Business Closings

Business Closings

After advocating such measures for fifteen years, proponents of mandatory plant closing notification secured federal legislation in August 1988 with the Worker Adjustment and Retraining Notification Act, 100 P.L. 379. The measures were initially part of the Omnibus Trade and Competitiveness Act of 1988, P.L. 100-418, 102 Stat. 1159, which President ronald reagan had vetoed. After failing to garner the two-thirds majority required for an override, Congress chose to make the plant closing notification provisions into a separate act. In July, the Senate approved the plant closing legislation by a vote of 72 to 23, and the House of Representatives passed it by a vote of 286 to 136. On August 2, 1988, perhaps sensing the popularity of the bill, President Reagan announced his intent to permit the bill to become law without his signature. The bill became automatically effective at midnight, August 3, 1988.

The law requires employers with one hundred or more employees to provide their workers with sixty days' layoff notice when fifty or more workers at a single site will lose their jobs and when affected workers will constitute at least one-third of that site's work force. If 500 or more employees are laid off, however, such notice is required regardless of the percentage of site workers involved. Companies failing to provide the requisite warning face penalties of compensating each dismissed employee for wages and fringe benefits for every day the notice should have been given. Additionally, a $500 payment per day, up to a maximum of $30,000, must be made to local communities when the act's provisions have not been met.

Analogous requirements exist in thirty-eight other countries and in five states. At least twenty other states have proposed such legislation. According to the federal government's General Accounting Office (GAO) survey, prior to this legislation, the national median length of advance notice for the closing of large establishments was seven days. White collar and union blue collar workers averaged as much as fourteen days' termination notice while non-union blue collar workers only received two days' notice. Since 1981 more than five million Americans have lost their jobs because plants were shut down or their positions were eliminated.

Along lines similar to President Reagan's reservations, National Association of Manufacturers president Alexander B. Trowbridge maintained that the legislation "damages the flexibility essential to run a successful business." Moreover, Trowbridge noted that advance notice was not always possible as financially troubled businesses may not be able to predict their status with the precision that the legislation required. To salvage their troubled businesses, these companies might find themselves in the midst of difficult debt financing, merging with another company, selling off assets, or bidding on a major contract, all of which could be hampered by the new law's requirements. He claimed that the required closing notices would discourage customers and jeopardize credit arrangements. A report compiled by the Congressional Office of Technology Assessment titled "Plant Closing: Advance Notice and Rapid Response" (DTA-ITE-321) found contentions such as Trowbridge's to be highly exaggerated because financial emergencies are rarely a factor in plant closings.

Other critics of the legislation cited an R. Nathan Associates study which claimed that the total annual costs for notification would run as high as $1.8 billion, due to lost profits, penalties, and additional administrative costs. The Nathan study found further that about 460,000 lost jobs would be triggered by unnecessary closings as a direct result of the act.

The GAO, however, seriously questioned the Nathan report on the basis of what it claimed was inadequate and flawed analysis and methodology. The department of labor also stated in 1986 that "many of the fears regarding advance notification have not been realized in practice." The National Science Foundation claimed to have found proof that, in most labor groups, advance notice significantly shortens joblessness, which in turn translates into better earnings for displaced workers and substantial savings in unemployment insurance. labor unions, such as the AFL-CIO, uniformly acclaimed the Worker Adjustment and Retraining Notification Act, 29 U.S.C.A. § 2101 et seq., claiming that when advance notice is combined with severance pay, it improves morale and actually increases worker productivity.


Corporations; Employment Law; Labor Law; Unemployment Compensation.

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.
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