy, such rewriting happens all the time.


Practitioners of Holacarcy will need to develop new ways of documenting assignments and dealing with role non-assignment – handling questions of who may not do what role.

For instance, under the law, there is little reason why an employee’s manager cannot be told that an employee cannot lift more than 25 pounds.  In Holacracy, the temptation would be to provide that information to the entire circle so that members can make informed decisions about the circle’s evolving roles.  The better practice would be for the lead link to exercise some prerogative in assigning roles, so it can assign roles with limits in mind.  it may also need to determine that the member’s inability to perform a certain role was so out of line with the circle’s needs that there is an essential function that cannot be accommodated.

While doing so, the circle would need to document its decision-making, creating role portfolios that define what is to be done by a particular role.  These portfolios could be fluidly updated, with every prior version being retained.  Eventually, there will be some parts of roles that emerge as constants within the circle — and these constant parts will need to be identified and tracked, for they will be the essential functions of any role.  Big data analytics may have a lot to contribute here — after all, these circle constants may be best identified through statistical analysis of the roles.

Similarly, statistics will be able to provide comparators for study in other discrimination matters.  Of course, courts and relevant agencies will need to step up their statistical games in dealing with this kind of data

Finally, because  the increased risk of discrimination and retaliation propagating through the system, even line employees will need specific training to avoid these.  Proactive data analysis might play a key role here, too.

Part Two can be found here. 

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