The buyout industry—or private equity, as it prefers to be called—likes to give the impression that it creates new jobs rather than destroying them in the companies it takes over. Yet plant closings do occur among private equity portfolio firms, and in some cases the owners aren’t even willing to observe basic federal law governing shutdowns. The other day, the Dow Jones LBO Wire ran a story noting that several buyout firms have been sued for allegedly violating the Worker Adjustment and Retraining Notification Act, or WARN Act for short.
One of the defendants is Code Hennessy & Simmons LLC, which is charged with failing to provide the required 60 days’ warning when its portfolio company Hoboken Wood Flooring abruptly shut its doors last fall. Another case involves Reliant Equity Investors, which is said to have violated WARN when layoffs occurred recently at its company BlueSky Brands.
The Dow Jones story referred to WARN as “an obscure and somewhat toothless labor law” that was “causing headaches for buyout firms.” To reinforce the latter idea, the web version of the article was illustrated with two aspirin containers.
It is true that WARN currently leaves something to be desired in terms of effectiveness. This was made abundantly clear in a four-part series by James Drew and Steve Eder that ran in the Toledo Blade last summer. They found that the 1988 legislation “is so full of loopholes and flaws that employers repeatedly skirt it with little or no penalty.” Part of the problem is that Congress did not provide for enforcement of the act, so workers must bring their own court actions that often result in meager settlements.
While buyout firms (and other employers) would probably prefer to see the law repealed, some pro-labor members of Congress are pushing to strengthen the act. At the same time, states such as New Jersey are moving to enact their own WARN Acts that go beyond the current federal statute. (For details on both federal and state initiatives, see the website of the Sugar Law Center for Economic and Social Justice, which has worked on WARN issues since its founding in 1991.)
Layoff notification requirements by themselves are no solution for job dislocation, but given the way the economy is going, workers need all the help they can get.
Some other WARN resources:
Toledo Blade Interactive map with info on WARN lawsuits Congressional Research Service report (September 26, 2007)
GAO report (September 2003)
Directory of State Rapid Response Coordinators