The Plant Closing Epidemic

by Robert Weissman

 IN OPPOSING LEGISLATION that would require employers to notify their employees before they shut down factories or made mass layoffs, then-President Ronald Reagan criticized the proposal as a set of "arbitrary rules laid down by politicians and enforced by Washington bureaucrats" that would constitute an unfair burden on business. He called the legislation "a ticking time bomb in the back seat of a medium-sized or larger company that is stripping down and overhauling so it can keep on track with foreign racers."

Despite Reagan's opposition, national concern about an epidemic of plant closings led to the passage of the Worker Adjustment and Retraining (WARN) Act in August 1988. After the bill passed the House of Representatives and Senate by overwhelming margins, Reagan reluctantly let it become law.

 The Act requires that businesses employing more than 100 workers give employees 60 days notice of layoffs, if they lay off more than 50 workers at a given site. It exempts companies from the notification requirement if a plant closure is due to a sudden business downturn or if notification would adversely affect a company's ability to procure credit needed to maintain operations.

 Three years after the WARN Act's passage, none of the fears expressed by Reagan or the bill's other opponents have materialized. What has become apparent, however, is how little protection the WARN Act actually affords workers. Plant closings in the United States have continued unabated, and companies have used loopholes in the Act to avoid compliance.

The second annual "Plant Closing Dirty Dozen," issued in February 1992 by the Federation on Industrial Retention and Renewal (FIRR), a national job retention coalition, clearly illustrates the shortcomings of the WARN Act. It demonstrates a distressing pattern of corporate irresponsibility in closing businesses. "This year's ŠPlant Closing Dirty Dozen' shows graphically that many corporations continue to treat workers with callous indifference when they abandon a plant," says Howard Metzenbaum, D-Ohio, the original author of the WARN Act.

No warning signs

 The Plant Closing Dirty Dozen makes clear that many companies are manipulating the circumstances of plant shutdowns to avoid complying with the WARN Act. Metzenbaum says, "I am especially disturbed by companies that try to manipulate the numerical triggers in the WARN Act - or rely inappropriately on the Act's narrow exceptions - in order to avoid giving notice."

Companies that fail to provide 60 days notice can be forced to pay workers up to 60 days back pay, and can be fined up to $500 a day for each day they fall short of the 60- day notification period, up to a total of $30,000. Enforcement of the WARN Act, however, falls to the laid off workers themselves. While this frees them from relying on government agencies, it requires laid off workers - frequently non-union and unorganized - to hire a lawyer and sue for back pay.

 Three of the dirty dozen shutdowns in particular illustrate techniques corporations are using to avoid compliance with the WARN Act, the difficulties workers face in using the Act and the hardships failure to comply imposes on workers:

A warning is not enough

 As serious as the enforcement problems and loopholes in the WARN Act are, the biggest problem with the plant-closing legislation is what it does not even try to do. The WARN Act guarantees workers a minimal safety net, but ultimately it does nothing to protect workers' jobs from the vagaries of corporate greed or mismanagement.

There are plenty of reasons for plant shutdowns. The debt-driven leveraged buyouts, mergers and acquisitions of the last decade have forced many companies to pare operations, often closing or cutting back once-viable operations. FIRR's Plant Closing Dirty Dozen includes five finance-related shutdowns. The lure of cheap foreign labor is another major factor contributing to plant closings in the United States. Two of the Dirty Dozen involve plants closing or workers being laid off so that production can be shifted to low-wage operations in Mexico. Some plants also close to take advantage of a variety of tax incentives, such as Internal Revenue Service Code 936, which grants a 100 percent tax credit on all Puerto Rican profits of U.S. subsidiaries. Three of the Dirty Dozen fall in this category.

 Yet advocates for displaced workers believe the WARN Act has had some positive impact, despite its pitfalls. The primary effect, says Jim Benn, the executive director of FIRR, has been psychological. To at least some degree, he says, workers now know that they have rights if their plant closes.

The passage of the law itself was important, he adds, since it establishes that there is some "corporate responsibility to [address] the social impact of deindustrialization." He hopes that the WARN Act will serve as a wedge, which, as plant closings continue and U.S. workers' suffering intensifies, will open the way for more far-reaching legislation in the future.

 The first step in addressing the plant closing epidemic, Benn says, will be to enact into law many of the provisions contained in the original draft of the WARN Act. These include mandating longer notice to displaced workers, lower trigger mechanisms (meaning the Act would apply to workers at smaller facilities) and a requirement that companies planning to shut factories at least discuss alternatives to closure with the affected communities.

 Ultimately, Benn says, protecting communities and workers will require the institutionalization of a process that weighs "the needs of corporations versus the social needs of communities." Profit maximization should not be the only criterion for deciding whether a plant should stay open, he insists. In instances where a facility can operate profitably - though perhaps not at the most profitable level - the needs of communities should take precedence. And where a corporation does decide to abandon a facility, he says, alternatives to closure - such as transfer to different management or employee or community ownership - should be considered.

The key to stemming the plant closing epidemic, says Benn, will be "restrict[ing] the rights of capital." Unfortunately, in the present U.S. political climate, the prospects for such restrictions are not bright, and it is likely that many more workers and communities will be forced to deal with the pain of plant shutdowns before meaningful steps are taken to treat the problem.