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"Devising Solutions to Capital Flight: The WARN Act"

May/June 1994 issue of Poverty & Race

On September 12, 1991, Lorenzo Wallace, an African-American steel-worker, was told to report to work at the Detroit Coke plant in order to help change the method of producing coke used in the manufacture of steel. Upon his arrival, his boss told him he was to help close down the plant and that his employment would end for good after the shift. Over 200 workers lost their jobs that day despite the existence of a federal law called the Workers Adjustment and Retraining Notification (WARN) Act, which requires employers to provide 60 days' notice to their employees before engaging in a mass layoff or closing down a business.

Congress created WARN in 1988 to ensure that businesses provide their em-ployees with some notice of impending job loss in order to give them, their families and communities time to adjust psychologically and financially to the upcoming hardship of unemployment and to acquire new work skills. Since passage of WARN represented a com-promise with business, WARN not sur-prisingly has fallen far short of providing the minimum notice requirements neces-sary for a work force or to respond in a meaningful way to the economic devas-tation caused by capital flight. Nonethe-less, as the fast federal plant closing law, it is essential that its impact, effectiveness, and scope be monitored in order to document its limitations and build a case for a stronger law.

The devastation caused by job loss can be immediate. As Susan Holler, a former employee of the McDonnell Douglas Corporation, stated during Senate hear-ings held last year:

Since I was laid off, two weeks before Christmas, I have lost my family health insurance, life insurance, and accident insurance coverage as well as the termination of my retirement plan. Consequently, my credit has suffered to the extent that it is ruined for at least two years and my family finances had to be completely reor-ganized and we are reluctantly con-sidering bankruptcy. We can no longer afford to pay for child day care and my son now has to remain home alone in fear, until I get home.... My husband is now working three jobs to try to make ends meet and still our finances are in dire straits. For the fast time in our lives, we live in fear of losing our home and our transportation.

She continued:

I was given no time to prepare for this, nor was the loyalty with which I ap-proached my job returned in kind. I perceive this to be an unethical business practice.... I performed in the spirit of the social contract that structured the security of my job. McDonnell Doug-las, I feel, betrayed this spirit.

Indeed, the notion that businesses should provide their workers with some notice strikes at the very heart of our market economy, challenging the seem-ingly unnegotiable notion that businesses should be free to open or close without any obligation to their workers or the communities in which they reside. Cor-porations have taken tax abatements from communities while promising jobs, and then walked away without fulfilling
their bargain, with few, if any, repercus-sions.

The Maurice and Jane Sugar Law Center for Economic and Social Justice, founded in 1991 as a project of the National Lawyers Guild, established, as one of its fast efforts, a Plant Closings Project whose primary task has been tc enforce and monitor the effectiveness ol WARN. Through direct involvement as counsel in WARN actions around the country, as well as extensive contact with attorneys representing WARN plaintiffs, the Center compiled a list of WARN actions nationwide. From these data, and from discussions with displaced workers, the Center has been able to document and evaluate the data. The support of PRRAC has been essential to these efforts. Our findings were made available to the United States Senate during hearings held last year, and to the General Accounting Office for use it their report on the law's effectiveness and played a significant role in prompting Senator Howard Metzenbaum, the bill's original sponsor, to introduce recent amendments.

The good news is that WARN has resulted in more working people receiving notice of their impending employment losses than ever before, and in some cases it has even resulted in averting the employment loss completely, although this is rare. The bad news is that the WARN notice requirements are ineffective for most workers. In fact, in the cases we analyzed, 52% of the 806 mass layoffs or plant closings around the country were exempt from WARN Numerous flaws in the language and construction of WARN account for the massive numbers of people who do not receive notice.

The WARN Act contains provisions for both mass layoffs and plant closings. For the mass layoff provisions of WARN to take effect, the following threshold requirements must be met: (1) the em-ployer must employ at least 50 employees (not including part-timers); (2) 50 or more workers must be affected, compris-ing at least one-third of the workforce, or 500 or more workers must be affected; (3) the affected workers must be em-ployed at a "single site" of employment; and (4) the layoffs must occur within a 30-day period.

For the law to apply to plant closings, it must affect 100 or more employees (not including part-timers), occur at a single site, and result in employment loss during any 30-day period for 50 or more em-ployees. For both mass layoffs and plant closings, employment losses occurring within a 90-day period may be counted only if they affect two or more groups at a single site, each of which is less than the minimum threshold numbers, and which in the aggregate exceed those numbers. They may be included only if they cannot be attributable to "separate and distinct" causes.

WARN's Flaws

Numerous flaws exist with regard to both the mass layoff and plant closing provisions. First, such demanding thresh-old requirements present too many op-portunities for employers to avoid WARN. The GAO reported, with information provided by the Sugar Law Center, that the one-third threshold ex-cludes a majority of employers with 250 or more employees from giving notice. And businesses can evade liability by structuring their layoff schedule so that the threshold numbers are never met.

