Plant Closing: Advance Notice and Rapid

Response

September 1986

NTIS order #PB87-118212
Recommended Citation:

U.S. Congress, Office of Technology Assessment, Plant Closing: Advance Notice and

Rapid Response-Special Report, OTA-ITE-321 (Washington, DC: U.S. Government

Printing Office, September 1986).

Library of Congress Catalog Card Number 86-600573

For sale by the Superintendent of Documents

U.S. Government Printing Office, Washington, DC 20402
Foreword

In February 1986 OTA released Technology and Structural Unemployment:

Reemploying Displaced Adults, an assessment of the causes and outlook for worker displacement, the performance of programs to serve displaced adults, and options to improve service. One finding of the assessment was that an early start is

a key element in helping displaced workers find or train for new jobs. An important policy question related to this finding is whether advance notice of major layoffs

or plant closings ought to be required by law.

As a followup to the study of worker displacement, Representatives William

Clay, Silvio Conte, and William Ford asked OTA to hold a workshop on advance

notice of plant closings and permanent layoffs. Senator Orrin Hatch endorsed the

request. The General Accounting Office cosponsored the workshop. This special

report, drawn from the workshop and research by OTA and GAO, assesses the

benefits and costs of advance notice and examines issues in the debate over mandatory advance notice.

There is widespread agreement that it is beneficial to employers, employees

and the community for companies to give advance notice of plant closings or permanent mass layoffs. Advance notice allows time to get programs of worker assistance ready by the day layoffs begin, when demands for help in finding new

jobs are at a peak. Also, employers who give their displaced workers advance notice and help in finding a new job are likely to keep the loyalty of workers who

stay, and to enhance the company’s standing in the community.

Although many agree that advance notice is beneficial, the average worker

receives little notice, and there is no consensus on whether it ought to be required

by law. In general, business representatives oppose mandatory advance notice, arguing that it would be too rigid to take differing circumstances into account, and

could cause problems with creditors, customers, and key employees. Proponents

argue that an advance notice law could include exceptions to provide flexibility.

The report also assesses the ability of public agencies to provide worker adjustment services rapidly and effectively when employers do give notice. Much

of the benefit of advance notice depends on the prompt provision of effective services. The ability to respond rapidly is not well developed in the United States. One

reason is that the major program for assistance to displaced workers is new (Title

III of the Job Training partnership Act); officials responsible for the program are

still experimenting and learning. Despite disagreements on whether advance notice should be required, business, labor, and community leaders do agree on the

need to improve responses to plant closings.

The viewpoints of people in business, State and local government, academia,

and labor unions were sought in conducting this study. OTA thanks the many people

who provided data and advice—workshop members, government officials, reviewers, and consultants—for their assistance. As with all OTA studies, the analyses

and findings of this report are solely those of OTA.

~ JOHN H. GIBBONS

Director

///
Plant Closings: Advance Notice and Rapid Response

Workshop Members

Edward J. Bocik

Allied-Signal Inc.

Edward Chiera

Alameda County Training and Employment

Board, California

Ronald K. Cupp

The Stroh Brewery Co.

Steven Deutsch

University of Oregon

Peter S. DiCicco

International Union of Electronics,

Electrical, Technical, Salaried and

Machine Workers

Sheldon Friedman, United Automobile,

Aerospace and Agricultural Implement

Workers of America

Evelyn Ganzglass

National Governors’ Association

Earl A. Goodman

Employment and Immigration Canada,

Ontario Region

Joan A. Hammond

Ohio Bureau of Employment Services

Harry P. Hancock, Jr.

The Singer Co.

Patricia Hanratty

Industrial Services Program, Massachusetts

Pierre Leclerc

Employment and Immigration Canada

Kenneth McLennan

Committee for Economic Development

Lawrence Mishel

Industrial Union Department, AFL-CIO

Dennis Rocheleau

General Electric Co.

Herbert J. Sanchez

Varco International, Inc.

Philip Shapira

University of California, Berkeley

John T. Smith

United Steelworkers of America

J. Robert White

New Jersey Division of Employment

Services

NOTE: The workshop members provided advice and comment on the special report, but the members do not necessarily approve,

disapprove, or endorse the report for which OTA assumes full responsibility,

iv
—

OTA Project Staff–Plant Closing: Advance Notice and Rapid Response

Lionel S. Johns, Assistant Director, OTA

Energy, Materials, and International Security Division

Audrey Buyrn,

Industry, Technology, and Employment Program Manager

Julie Fox Gorte, Project Director

Katherine Gillman, Senior Analyst W. Wendell Fletcher, Senior Analyst

Edna M. Thompson, Administrative

Joyce A. Wills, Secretary

Individual Contractors

Kevin Balfe

Ruth Fedrau

Irene Gordon

David Sheridan

Assistant
Acknowledgments

This report was prepared by the staff of the Industry, Technology, and Employment Program of the

Office of Technology Assesment. The staff wishes to acknowledge the contribution of OTA’S contractors

in the collection, analysis, and preparation of material for the report, and to thank the following individuals, organizations, and government agencies for their generous assistance:

James Aaron, U.S. Department of Labor, Intel Corp.

Employment and Training Administration Andrew Johnson, Electronics Association of

Advanced Micro Devices, Inc. California

American Electric, Inc. Judith K. Larsen, Cognos Associates

Apple Computers, Inc. Anne Talcott Lawrence, University of

Kris Balderston, National Governors’ Association California, Berkeley

Steve Baldwin, “National Commission for

Employment Policy

Ronald E. Berenbeim, The Conference Board

Mary Jane Belle, Congressional Research

Service

Jeffrey Brennan, Labour Canada

Boise Cascade Canada Ltd.

Boise Cascade Corp.

Champion International Corp.

Robert Cook, Westat

Michael Eisenscher, Labor Consultant

Gretchen E. Erhardt, National Center on

Occupational Readjustment, Inc.

Fujitsu Microelectronics, Inc.

Randolph M. Hale, National Association of

Manufacturers

Gerald Holmes, U.S. Department of Labor,

Bureau of International Labor Affairs

Industrial Adjustment Service, Employment and

Immigration Canada

Mark Levinson, United Automobile, Aerospace

and Agricultural Implement Workers of

America

Paul Love joy, Maine Bureau of Labor Standards

National Semiconductor Corp.

Rica Pirani, California Employment

Development Department

Michael Podgursky, University of

Massachusetts, Amherst

Mimi Purnell, State of Texas Governor’s Office

Weldwood of Canada Ltd. (Subs. Champion

International Corp.)

