Laid-off Workers Want Their Severance
More companies are cutting back on—or cutting out—severance pay and
benefits. But workers are fighting back, and new laws are on their side
By Emily Thornton
David Mazer doesn't think he should be cast as a villain. The former CEO of
Mazer Corp. had been scrambling to keep his Dayton education publishing firm
alive when his bank abruptly halted negotiations for much-needed financing on
Dec. 30. Unable to pay wages and mounting bills at the company his father
founded 44 years ago, Mazer immediately laid off employees without any severance
or notice. He says he had no choice. Mazer sent e-mails to his 296 employees
around 5 p.m., telling them it was their last day and adding that "we are sorry
for the short notice, but we chose to fight until the very last minute to keep
the doors open."
Scott Bent, a 26-year-old editor, was too stunned to pack up his belongings.
But when he came back the next morning, he was prepared to fight. Bent organized
a suit seeking class-action status against Mazer Corp., demanding severance,
vacation pay, and other benefits. Says Bent: "I still have not received my final
paycheck." Mazer responds that his hands are tied about the sudden closure,
noting "we're angry, too." A spokeswoman for lender KeyBank, now fighting to
seize Mazer Corp.'s assets in court, says the bank "exercised its rights under
applicable law" in halting funds.
Managers dealing with the trauma of mass layoffs increasingly have something
else to worry about: the law. A growing number of jettisoned employees are
filing lawsuits for severance pay under the federal Worker Adjustment &
Retraining Notification (WARN) Act, and politicians are stiffening rules to
protect workers. On Feb. 1 the state of New York lengthened the amount of notice
employers must give workers under the WARN Act to 90 days from 60. It also made
the law applicable to companies that lay off as few as 25 employees, vs. the
previous minimum of 50. Congress is now mulling ways to strengthen the act, and
states such as New Jersey and Illinois have beefed up employee protection laws.
Desperate to save money and often struggling to keep their companies solvent,
many employers are giving in to the temptation to skimp on severance when
downsizing. A surprisingly large number aren't giving employees the 60 days'
notice or severance pay that's required under the WARN Act. "Companies used to
throw their hands up and say, 'Just pay it,' " notes Gerald T. Hathaway, a
partner in New York of employment law firm Littler Mendelson. Now, he adds,
they're "looking for more certainty that they really have to [pay out], because
it's not cheap." Elaine Koch, an employment lawyer at St. Louis-based Bryan
Cave, thinks inexperience is a factor: "Some are not fully aware of the laws,"
she says.
One reason may be the two-decade-old WARN Act has rarely been enforced. WARN
also exempts companies that are hit with "unforeseeable circumstances." And the
perils of running afoul of the act have not been significant, since employers
aren't hit with penalties—only 60 days in back pay, benefits, and possibly
lawyers' fees. Even WARN class actions typically have settled for far less than
cases involving gender and discrimination claims. Last July one suit filed by
930 displaced workers at Quaker Fabric was settled for $1 million.
COMPLAINTS RISING
While alleged breaches of the WARN Act and related laws aren't tracked on a
national level, employment lawyers across the country say they've seen a marked
jump in complaints. Over the past six months, laid-off employees have filed
lawsuits over violations of the WARN Act against companies as varied as Lehman
Brothers, San Francisco law firm Heller Ehrman, retailer Goody's, electronics
chain Tweeter (TWTRQ),
and USA Jet Airlines. Even if a company files for bankruptcy, it still needs to
give notice in the event of mass layoffs and plant closings—which means the
trustee or debtor in possession may need to pay out those obligations.
For his part, David Mazer says he thought he could obtain financing right up
until the bank abruptly ended negotiations. "We can do nothing more now than to
offer our apology," he said in a statement to BusinessWeek. That's not
good enough for laid-off editor Bent. He has moved in with his in-laws and is
picking up freelance jobs while chasing down two months' pay. In August Bent
plans to go to law school, where he may major in employment law. "I see it as a
way to fight for the cause."
For more on the WARN Act and the challenges companies face complying with it,
watch a video report at businessweek.com/go/09/warn.
Thornton
is a senior writer for BusinessWeek.
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