Loopholes let employers skirt federal plant-closing law
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A federal law that requires companies to give notice to workers losing their jobs is so full of loopholes and flaws that employers repeatedly skirt it with little or no penalty, an investigation by The Blade of Toledo, Ohio, has found.
Worker advocates say the law, which requires many employers to notify their employees 60 days before a plant closing or mass layoff, is in desperate need of reform.
This article is a condensed version of an investigative report by The Blade of Toledo. The full four-part series is available on The Blade Web site.
Since 1988, when Congress passed the Worker Adjustment and Retraining Notification Act -- known as the WARN Act -- employers have laid off tens of thousands of workers nationwide with little or no notice.
In crafting the WARN Act, Congress did not assign enforcement of the law to any government agency, forcing workers to sue former employers that don't provide the required notice.
An analysis of 226 lawsuits filed in federal courts across the country since 1989 reveals that judges threw out more than half of the cases brought under the act. In most of those cases, companies were able to cite exceptions in the law to avoid liability.
In some cases, the courts found that a company had violated the WARN Act but awarded no damages on the grounds that the company acted in "good faith" to notify its workers.
In other cases, employers successfully claimed that the layoffs were a result of business circumstance they couldn't have predicted.
In 108 of the cases examined by The Blade, the cases were settled or the courts sided with workers, often leading to cash payouts. But in dozens of those cases, workers received only pennies on the dollar of what they felt they were owed.
The law requires companies to pay employees up to 60 days' pay when they fail to provide proper notice.
Lawyers and worker advocates say there are hundreds of instances each year when workers have been laid off with little or no notice, but that are not pursued in court because of loopholes in the law and difficulty in collecting a judgment.
U.S. Sen. Sherrod Brown, D-Ohio, introduced a bill Monday to reform the WARN Act following publication of The Blade's Investigation.
Mr. Brown's legislation would:
Increase the notice period under the WARN Act from 60 days to 90 days.
Require companies to abide by the WARN Act if 25 or more workers lose their jobs in a plant closing. The current trigger is 50 workers.
Require employers to provide notice if 50 to 99 workers are laid off, and those who lose their jobs represent one-third of the full-time workforce.
Mandate notice if 100 or more workers are laid off. Currently, companies that lay off 500 or more workers must provide notice.
Give the U.S. Department of Labor and state attorneys general the authority to enforce the WARN Act.
Increase the penalty for violations of the law from back pay and benefits for each employee who did not receive notice up to 90 days, and that total would be doubled. The current penalty is up to 60 days.
Require employers to provide written notification to the Labor Secretary of major layoffs and plant closings.
The activists who pushed in the 1980s for passage of the WARN Act say the law has provided a cushion to tens of thousands of workers, but that when firms exploit problems with the law, they intensify the alienation of workers who feel abandoned by their employers and their government.
Pro-business groups and corporate attorneys acknowledge that some companies "game" the WARN Act by finding ways to cut workers without violating the law.
"We have seen companies out there that lay off 45 people a quarter; they just keep clicking away at it until they get to that 500-employee figure that they want to get to over a year and a half," said Mark Wilbur, president and chief executive officer of Employers Group, a Los Angeles-based personnel consulting firm.
"Some people call it a loophole. The reality is it's the way the law is written. If you don't like the law, write your legislator," Mr. Wilbur added.
When a company abruptly closes a plant or lays off a large number of employees, the burden of proof is on the workers to show the WARN Act has been violated.
Finding someone to pay
It is a difficult task and even if former employees succeed, collecting the money owed to them is another huge hurdle -- as Rick and Rebecca Buterbaugh and 125 of their former co-workers learned at a call center in Indiana, Pa.
On May 8, 2002, their employer -- Communications & Commerce LLC, a help desk call center in Indiana, Pa., known as Comm Comm -- closed abruptly.
The employees knew their employer had financial troubles. A year earlier, Comm Comm lost its biggest client, VoiceStream, causing a brief layoff, and then struggled to obtain new business in late 2001 and 2002.
Employees, though, said the company was hiring even in the week before it shut down, making the surprise closure even more difficult to understand.
The employees sued for 60 days' wages, claiming they weren't given notice before the layoffs. They also sought unpaid signing and performance bonuses, overtime wages, and reimbursement for unpaid medical bills.
In total, the former employees believed that Comm Comm owed them more than $1 million.
They soon encountered one of the key weaknesses of the WARN Act -- identifying a solvent company that's obligated to pay what's owed to ex-workers.
To win their lawsuits, the workers had to prove that Barry Reese and Ralph Reese, the former owners of the parent company of Comm Comm, controlled and made the decisions that led to the shutdown.
Nearly four years after Comm Comm's sudden layoff, lawyers for the workers questioned whether they could legally hold the Reeses responsible. Weighing the odds, the attorneys negotiated a settlement of $170,000 for the displaced employees.
The settlement included legal and administrative fees, leaving about $112,000 for the 127 former employees to divide. That represented about 13 days of pay, well short of the 60 days required under the law.
Jeffrey Balicki, an attorney who represented Comm Comm and the Reese brothers in the WARN Act lawsuit, said the settlement was not an admission of wrongdoing by the former owners.
Mr. Balicki said the owners contended the sudden closure was necessitated by the fact that the company's lenders abruptly cut off the business' line of credit, a circumstance the owners could not have predicted.
"Clearly, it's a very defensible case," Mr. Balicki said. "They just settled because of where they were at the time in their lives with that litigation and just wanting to bring closure to it and retire and move on to other things."
Many of the issues that workers grapple with when they lose their job are rooted in the compromises made in 1988 as Congress fiercely debated what many called the "plant-closing bill."
To win passage of the WARN Act, Democratic U.S. Sen. Howard Metzenbaum of Ohio and his allies compromised -- shortening the notice period from as much as six months to 60 days, exempting many small businesses, and allowing companies to avoid liability if they were seeking capital to remain afloat.
The WARN Act took effect without President Reagan's signature -- the only bill in his two terms that became law without his signature.
The Government Accountability Office, the nonpartisan investigative arm of Congress, has examined the WARN Act twice. In 1993 and again in 2003, the GAO found major flaws in the law and recommended Congress take action to reform it.
Since its passage in 1988, numerous attempts have been made to reform the act and make it more effective.
In 2004, U.S. Sen. Tom Daschle, D-S.D., introduced a bill aimed at restricting the move of jobs from the United States to other countries. The proposal would have expanded the number of workers covered by the law, extended the notice period to 90 days, required employers to educate workers about their rights under the WARN Act, and forced employers to provide notice when moving jobs overseas.
The U.S. Chamber of Commerce fought the changes, the bill died, and Mr. Daschle was ousted in his re-election bid in 2004.
Advocates who work to avert layoffs and plant closings believe that 60 days isn't a long enough notice period to initiate efforts that could save jobs.
Tom Croft, the executive director of the nonprofit Steel Valley Authority, a Homestead-based economic development agency, believes that notice requirements under the WARN Act should be extended from 60 days to six months to allow more time to examine alternatives to layoffs of plant closings.
"I don't even think 60 days is enough time for assisting dislocated workers and it is certainly not enough time to prepare for a turnaround plan," Mr. Croft said.