Weyerhaeuser Canada, Ltd.

Weyerhaeuser Co.

William R. White, Council on

Management Cooperation

Xerox Corp. (Diablo Systems)

Labor-

(CLAMACO)

In addition, OTA wishes to thank the General Accounting Office (GAO) for cosponsoring the workshop, all the GAO staff members who worked on GAO’s survey of advance notification, and the following

individuals for providing valuable information for the special report.

William J. Gainer Robert T. Rogers

Associate Director Senior Evaluator

Sigurd Nilsen

Senior Economist

vi
Contents

Page

Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

How Much Notice? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Who Gets Notice?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Case Study: Silicon Valley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Costs and Benefits of Advance Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Benefits, and Relation to Worker Adjustment Programs . . . . . . . . . . . . . . . . . . . . 13

Worker Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Labor-Management Involvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Preparation Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Avoiding Plant Closings and Layoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Benefits to Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Benefitsto Individual Workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

costs . . . . . . . . . . . . . . . . .. .. .. . $ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Every Case Is Different . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Small Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Losing Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Losing Accessto Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Losing Key Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Unforeseen Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Media Attention and Community Resistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Trouble With Workers, Reduced Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

The Thin Endof the Wedge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Responses to Advance Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Employer Responses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

National Patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Case Study: Silicon Valley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Government Responses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Rapid Response Teams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Technical Assistance for Plant-Based Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Funding Delays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Knowledge About Government Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

The Foreign Experience With Advance Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Advance Notice and Rapid Response in Canada . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Advance Notice and Consultation Laws in Western Europe . . . . . . . . . . . . . . . . 34

Labor Market Flexibility and Collective Dismissal Laws in Western Europe . . 35

U.S.-Based Companies in Canada: The Forest Products Industry . . . . . . . . . . . . 37

Advance Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Benefits and Services coworkers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Government Assistance to Displaced Workers. . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Advance Notice Programs and Proposals in the United States . . . . . . . . . . . . . . . . 41

State and Local Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Existing and proposed Federal Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Trade Act of 1974..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

vii
Contents–continued

Page

Data on Plant Closings and Permanent Layoffs. . . . . . . . . . . . . . . . . . . . . . . . . . 42

Secretary’s Commission on Plant Closings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Legislative Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Issues in the Debate About Advance Notice Legislation . . . . . . . . . . . . . . . . . . . . . . 45

Rapid Response and Prelay off Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Outreach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Improving Rapid Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Legislative Questions About Advance Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Voluntary or Mandatory Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Incentives and Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Size of Firms and Size of Layoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

How Much Notice?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Other Components of Plant Closing Legislation . . . . . . . . . . . . . . . . . . . . . . . . . 49

Information and Data Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Appendix A: Advance Notice Laws in Other Countries . . . . . . . . . . . . . . . . . . . . . . 51

The Mechanics of the Advance Notice Process . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Notice or Consultation With Employees.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Notice to Government Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

When Is Notice of Collective Dismissals Required? . . . . . . . . . . . . . . . . . . . . . . 52

Consultation and Information Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Government Review of the Decision To Dismiss Workers. . . . . . . . . . . . . . . . . 54

International Organizations: Agreements, Standards, and Guidelines. . . . . . . . . 54

European Community (EC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

International Labour Organisation (ILO). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Organisation for Economic Cooperation and Development (OECD) . . . . . . . . 55

Appendix B: State and Local Advance Notice Programs . . . . . . . . . . . . . . . . . . . . . 56

Maine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Massachusetts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Connecticut . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Philadelphia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Vacaville, California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Tables

Table No. Page

l. Percent of Establishments Providing Various Lengths of Advance Notice . . . . 7

2. Amount of Advance Notice Given: Comparison of GAO and Conference

Board Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

3. Amount of Advance Notice Establishments Give, By Type of Worker. . . . . . . . 8

4. Assistance Offered to White-Collar and Blue-Collar Workers . . . . . . . . . . . . . . . 25

VIII
SUMMARY AND CONCLUSIONS

Plant closings and permanent mass layoffs

are a continuing feature of the American economy. Changing conditions of competition and

a rapidly growing field of competitors mean

that while some companies will be created,

flourish, and expand, others will go out of business or cut back production, or install laborsaving technologies, and workers will be displaced, These adjustments go on during all

parts of the business cycle, during recovery and

economic growth as well as recession. In the

expansion years of 1983 and 1984, over a million workers in larger establishments (more

than 100 employees) lost their jobs due to business closure or permanent mass layoff, according to preliminary results from a recent nationwide survey done by the General Accounting

Office. It is likely that at least as many were

similarly affected in smaller establishments.

The GAO survey found that 88 percent of

larger establishments provide some kind of notice to at least some of their displaced workers, but many people get little or no specific

warning that their jobs will be lost. For example, 30 percent of employers give no individual advance notice to blue-collar workers, and

another 34 percent give 2 weeks or less. In general, the amount of notice individuals receive

is short. white-collar workers get an average

of 2 weeks’ notice and blue-collar workers 7

days; blue-collar workers in unionized establishments are given an average of 2 weeks’ notice, compared with 2 days in non-unionized

establishments. Notice periods this brief do not

allow enough time to prepare an effective program of adjustment assistance for the displaced

workers. The GAO survey is the first work done

by statistically valid methods that provides national information on the extent of advance notice given to workers who lose their jobs in plant

closings and permanent mass layoffs.1

I The GAO survey was of employers, not workers. For the most

part, it provides information on the number of establishments

providing advance notice and services to laid-off workers, not

on the number of workers receiving notice or services. Results

of the GAO survey cited throughout this report are from a preliminary analysis. GAO’s final analysis will be completed in fall

1986; no major changes in results are expected.

In the discussion that follows, the term “advance notice” is used to mean all cases of prior

notice of job loss, whether voluntarily provided

by employers, encouraged by government programs, or required by Iaw.z Wherever required

notice is meant, it is so identified. A great deal

of controversy surrounds the issue of requiring advance notice by law, but there is wide

agreement on the benefits of notice itself (aside

from the question of a legal obligation), The conviction that advance notice is an important element in helping displaced workers find or train

for new jobs is not unanimous, but it is broadly

held by representatives of business, labor, communities, and public agencies.

