TRANSPARENCY POLICIES

14. Disclosing Plant Closings and Layoffs
to Reduce Community Disruptions

Concerned over the economic impacts of intensifying global competition in the manufacturing sector and facing political fallout froma growing number of high-profile plant closings and mass layoffs, Congress debated a variety of proposals in the late 1970s and early 1980s. Policy options ranged from restrictions on employer rights to close major facilities to industry-based policies to improve competitiveness and majormodifications of the unemployment insurance system.193

In 1988, political compromise led to a more modest targeted transparency approach: theWorker Adjustment and Retraining Notification Act (WARN).194 This law sought to protect affected parties from the effects of major employment loss by requiring covered employers to provide advance notice of plant closings or large-scale layoffs to affected workers and local communities.195 The aim of the new disclosure requirement was to improvepost-layoff andplant closingoutcomesfordisplacedworkers aswell as toprovide communities facing significant economic impacts with time to find alternative solutions or make adjustments for the impending closings.

Even this modest, disclosure-based response to economic restructuring involved significant political compromises. Opponents of advance notice argued that itwould restrict the capital mobility that was increasingly important given international competition from countries like Japan and South Korea. In so doing, it would further widen labor productivity gaps with the rest of the world, making U.S. companies less competitive. Further, critics of advance notice argued that it would lead customers, suppliers, and capital markets to overreact, making already weakened companies less able to recover and expand. If advance notice was to be required, they argued, it should be provided a relatively short time before plant closing. It should also exempt wide classes of employers whose decisions to reduce employment reflected the normal ebb and flow of production, rather than more profound, long-term reductions in employment.196

The resulting disclosure requirements reflected these concerns. Covered employers were required to provide affected employees with only sixty days notice of a closing. Although virtually all workers at covered employers—hourly, salaried, and managerial workers – were entitled to notice, employer coverage was quite restricted. Private and not-for-profit employers were covered if they had one hundred or more workers, but employees were excluded from that count if they had worked for fewer than six months in the past year or fewer than twenty hours per week on average). That meant that a large number of small businesses were not required to provide advance notice of layoffs or closings.

The definition of plant closing and mass layoff also left many potential company decisions involving large employment cuts outside the targeted transparency system’s disclosure requirement. A covered employer was required to provide advance notice if an impending shutdown would lead to a loss of 50 or more workers in a thirty-day period. Mass layoff was defined narrowly as reducing employment at any site of 500 or more workers or laying off 50–499 workers if that number represented at least a third of the workforce.197 In addition, covered employers were not required to provide advance notice for a variety of “unforeseeable” business reasons, for natural disasters, or where it could be shown that even the sixty-day disclosure would cause irreparable harm to the business’s viability.198

The law did not provide an extensive apparatus for implementation. Unlike most federal workplace policies, the advance notice requirement did not vest a particular division of theU.S. Department of Labor with authority to investigate or enforce the law. Enforcement was provided instead through lawsuits lodged in federal courts by workers, their representatives (if any), and/or local governments. An employer found in violation of the disclosure requirement could be required to pay the affected workers back pay and benefits for the period when notice was not provided (up to sixty days). Employers were also subject to civil penalties of up to five hundred dollars for each day of violation. Companies were left with considerable discretion concerning the means by which they would notify workers and communities. The law did not provide a notification format or indicate through whom (union officers or other representatives) workers would be contacted or the “local community” informed.199

The combination of restrictive employer coverage and the rather narrow definition of plant closings and mass layoffs has meant that a relatively small percentage of layoffs has been covered by the disclosure policy’s requiirements. In an early study of the requirement’s impact, Ehrenburg and Jakubson concluded that although compliance with the policy was high, “WARN does not affect a substantial proportion of permanently laid off workers.”200 That conclusion was still valid in 2006, given the large percentage of the workforce employed in workplaces with fewer than a hundred workers and the fact that the vast majority of employment reductions (even in large workplaces) do not fall within the narrow definitions of employment loss described in the regulation.201

Disclosure provisions for plant closings and layoffs have not changed substantially since their initial approval, although several recent events have led Congress to consider expanding or modifying disclosure. Following the terrorist attacks on the United States in 2001, Congress held hearings about the significant employment dislocations associated with those attacks—particularly in the hotel and hospitality industries—which led some in Congress to call for expanding the reach of the disclosure policy.202 In 2004, high-profile instances of “offshoring” work to India and China led the Senate to consider expanding the transparency rules’ definition of employment loss.203 As of 2006, however, neither of these efforts had led to changes in the law.

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FOOTNOTES
193. A number of books influential at the time proposed a spectrum of policy solutions. At one end of the policy spectrum, Bluestone and Harrison, 1983, and Magaziner and Reich, 1982, advocated comprehensive “industrial policies” to respond to the loss of U.S. manufacturing preeminence. On the other hand, books like McKenzie, 1982, argued that restructuring was a normal feature of an evolving economy and that government intervention through plant closing legislation could have deleterious effects on economic well-being.
194. Worker Adjustment and Retraining Notification Act, Pub. L. 100–379, August 4, 1988, 102 Stat. 890 (codified at 29 USC §§2101–2109 (2000)). The Department of Labor published final regulations on the law in 20 C.F.R. pt. 639 (2006).
195. Both Congress and state legislatures debated various forms of plant closing legislation fromthe late 1970s until the passage of WARN. When the legislation was finally passed, President Ronald Reagan chose not to either veto or sign it. For a legislative history, see U.S. House of Representatives, Committee on Education and Labor, Legislative History of S. 2527, Worker Adjustment and Retraining Notification Act, Public Law 100–379, 100th Cong., 2nd sess., serial no. 101-K (Washington, D.C.: GPO, 1990).
196. See Ehrenberg and Jakubson, 1990, pp. 39–46, for a discussion of these critiques.
197. The regulation provides a number of further refinements of these definitions relating to simultaneous employment reductions inmultiple units of a company as well as to the length of the employment reductions.
198. See 29 U.S.C. §2102(b)(2)(A) (“unforeseeable” business reasons); 29 U.S.C. §2102(b)2)(B) (natural disasters); 29U.S.C. §2102(b)(1); and 20 C.F.R. §639.9. Exemptions also apply in cases relating to transfers or reassignments of employees, sale of a business, or strikes and lockouts. See, for example, 29 U.S.C. §2103(1) (employees hired with understanding that such employment only for the duration of a project that has since been completed); and 29 U.S.C. §2103(2) (strikes or lockouts).
199. The notice must include the name and address of the employment site where the closing or layoff will occur, a statement regarding whether the action is permanent or temporary, the expected date of each worker’s termination, the job titles of those affected, and the number of jobs that will be lost in each job classification. See 20 C.F.R. §639.7.
200. Ehrenberg and Jakubson, 1990, p. 44.
201. For a discussion of the limited impact of advanced notification on the universe of employment losses, see General Accounting Office, 2003b. 253
202. The U.S. Bureau of Labor Statistics estimated that for the eighteen-week period between September 11, 2001, and mid-January 2002, there were 430 “extended mass layoffs” directly or indirectly related to the attacks, involving more than 125,000 workers. See Levine, 2004.
203. In February 2004, the Jobs for America Act (S. 2090) was introduced to amend WARN by including offshoring in its definition of major employment events, as well as requiring collection of statistics on job loss arising from offshoring. Levine, 2004, p. CRS-2.
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