Second, part-time employees may not be counted toward the threshold re-quirements of either mass layoffs or plant closings if employed for an average of less than 20 hours/week. Their in-clusion is essential, as their proportion of the overall market continues to increase. According to the Bureau of Labor Statis-tics, the part-time workforce now num-bers 22 million and, on average, they earn 62 cents for every dollar earned by full-time workers. An employee is also excluded if he or she has worked for less than six of the twelve months preceding the date on which notice was required. This excludes employees who were hired as full-time permanent employees less than eight months before the closing or layoff, and in several cases led to the total number of full-time employees falling below the threshold.

Third, the "single site of employment" exception allows an employer to lay off or terminate employees at multiple sites as long as no single site of employment lays off 50 employees or one-third of the work force. However, the exception al-lowed one employer to simultaneously terminate nearly 1,000 employees with-out violating the WARN Act because these employees worked at 20 different sites. This employer fit the exception even though the separate facilities from which it terminated its employees were doing the same type of work, were cen-trally administered by the employer, and were terminated for the same reasons.
Fourth, the WARN Act's definition of "employment loss," in a mass layoff situation, requires that the affected worker be laid off for more than six months. Employers have avoided fitting this definition by recalling workers just short of the six-month time period, and then laying them off again after 90 days.

Finally, to be covered by WARN's plant-closing protections, an employee must work for a company with at least 100 full-time employees-this require-ment exempts about 98% of American businesses. Also excluded are public employers and employers who are not incorporated.

How Employers Escape Liability

The law includes three defenses. The "unforeseeable business circumstance" defense allows employers to escape liability if the circumstances causing the plant closing were "sudden," "dramatic' and "unexpected." Yet courts are interpreting that provision very broadly to include circumstances that should have been easily anticipated. For ex-ample, General Dynamics escaped WARN liability after the government canceled their defense contract, even though Congress had held numerous hearings prior to the cancellation that addressed the likelihood that it could happen, and the CEO admitted in a meeting that he believed the contra4 would be canceled. In another case, involving the closing of a hospital serving a low-income community in Chicago, a federal appeals court broadened the ex-ception to include the employer's sub-jective perception of the necessity of a shutdown; the Sugar Law Center recently filed a petition for certiorari to the Supreme Court arguing for an objective standard.

Under the "good faith" exception, a company can escape liability if it can convince a court that it had a good faith belief that it did not violate WARN. Thus, for example, in one case an em-ployer did not have to pay any damages to former auto workers even though he had provided only one notice (which failed to specify the date the plant would close) four months prior to the plant closing.

The "faltering company" defense al-lows employers to evade the notice re-quirements if they can demonstrate that the company was in financial difficulty that they were actively seeking capita from a likely source, that acquisition of the capital would have averted a plant closing, and that notice to workers would have scared away the funds.

Inadequate Enforcement Provisions and Remedies

The lack of any investigative, sub-poena, monitoring, injunctive and/or enforcement authority by the govern-ment has also impeded the effectiveness of the law. Few workers have ever heard of WARN or know of its employee protections. Further, aside from termi-nated employees filing lawsuits, or calls to us by workers, there is no way to know who is complying with the law.

The damages remedy under WARN is totally inadequate. Workers are entitled to, at best, only 60 days' back pay. This fact, coupled with a scarcity of lawyers willing to take these cases and the fact that it can take two years to litigate a case, has deterred many working people from seeking to enforce their rights.

Finally, the law should in some way address the problem of "retraining for what?" As one worker laid off from the Zenith Corporation in Springfield, Illi-nois, observed: "The industrial base has been destroyed. And who will pay for the training we need to secure jobs that will help us recover from the financial devas-tation we have already suffered?"

Further Work

As economist Barry Bluestone recently observed:

There is a ... new direction toward which we all used to call the "plant closures movement" needs to move. For while the 1980s were very rough, indeed, for the white working class in the U.S., they have been devastating for African-Americans and other persons of color. The movement is going to have to pay a lot more attention than it has so far to organizing, and to defend-ing the interests of blacks and other national and racial minorities.

We hope to develop additional pro-jects, based upon our initial PRRAC--supported research, that would respond to this observation. For example, we seek to: (1) continue gathering, reviewing and evaluating data pertaining to WARN; (2) collect and analyze data indicating that plant closing dispropor-tionately harm minorities, women, and low-income people; (3) collect and analyze data relating to the effect of plant closings in urban areas; and (4) analyze the tax laws that offer incentives to corporations to leave the country. By targeting the impact of capital flight on people of color and low-income people, and identifying the areas where their interests interact, we hope to use our research to develop advocacy efforts.

Through these projects, and by col-laborating with grassroots organizations such as the Federation for Industrial Retention and Renewal, the Sugar Law Center will devise creative and innova-tive strategies to respond to the crises caused by plant closings.

We are located in Detroit, where capital flight, combined with other issues of economic injustice, has devastated d city and surrounding communities WARN is one way to drag into cow businesses that otherwise could move from city to suburb, or to wherever cheaper labor lives, with little to stop them. Yet WARN is no panacea. Th struggle must happen simultaneously a the local, federal and international level and result from planned and coordinate efforts guided by a vision that place economic justice and equity as its primary driving force.
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