One of the most important benefits of advance

notice is that it allows companies, labor, and

government agencies time to plan and develop

adjustment assistance. The peak demand for

help in finding or training for new jobs is immediately after job loss. It takes about 2 to 4

months’ work in advance (depending on the

number of workers involved) to prepare a comprehensive adjustment program, including testing and assessment, counseling, job search

skills training, job development, vocational

skills training, and remedial education. It is

sometimes possible to put together a partial but

worthwhile emergency program, including the

key element of connection with workers, in a

shorter time—even a couple of weeks. However,

with the shorter preparation time many services, such as vocational skills training and job

development, will not be ready when the project

opens. Moreover, many conditions must be met

to achieve a fast response. Among the contributing factors are a company with a strong commitment to serving its displaced workers and

the resources to provide funds up front, partnership with a supportive union or worker representatives, expert private consultants, and a

‘Legislation to require employers to provide advance notice

of plant closings or mass layoffs has been proposed in every Congress since 1973, but no law requiring notice has been enacted.

A few States require or encourage advance notice. See the section entitled “Advance Notice Programs and Proposals in the

United States” for details.

1
2

high degree of cooperation from public agencies. Some experience in developing and operating displaced worker projects, on the part

both of the company and labor, is often a key

element as well.

Another benefit of advance notice is that displaced workers are much more likely to participate in projects that begin before job loss;

it is difficult even to let workers know that help

is available after they are out of work and out

of touch. Moreover, some of the best adjustment

programs are run jointly by management and

labor, and it is much harder to get their participation after a plant is closed.

Advance notice benefits people, whether or

not they are offered or take advantage of adjustment services. Notice gives workers a chance

to develop their own job-hunting or training

options, or to adjust financial or other family

plans. Advance notice can also benefit companies. According to some business spokesmen,

the way their companies treat employees who

are being let go is important to the morale and

loyalty of remaining workers, and to the company’s reputation in the community.

It is sometimes argued that advance notice

can be instrumental in keeping plants open that

would otherwise close. Several critical elements

are needed in efforts to save a failing plant;

some of the key questions are these: 1) Are there

realistic prospects for profitability? 2) Are both

management and labor willing to make sacrifices to create a more efficient plant? 3) Is there

enough time? There are some instances where

advance notice, combined with assistance from

government agencies, communities, and workers has helped to avoid a closure; however, this

seems to happen infrequently. Advance notice

of a few months is rarely enough time to turn

an ailing business around. And decisions of

large companies to close down branches for

strategic reasons are not usually amenable to

change. Advance planning, however, can often

lessen the impacts on workers when a company

is cutting its work force due to technological

change. Some companies have used a combination of strategies—such as offering early

retirement, transferring workers to other plants

owned by the company, using surplus workers for vacation replacements, allowing job

sharing, and attrition—to avoid involuntary

layoffs even while reducing the work force by

as much as one-third in a few years.

The broad, though not unanimous, agreement

on the benefits of advance notice does not extend to legal requirements for notice. Disagreement is intense over whether the Federal or

State governments ought to place legal obligations on companies to provide notice. Opponents of mandated advance notice argue that

the costs of providing notice are substantial,

and that a good adjustment program is much

more important than notice per se.

One of the objections to mandated advance

notice is the need for flexibility. Every plant

is different, it is argued; even with escape

clauses for unforeseeable circumstances, compulsory notice requirements might be too rigid,

burdensome, or costly. There is also widespread

concern that advance notice requirements

would be hardest on small businesses. Many

small firms cannot anticipate the need for work

force reductions much in advance; and once

the need is clear, it is often difficult for a business with limited cash and credit to carry unneeded employees on the payroll. Small business can be exempted from advance notice

requirements, but there is little agreement over

where to draw the line defining small business.

Another argument is that advance notice

could worsen the conditions that led to the

notice, and make a firm’s decline inevitable.

According to this view, notice that a firm intends to lay off workers or close gives signals

to customers and creditors that the firm is in

trouble; loss of customers and increased creditor pressure could hasten or guarantee the closure or layoff. While these are credible arguments against mandated advance notice, it is

difficult to find actual occurrences of customer

or creditor desertion following notices One

company spokesman said that loss of custom-

%ince notice is not required in most of the United States, it

is difficult to find instances of loss of credit or customers following notice, Businesses may be unlikely to give notice voluntarily if they anticipate such costs.
3

ers is “no problem” for businesses that make

commodity products, but could be for a producer of specialty products. The same person

also said that advance notice of a plant shutdown had not affected his own company’s access to credit, but that his company would consider limiting credit to other companies that

announced a shutdown or curtailment. Although

these are not examples of actual loss of customers or creditors, they underscore the potential for such problems. It should also be noted

that, while loss of credit is a potential problem

for firms, advance notice can benefit creditors

and customers.

A drawback to advance notice that some companies have reported is the loss of key employees needed for an orderly closure or layoff.

However, many companies do not provide severance pay to workers who leave before the

closing date (though they make exceptions for

individuals). Some pay severance to everyone

but offer stay-on bonuses to key workers. These

measures, while often successful, add costs.

Another argument sometimes made against advance notice is that worker morale will be lowered and production and quality will suffer.

However, most people with practical experience, including business spokesmen, report that

productivity, quality, and even safety records

have all improved during the period of notice.

Finally, some opponents of mandatory advance

notice legislation may object not because notice itself is overly burdensome or costly, but

because one requirement might open the door

to other, more expensive obligations related to

plant closings and mass layoffs. Other obligations might include consultation with labor

about alternatives to the intended closings or

layoffs, or the required provision of certain benefits such as severance pay or employer-provided health insurance coverage. Extensive

obligations to the work force in the event of

a closing or permanent layoff may make employers reluctant to hire new workers. It is often

argued that such obligations have hindered job

creation in Western Europe in recent years;

many European countries have requirements

that go far beyond advance notice,

OTA found that American forest products

companies operating in Canada, where there

are few company obligations regarding group

dismissals except advance notice, readily accepted the Canadian laws and customs. One

company, located in Ontario, mentioned no difficulty in complying with a Provincial law requiring notice; two companies operating in British Columbia, where advance notice is not

required but seems to be customary for large

companies, provide advance notice. The parent companies operating in the United States

differ markedly. All three strongly oppose mandated advance notice; one provides notice as

a matter of company policy but the other two

do not favor advance notice even as a voluntary company policy.

