February 13, 2009

Revolt on Goose Island: Warnings about WARN


In the latest installment of her ongoing Melville House “Live Book” project, Kari Lydersen takes another look at the WARN Act — the Federal law that supposed to protect workers like those at the Republic Windows & Doors factory, and that was so central to their case ….

Chicago, January 13, 2009 — Chicago attorney Jorge Sanchez has represented workers in a number of WARN Act cases, so he knows what he’s talking about when he says the Republic Windows workers are lucky they did not have to go into litigation to get the money due them under the federal law, which mandates companies above a certain size give 60 days notice or 60 days severance pay when closing or making mass lay-offs.

It is a complicated and highly technical law with exceptions that can be gray areas, and like most anything winding its way through the courts it can take many months or even years for workers to see a payout if they do win their case. Currently Sanchez, who works for renowned labor lawyer Tom Geoghegan, is representing workers who lost their jobs after Chicago’s Lincoln Park Hospital closed with little advance notice. (As the Chicago Tribune reported in this story.)

He has also represented workers with WARN Act claims at a manufacturer of railroad components, a steel mill, a meatpacking plant and a trucking company (owned by the controversial billionaire whose holdings include the Ambassador Bridge between Detroit and Windsor, Canada –- read more here.)

Sanchez notes that in WARN cases – as with Republic Windows — the company often ends up in bankruptcy. This essentially invalidates WARN Act claims, since even if the workers prove they are due funds, they are at the end of a line of creditors also owed money. Workers’ wages are unsecured, meaning there are no physical assets backing up the money owed them and they will only be paid after banks and other secured creditors get their due.

The WARN Act includes exceptions for unforeseeable business occurrences. This could be cut and dry in the case of something like a tornado or fire that destroys a business. But it is usually much more of a gray area, trying to define when the effects of an economic crisis or failing industry become a “foreseeable” occurrence.

Sanchez litigated a case which more clearly defined the definition of “foreseeable.” A Chicago meatpacking plant was shut down by the U.S. Department of Agriculture for health violations, and did not comply with the WARN Act. The company argued the shutdown was unforeseeable, but Sanchez successfully proved that the government’s ongoing series of complaints and enforcement actions gave the employer plenty of time to foresee the ultimate outcome -– or clean up their act to avoid it. (The case was called Pena vs. American Meat Packing).

However even though the about 100 workers essentially won that case, the meatpacking plant’s owners didn’t have the money to pay them and so the workers ended up shortchanged anyway. Such frustrating outcomes are often the case in WARN Act claims, which by nature originate when a company is in dire financial straits.

Another exception to the law allows the employer to avoid giving notice if it would hurt his business, with lenders or customers fleeing a sinking ship. (This would apply mainly in the case of mass lay-offs, when the business doesn’t actually plan to close). If an employer claims this exception, the workers’ attorney often must prove that the business was already doomed or that customers would have been lost regardless of the WARN notice.

Meanwhile Sanchez noted the WARN Act also offers employers a “Get out of Jail Free” card in the form of a claim they can make that they tried in good faith to comply with the act, and somehow were prevented from doing so. This can be raised very late in the litigation process, after the workers have spent much time and resources on the case. “It’s very subjective, it depends a lot on the judge, so if you get a judge who is unsympathetic to workers there’s a lot of room for them to undo your whole case,” Sanchez said. WARN cases can be heard by a judge or jury; Sanchez always presses for a jury trial assuming regular citizens who are likely also afraid for their jobs will be more understanding than a judge.

When a WARN Act case does go to litigation, much often depends on proving when the company officials knew a closure or mass lay-offs were likely. This can involve an extensive discovery process seeking documents, witnesses and emails.

“Usually there are rumors,” said Sanchez. “That’s one nice thing about human nature! Usually more than a handful of people know if the plant is going to close, and some of them are going to talk about it.”

WARN stands for Worker Adjustment and Retraining Notification. Sanchez notes that the original intent was to facilitate retraining of workers, ideally by government agencies who would be alerted by the company of the lay-offs to come. But Sanchez has rarely if ever seen retraining programs triggered by the law.

Meanwhile more and more manufacturing jobs are being done by temporary workers hired through temp agencies. Even if the same workers are on the job for years, they are still considered temporary employees and are not covered by the WARN Act. And the WARN Act does not allow for punitive damages against a violating employer, only compensatory damages. So an employer has little to lose in violating the act –- at worst, they will have to pay 60 days severance pay (and legal costs). For large corporations, this risk is tiny compared to the many cost-benefit calculations they make every day.

All these weaknesses aside, Sanchez still lauds the importance of the act in protecting workers. But he points out that it is only a small salve in the context of collapsing industries and disappearing jobs. The WARN Act was passed in the wake of massive closures of steel mills and factories in the 1980s. Often these plants were closed after mergers and acquisitions, with the new owners liquidating companies which may have still been viable but whose physical assets were worth more than their business value. Now factories are closing or making layoffs right and left not to turn a quick profit but because they are simply economically failing.

“People think of the WARN Act mainly aimed at manufacturing jobs,” said Sanchez. As manufacturing companies close, even if they comply with the act, “People get 60 days pay, usually minus holidays and weekends, and then they’re still out of a job. The problem with those manufacturing jobs being lost is once they’re gone, they don’t come back.”