While many of the arguments made by opponents of mandatory advance notice are credible, it is more difficult to find evidence of the

costs than evidence of the benefits. Moreover,

some of the costs may be confined to special

cases, while the benefits apply more widely,

Much of the benefit of advance notice depends,

however, on a prompt, effective response,

According to the GAO survey, a substantial

fraction of larger establishments offer some

kind of severance benefits to at least some of

their employees who lose jobs in plant closings

and layoffs. Employer-provided help in finding a new job is less common. Establishments

are more likely to offer some kind of assistance

to white-collar than to blue-collar workers,4

Slightly more than half of the larger establishments offer severance pay to displaced whitecollar workers; about one-third provide it to

blue-collar workers, Approximately one-third

of the establishments offer placement help to

white-collar workers; one-fifth provide it to

blue-collar workers.

Typically, companies that offer placement

assistance commit staff, space, and funds to the

job-finding efforts. However, few take on the

whole burden of adjustment assistance, much

4 According to the Bureau of Labor Statistics 1984 survey of

displaced workers, more blue-collar workers than white-collar

workers were displaced in the 5 years 1979 to 1983, and typically had greater problems finding reemployment.
4

less provide it before or at the time of layoff,

when help is most in demand. Usually, government support—both technical and financial—

is needed to mount a comprehensive adjustment project.

The Job Training Partnership Act (JTPA) Title III, a program intended to help organize and

pay for services to displaced worker programs,

allows States and local service providers to begin displaced worker programs before layoffs,

as soon as notice is given. Despite the consensus

that the sooner displaced workers can get help

the better, delays of 3 months or more in getting JTPA assistance and funding are apparently common. Delays are longest in receiving

funds granted at the discretion of the Secretary

of Labor. State officials report that it takes 4

or 5 months at the least to get a proposal through

the decisionmaking steps (at local, State, and

Federal levels) for a Federal discretionary grant.

Although systematic, nationwide information

is lacking, the available evidence indicates that

very few States are able to provide an effective

rapid response when plant closings or mass

layoffs are announced. Moreover, acquaintance

with the JTPA Title III program and the possibilities it offers for publicly funded assistance

to displaced workers seems to be very limited

in the business community. In general, it appears that relatively few displaced workers get

help from JTPA programs. OTA has estimated

that about 1 out of 20 eligible workers are being served.

Most States are aware of their difficulties in

mounting a rapid, effective response to plant

closings and major layoffs; some have established rapid response teams, and others are taking steps to do so. None so far has a system

comparable to the Canadian Industrial Adjustment Service, which is able to move quickly,

effectively, and inexpensively in helping to set

up labor-management adjustment committees

in plants that are closings The Department of

Labor and the National Governors’ Association

are planning demonstration projects based on

the Canadian model in cooperation with half

a dozen States over the next year or so. However, the general problem still remains that neither funds nor technical assistance for displaced worker projects are reliably and readily

available when needed. Unless a good rapid response system is in place, some of the prime

benefits of advance notice—whether it is voluntary, mandatory, partial, or universal—will not

be captured.

Positions in the debate over legally required

advance notice have changed little in more than

a decade. In general, business spokesmen and

industry groups oppose mandatory Federal notice legislation, while labor representatives favor it. There are areas of agreement in the debate, however. There is a broad consensus that

advance notice is a humane thing to do, and

that notice facilitates effective displaced worker

programs. Business groups and spokesmen generally think that advance notice is overemphasized, however, and that prompt delivery of adjustment assistance is more important. Labor

representatives continue to support advance

notice legislation and argue that good adjustment programs depend on advance notice; but

they agree that rapid, effective responses should

be developed, funded, and emphasized.

5

Three-quarters of the Canadian work force is covered by

Provincial or federal laws requiring advance notice.
INTRODUCTION

Loss of a job through permanent mass layoff

or business closure is a fact of life for many

American workers. Between January 1979 and

January 1984, 11.5 million American workers

were displaced because of plant shutdowns and

relocations, rising productivity, or shrinking

output.e In the 2 years 1983 and 1984, over a

million workers lost their jobs due to business

closure or permanent mass layoff in establishments with more than 100 employees, according to preliminary results from a recent nationwide survey done by the General Accounting

Office. 7 It is likely that at least as many more

were similarly affected in smaller establishments. The GAO survey showed that manufacturing workers were harder hit than workers

in service industries, and that the Midwestern

and northeastern regions had disproportionate

shares of closings and mass layoffs. The survey also showed that large numbers of workers lose their jobs in business closures and

permanent mass layoffs even in a period of economic growth and recovery, such as 1983-84,

as well as during recessions. Dealing with the

consequence—worker displacement—is therefore an ongoing task.

The consequences of involuntary job loss are

both painful and long lasting for many displaced

workers. Displaced workers are likely to experience prolonged unemployment: one-fourth of

all workers displaced between January 1979

and January 1984 were without work for a year

or more during the period.a Most displaced

workers do return to work, but the majority take

a cut in earnings, either through lower wages

or acceptance of part-time employment in place

of a full-time job. Many drop out of the labor

oPaul O. Flaim and Ellen Sehgal, “Displaced Workers of 1979-

83: How Well Have They Fared?” Monthly Labor Review, June

1985.

7U. S. Congress, General Accounting Office, “GAO’s Preliminary Analysis of U.S. Business Closures and Permanent Layoffs

During 1983 and 1984, ” paper for presentation at the OTA-GAO

Workshop on Plant Closings, Apr. 30-May 1, 1986.

aDescriptions of the consequences of displacement are taken

from Flaim and Sehgal, op. cit.; and from U.S. Congress, Office

of Technology Assessment, Technology and Structural Unemployment: Reemploying Displaced Adults, 0’I’fi-IIW-250 (Washington, DC: U.S. Government Printing Office, February 1986).

force, sometimes after many weeks of discouraging job hunting. Most displaced workers lose

benefits; health benefits usually stop with the

loss of a job or shortly thereafter, pension benefits suffer, and seniority is usually wiped out.9

The economic stresses of displacement also

take a toll in mental and physical health. Effective adjustment assistance, helping displaced

workers to find or train for new jobs, helps to

minimize the costs of displacement.

Advance notice of plant closings and permanent mass layoffs is generally regarded as a valuable tool facilitating worker adjustment. Although advance notice is required in many

industrialized nations, the U.S. Government has

no such requirements.10 For over a decade, bills

have been introduced in Congress which would

mandate advance notice. While none of these

bills has been passed, advance notice remains

a legislative issue. In late 1985, Representatives

Silvio Conte, William Clay, and William Fordll

asked the Office of Technology Assessment to

hold a workshop exploring the benefits and

costs of advance notice. Senator Orrin Hatch

endorsed the request. The requesters asked

OTA to examine a number of issues connected

with advance notice, including the following:

●

●

●

How many workers receive advance notice, and what is the extent of notice?

What are the costs that advance notice requirements would impose on business? Do

such costs vary by industry? Are there ways

to mitigate such costs?

Is advance notice effective in triggering efforts to prevent closings and mass layoffs?

sIn some cases, when displaced workers are transferred to

another plant owned by the same company where the layoff

occurred, the workers take their seniority rights with them. Often

in transfers of this kind, seniority for benefits is retained, but

not for order of layoff. Relocation to another company-owned

plant is quite infrequent for blue-collar workers.

IoTwo States and a few local governments require advance notice. See the section entitled “State and Local Programs. ”

IICosponsors of H.R. 161Ei, a bill requiring 90 days’ advance

notice of plant closings and mass layoffs. H.R. 1616 was narrowly defeated by the House of Representatives in November

1985. See the section entitled “Legislative Proposals” for a

description of H.R. 1616.

5
6

●

●

●

●

How rapidly can services be delivered to

workers following notice of plant closings

or mass layoffs? In particular, what is the

capacity of public sector programs, such

as those established under the Job Training Partnership Act Title III, to respond

rapidly with adjustment services?

To what extent do workers in the so-called

“sunrise” industries, or high-tech firms, receive advance notice? What services do

workers in such industries typically get?

What is the experience of U.S.-based businesses with Canadian notice requirements?

To what extent is the Canadian system applicable in the United States?

What other countries require advance notice? How do American businesses cope

with such requirements when they operate in those countries?

A workshop was held April 30 and May 1,

1986. The report that follows is based partly

on the discussions that took place at the workshop, and also on pertinent literature and research conducted by the Office of Technology

Assessment and the General Accounting Office,

which cosponsored the workshop. This report

focuses quite specifically on the issues of advance notice of and rapid response to plant closings and permanent mass layoffs. OTA previously conducted a much broader assessment

of worker displacement, publishing the results

in the February 1986 report, Technology and

Structural Unemployment: Reemploying Displaced Adults. In the earlier report, OTA considered the causes of worker displacement, the

effects of displacement on workers and communities, the effectiveness of adjustment programs in helping displaced workers find or

train for new jobs, and some of the continuing, long-range efforts needed to avoid displacement—including efforts to improve adult education and training, or to adopt new forms of

work organization that are appropriate and effective with advanced computer-based technologies. In addition, in its continuing studies of

competitiveness of various U.S. industries, OTA

considers effects on jobs and workers as important parts of the assessments.

How Much Notice?

There is broad—though not unanimous—agreement that early action is an important part of

assisting displaced workers. Advance notice of

plant closings or permanent mass layoffs greatly

facilitates an early start. Employers responding to a Conference Board survey noted that

“advance notice is beneficial to employees and

is an essential element in a plant-closure program.” GAO’S recent survey found that 88 percent of larger establishments provide some kind

of notice to at least some of their displaced

workers, but many people get little or no specific warning that their jobs will be lost.13 Thirty

percent of employers give no specific notice

to individual blue-collar workers that their jobs

will be lost, and another 34 percent give 2 weeks

or less. The amount of notice that most workers get is 1 to 2 weeks—too little time to provide much in the way of adjustment services

to workers by the time layoffs begin.

The GAO survey is a source of new information on how many U.S. employers give notice

of plant closings and mass layoffs and how

much notice is given. The survey covered the

experience of larger establishments (100 or

more employees) in 1983 and 198414; establishments of this size account for about 44 percent

of the U.S. work force. Preliminary results of

the GAO survey indicate that the amount of

advance notice provided varies a great deal.

Twelve percent of establishments reported they

gave no notice of any kind to any employees

of possible closure or permanent layoff; 30 perIZROna}d E, Bermt)elxn, Company Programs TO E8Se the impact of Shutdowns, Conference Board Report No. 878 (New York:

The Conference Board, 1986).

ISU.S. Congress, General Accounting Office, op. cit.

lqThe method GAO used in its survey was to select a stratified

random sample of 2,400 establishments which appeared, on the

basis of Dun& Bradstreet data, to have experienced either a closure or a permanent layoff involving 200 or more employees or,

in the case of establishments with fewer than 1,000 employees,

20 percent of the work force. GAO reached by telephone representatives of 90 percent of the 2,400 firms, and identified about

500 that had experienced a closure or a layoff which met the

criteria. GAO then distributed a questionnaire to these 500 firms

on the amount of advance notice and assistance offered to the

workers involved in the closures and layoffs. Preliminary results

of the survey cited here are based on a 70 percent response.
7

cent gave at least some of their workers 1 to

14 days’ notice; 40 percent gave 14 to 90 days’

notice; and 18 percent gave more than 90 days’

notice (table 1).

These figures represent what GAO called

“overall” notice, including either general notice—announcements intended to provide workers and communities with some warning without specifying the exact closure date or which

workers are to be laid off—or specific notice—

which informs individual workers when their

jobs will end—or both. General notice can be

quite useful in letting workers and communities know that they may be facing job losses,

and may be effective in catalyzing adjustment

efforts or planning for worker adjustment services. In the case of a plant or business closure,

general notice and specific notice often amount

to the same thing. However, when mass layoffs

but not closings are involved, specific notice

may be needed before adjustment service delivery can begin; few workers are likely to sign

up for services until they know that their jobs

will be affected.

Of the two types of notice, general notice was

longer than specific notice. Of the establishments surveyed, 18 percent provided more than

3 months’ general notice of closing or mass layoff to at least some of their employees; only 9

percent provided more than 3 months’ specific

notice. Over half (54 percent) of establishments

provided 2 weeks’ or less specific notice; 55 percent of establishments provided 2 weeks’ or

more general notice. It appears that the typical establishment with over 100 workers announces that job losses will occur more than

2 weeks before the occurrence, but gives specific notice to individual workers about 1 week

in advance to blue-collar workers and 2 weeks

in advance to white-collar workers.

The GAO figures are consistent in some ways

but dissimilar in others to figures in a recent

Conference Board report.15 The Conference

Board, like GAO, reported that about 12 percent of firms gave no advance notice of closure,

with some advance notice apparently the norm

for larger establishments and firms. However,

The Conference Board survey reported substantially longer periods of notice given than did

the GAO survey (table 2). Why the difference?

The inconsistencies probably reflect differences in the ways the surveys were conducted

and what was asked. GAO’s figures are based

on a 70 percent response rate; firms that did

not at first reply were contacted repeatedly.

(GAO’s finaI analysis was not complete at the

time of this report; a final response rate near

80 percent is expected.) Also, the firms questioned in the GAO survey were from a stratiTable 1 .—Percent of Establishments Providing

Various Lengths of Advance Notice

Percentage of establishments

Days General Specific Overall

o 20 23 12

1-14 : : : : : : : : : : : : : : : 25 31 30

15-30 . . . . . . . . . . . . . . 19 20 21

31-90 . . . . . . . . . . . . . . 18 17 19

91-180 . . . . . . . . . . . . . 10 6 9

181 or more . . . . . . . . 8 3 9

15 Berenbeim op. cit. p.9

Table 2.—Amount of Advance Notice Given:

Comparison of GAO and Conference Board Figures

Percentage of establishments

or companies

Days GAO Conference Board

o . . . . . . . . . . . . . . . . . . . . . . . 12 13

70 41

91-180” : : : : : : : : : : : : : : : : : : 9 21

181 or more . . . . . . . . . . . . . 9 25

NOTE: The “Overall” category includes all establishments which gave at least

some workers the designated amount of notice. Establishments are included in the category which designates the maximum notice to any workers. For example, if an establishment gave 7 days’ specific notice and

30 days’ general notice, it is included in the ‘(

15-30 days” category.

SOURCE: U.S. Congress, General Accounting Office, “GAO’s Preliminary Analysis of U.S. Business Closures and Permanent Layoffs During 1983 and

1964,” paper for presentation at the OTA-GAO workshop on plant closings, Apr. 30-May 1, 1986,

NOTE: GAO survey figures are for overall notice, including both general and

specific notice. This category designates the maximum amount of general

or specific notice establishments give (see explanation of table 1).

SOURCE: U.S. Congress, General Accounting Office, “GAO’s Preliminary Anal -

ysis of US. Business Closures and Permanent Layoffs During 1983 and

1984,” paper for presentation at the OTA-GAO workshop on plant closings, Apr. 30-May 1, 1986; and Ronald E. Berenbeim, company Programs

to Ease the Impact of Shutdowns (New York: The Conference Board,

1986),
8

fied random sample. Thus, GAO’s results are

derived from a statistically valid representation

of U.S. establishments with 100 or more employees that had plant closings or mass layoffs

in the 2 years 1983 and 1984.

The Conference Board figures are based on

a 27 percent response to a questionnaire that

was mailed to human-resource vice presidents

of 1,900 U.S. companies; one followup letter

was sent to those that did not reply to the first.

The companies selected were the largest (in

terms of sales of services or goods) in seven categories of industry: large manufacturing, banking, insurance, retail trade, gas and electric utilities, diversified services, and transportation;

the selection was not planned to match the distribution of these kinds of industries in the U.S.

economy. Of the 512 companies responding to

the questionnaire, 224 reported that they had

had at least one closure. Major differences from

the GAO survey were the lower response rate

(indicating greater self-selection) and the fact

that the original sample was not selected to represent U.S. businesses generally. In addition,

many of the 224 companies had experienced

more than one closing. According to the report’s author, the more experience with closing the more notice and service a company is

likely to give.16 The Conference Board figures

thus probably represent best practice of large

firms, 17 rather than typical practice.

Comprehensive figures derived by statistically valid methods on who gets advance notice and how much notice is given are available only for establishments with 100 or more

employees, through the GAO survey. Some

good case examples of managing shutdowns

are presented in The Conference Board report

as well. There is little information, however,

on advance notice practices in smaller firms.

It is likely that small businesses give less advance notice of layoffs or shutdowns. Small

businesses may have a harder time anticipating layoffs and very limited resources to manage work force reductions.

lopersona] communication with Ronald Berenbeim, The Conference Board, June 1986.

lpRespondents to The Conference Board survey were mostly

medium-size to large companies; 83 percent had more than 1,000

employees.

Who Gets Notice?

Employers generally give white-collar workers more notice of impending job losses than

blue-collar workers; on average, white-collar

workers receive 14 days’ specific notice of job

loss in plant closings or mass layoffs, while blue-

-collar workers get 7 days’ specific notice.18

Thirty percent of establishments reported they

gave no specific notice to blue-collar workers;

26 percent gave none to white-collar workers.

Sixty-five percent gave blue-collar workers 2

weeks’ or less specific notice, versus 53 percent giving 2 weeks or less to white-collar workers (table 3).

Unions make a difference in the amount of

notice workers get. Eighty-four percent of establishments with union workers gave blue-

-collar workers some amount of general notice;

71 percent of establishments with no union

workers gave general notice. Unionized establishments typically gave longer notice; blue-

-collar workers in establishments with unions

got an average of 2 weeks’ specific notice, while

those in establishments without unions got an

average of 2 days’ specific notice.

Case Study: Silicon Valley

Information on advance notice by industry

is usually not available. For industries with

—.. —

InThis section is drawn from the GAO study; see U.S. Congress, General Accounting Office, op. cit.

Table 3.—Amount of Advance Notice

Establishments Give, By Type of Worker

Percentage of establishments

Days White collar Blue collar Overall

o 26 30 23

1-14 : : : : : : : : : : : : : : : 28 34 31

15-30 . . . . . . . . . . . . . . 19 16 20

31-90 . . . . . . . . . . . . . . 17 13 17

91-180 . . . . . . . . . . . . . 7 5 6

181 or more . . . . . . . . 3 2 3

NOTE: Establishments are included in the “overall” category according to the

maximum amount of notice given to any workers. For example, if an establishment gives 7 days’ notice to one group of workers and 30 days’

notice to another, it is included in the category”1 5-30 days” in the “Overall”

column.

SOURCE: U.S. Congress, General Accounting Office, “GAO’S Preliminary Analysis of U.S. Business Closures and Permanent Layoffs During 1963 and

1964, ” paper for presentation at the OTA-GAO workshop on plant closings, Apr. 30-May 1, 1966.
9

large or industrywide unions, collective bargaining contracts are an indicator of how much

notice is given. Union membership is declining, however, and now represents less than 20

percent of the work force. One of the purposes

of the workshop was to find out more about

how growing industrial and service sectors—

most of which are not heavily unionized—handle mass layoffs and closings. To provide some

information, OTA did a small case study on

worker displacement in California’s Santa

Clara County, a center of the computer and

semiconductor industries,

Up until the mid-1980s, both industries experienced rapid employment growth. Between

1977 and 1984, U.S. semiconductor industry

employment increased by slightly more than

9 percent per year, while computer industry

employment rose even faster, at nearly 10 percent per year, Since early 1985, however, both

industries have faced difficulties stemming

from import competition and leveling or falling demand. Employment in both industries has

declined. In the semiconductor industry, employment in June 1986 was at mid-1984 levels,

having fallen by about 21,000 since its peak in

January 1985. In the computer industry, employment had fallen by over 50,000 since the

1985 peak.

Falling employment has meant widespread

layoffs in the high-tech industries of Silicon Valley. However, layoffs are associated not only

with employment decline; between 1979 and

1984, when California’s high-tech industries added 322,000 jobs, layoffs in high-tech industries

numbered 177,000, N According to Philip Shapira,

who has made a study of displacement and industrial restructuring in California, workers

19 These figures come from an analysis of a Bureau of Labor

Statistics survey of worker displacement over the period from

January 1979 to January 1984. These data, along with additional

information on plant closings and layoffs in the State of California, were analyzed by Philip Shapira, a doctoral candidate at

the University of California, Berkeley. The high-tech industries

analyzed included a number of sectors besides the computer and

semiconductor industries, which accounted for 30 percent of

California’s high-tech employment in 1984. See Philip Shapira,

“Industry and Jobs in Transition: A Study of Industrial Restructuring and Worker Displacement in California, ” unpublished

draft doctoral dissertation, Department of City and Regional Planning, University of California, Berkeley, 1986.

from high-tech industries “experienced a significantly longer median period of unemployment than basic industry workers. ” Part of the

reason, according to Shapira, is that high-tech

workers are less likely to have received advance

notice of layoffs than basic industry workers.

Shapira’s analysis of the Bureau of Labor Statistics’ data shows that 54 percent of California’s displaced workers “received advance notice or expected layoff” (the survey question

was phrased in this way), But only 45 percent

of California’s high-tech workers received advance notice or expected to be laid off.

Shapira’s findings for California high-tech

workers are in line with the findings of the case

study of advance notice and adjustment services in Santa Clara County commissioned by

OTA. Interviews with workers, company spokesmen, employment experts, and industry experts

in California found that laid-off workers in Silicon Valley typically get little or no advance notice, a small amount of severance pay (about

2 weeks), and minimal or no help in finding

a new job.20 In part, this may reflect the fact

that many high-tech firms in Silicon Valley are

relatively small, with limited ability to anticipate future conditions or to withstand even

short business downturns without cutting costs,

Andrew Johnson, of the Electronics Association of California, cites the example of a company that makes machines in which semiconductor chips are baked. The firm, with annual

revenues of about $20 million and 160 to 170

employees, competes with at least three similar small companies and several much larger

companies. One of its machines costs $950,000,

“When a couple of the company’s customers

back off from previously stated intentions to

buy one of these machines or actually cancels

an order, it makes a substantial impact on the

company’s financial status. The company’s abil20 David Sheridan, “Worker Displacement in the California

High-Tech Industry: A Report to the Office of Technology Assessment ,“ contractor report prepared for the Office of Technology

Assessment, May 1986. A case study of job security in Massachusetts high-tech industries had similar findings. Of 23 firms

studied, there was “no evidence of any firm giving more than

one day notice to affected employees. ” See The High Tech Research Group, “Whatever Happened to Job Security? The 1985

Slow Down in the Massachusetts High Tech Industry, ” January

1986.

62-642 0 - 86 - 2 : QL 3
10

ity to predict accurately, say, six months ahead

of time how many employees it will need is not

very good.

Small firms may indeed have special difficulties anticipating cutbacks. However, thousands

of the layoffs in Silicon Valley occurred in medium-size and larger firms, and many of these

firms also laid people off without notice. In

1983, the Atari computer and video games subsidiary of Warner Communications terminated

nearly 600 employees with no prior warning.

According to newspaper accounts, the workers were called off their jobs, informed that they

were no longer needed, and immediately escorted out of the plant by security guards.

Intel, a company with 21,500 employees in

1984, laid off 2,000 employees in 1985 and 1986,

and gave no notice. Intel did provide employees with severance pay and opened a placement

center to help its laid-off workers find jobs. Several other large or medium-sized high-tech companies also dismissed workers without advance

notice in 1986.23

Another likely reason for limited or no notice in Silicon Valley is that almost none of the

high-tech firms there are unionized, and establishments with unions are more likely to give

advance notice than those without.

While the general picture in Silicon Valley

is of workers receiving little or no advance notice, there are important exceptions.24 Apple

Computer, Inc., decided that it had to close

down three of its less-automated microcomZlsheridan, op. cit., pp. 26-27.

a~j)aniel A. Beucke, “The Ax Falls in silicon Valley, ” fhln ]058

IUemuqy, Mar. 28, 1983; “Atari Ex-Employees Sue, Charging Firm

Concealed Layoff Plan,” WaZIStmetjournal, Aug. 16, 1983; Tamar

Lewin, “Workers’ Rights in a Closing Tested,” New York Times,

July 19, 1984. In the Atari case, an out-of-court settlement was

subsequently reached in 1986 in which 535 workers laid off without notice each received $1,11!3 from the company. The payment

represented the average salary of the workers for 4 weeks.

z~see for example Carrie Dolan, “High-Tech Concern’s Sudden Fall Leaves Small Town With Problems and Questions,” Wall

Street Journal, Feb. 22, 1984; Mary A. C, Fallen and Ray Alvereztorres, “Out of Work—Overnight: In this Valley, Pink Slips Often

Come With No Notice,” San Jose Mercury, June 16, 1986; Karen

Southwick, “The Rush To Push Fired Workers Out the Door,”

San Francisco Chronicle, June 16, 1986; see the section entitled

“Response to Advance Notice” for discussion of employer-provided services to displaced workers.

24The following examples are from Sheridan, op. cit.

puter plants during the personal computer glut

in early 1985. The 750 permanent employees

who worked at these three plants—one in Mill

Street, Ireland, one in Garden Grove, California, and one in Dallas, Texas—received 2 to 3

months’ advance notice of their layoffs, and

help from what turned out to be an exceptionally successful outplacement center.25 These

cuts, however, were not enough; Apple was in

deeper trouble than initially thought. A few

months later, Apple laid off an additional 450

permanent employees throughout the company,

most of whom received 2 weeks’ advance notice. All of them, however, even those just hired,

received at least 6 weeks’ severance pay, and

were given first crack at jobs when Apple began hiring again.

Notably, some Silicon Valley companies were

able to survive the downturn without layoffs.

Advanced Micro Devices, Inc. (AMD), like

other semiconductor firms, showed net losses

in quarterly reports during the downturn, and

sales dropped 50 percent between December

1984 and December 1985. AMD had a company

policy of no layoffs, handed down by its CEO

Jerry Sanders, who had been fired by another

high-tech company years before. AMD avoided

layoffs by cutting executive and professional

salaries 10 to 15 percent, deferring all pay increases, and freezing hiring. AMD did shed

about 1,000 workers through attrition, but

nobody was laid off involuntarily throughout

1985. 28

Another way Silicon Valley companies avoid

layoffs is through the employment of part-time

and temporary workers. The use of temporary

employees is an increasingly prominent feature

of Santa Clara County’s high-tech industries.

Nationwide, 1 of every 165 workers is a temporary; in Silicon Valley the ratio is 1 in 60,

25Some 1,500 temporary employees who were also let go received no notice or severance benefits, See the following discussion of temporary employees in Silicon Valley.

Z61n August 1986, after continued financial losses, Advanced

Micro Devices announced the dismissal of 200 employees with

less than 1 year on the job—the company’s first dismissals in

a decade. At the same time, AMD rescinded its no-layoff policy

for employees with more than 1 year of service. See Brenton

R. Schendler, “Semiconductor Indicator Fell Again in July,” Wall

Street Journal, Aug. 13, 1986.
11

and the number is growing. According to an

official in the San Jose office of California’s Employment Development Department, the use of

temporaries is “one of the most striking trends

in the Silicon Valley work force since 1980. ”27

The temporary agencies fill all kinds of jobs,

from software designer to quality control inspector to word processor or assembler.

To employers, the advantages of temporary

workers are that they can be quickly hired and

fired, without advance notice or severance benefits; they often do not get other costly benefits; and they can provide a buffer for companies that want stable employment policies for

their regular employees. The disadvantages of

having too many temporaries are that they can

hardly develop a sense of company pride or camaraderie, and any training they get is lost

when they leave. From the employees’ point

of view, freelance work can be highly rewarding if one has skills that are in demand—in software design, for example. For workers in the

much more numerous, less skilled jobs—such

as assembling circuit boards, stocking shelves,

or cleaning out chemical tanks—intermittent

jobs and pay can make for a precarious existence. The San Jose Mercury News calls these

temporaries “migrant electronic workers.

At least one company (Intel) is creating a

“flexible work force program,” in an effort to

overcome the drawbacks of employing temporaries. The flexible workers must agree that they

can be called on to work as much as 40 hours

a week or as little as none. It is expected that

they will average 20 to 25 hours a week, and

they will receive partial benefits. The company

ZT1nterview with RiCa Pirarli, San Jose office, California Employment Development Department, Apr. 28, 1986, reported in

Sheridan, op. cit.

ZaSheridan, op. cit .

anticipates that most of these jobs will be filled

by women who do not want to work full time

because they have children at home.

Company practices in Silicon Valley are diverse, but there is something of an industry

norm. Although some companies provide advance notice; most provide little or none. Some

companies provide worker adjustment and outplacement services, but most workers do not

receive such services, either from their companies or from government programs.

Companies that provide notice and services

generally do so because advance notice is seen

as good for business and community goodwill.

According to The Conference Board:

Company managers responsible for closure

believe that advance notice, combined with

generous severance plans, reduces pressure

and anxiety, generates good will, and contributes to improved productivity. 

Jay Elliott, Apple’s Vice President for Human

Resources, puts it this way:

Talent is a strategic consideration in the electronics business. People aren’t interchangeable parts like in the old smokestack industries

where machines were basically more important than people, We don’t go out, hire someone, hand him a lug-wrench, and tell him to

screw bolts all day. You have to value people

and their input . . . Frankly, when we laid people off last year, we were as concerned about

the impact on the people who weren’t laid off

as much as on those who were. If you don’t

treat the people who are being laid off with

dignity–share the responsibility for finding

another good job—then it sends a message to

the employees still with you that they are expendable.30

2QBerenbeim, op. cit., pp. 7-8.

Sosheridan, op. cit., p. 11.
COSTS AND BENEFITS OF ADVANCE NOTICE

. advance notice of major employee displacement to the workers, the union, and the

appropriate government and community agencies is a procedural prerequisite for constructive action,31

–George P. Shultz and Arnold R. Weber, 1966

Twenty years later, the Shultz and Weber prescription is still widely—though not universally

—accepted. Early warning of plant closings and

major layoffs gives companies, labor groups,

and government agencies time to organize assistance for displaced workers, and it gives the

workers time to think about their options and

adjust their plans. Advance notice alone, however, is not enough; it needs to be tied to prompt

effective action to help displaced workers find

or train for adequate jobs. It is a “prerequisite

for constructive action,” not the constructive

action itself.

Despite broad agreement that advance notice

is desirable, people strongly disagree on whether

governments ought to require it. With very few

exceptions, American businesses oppose any

government requirements for advance notice,

including ones that allow pay in lieu of notice

or grant exceptions for unforeseeable business

circumstances. The general objection to a legal requirement is that every case of a plant

closing or major layoff is different, and a mandated minimum notice period would not take

this diversity into account. Also, some argue

that emphasis on advance notice is misplaced,

because a company’s commitment to its displaced workers, and effective programs to help

them, are more important. Labor union representatives argue, on the other hand, that while

advance notice alone is not sufficient, it is necessary, and should be required. Many labor

spokesmen favor broader obligations on employers, including consultation with workers

on whether the layoffs might be avoided and,

if the layoffs do take place, extension of benefits such as health insurance.

slGeOr8e shu]tz and Arnold R. Weber, Strategies for the Displaced Worker (Westport, CT: Greenwood Press, 1966), p, 190.

The discussion that follows considers the benefits of advance notice apart from the issue of

mandated notice. The benefits to affected workers would be similar whether notice were provided as a result of legal requirements, government encouragement or incentives, collective

bargaining with unions, or voluntary action by

employers; and there is widespread agreement

on the nature of the benefits. No inference

should be drawn that the benefits described

here depend on mandated notice, or that there

is agreement on mandated notice.

It is more difficult conceptually to consider

costs of advance notice apart from the issue

of a legal requirement, since most of the costs

fall on employers, and if employers voluntarily provide notice it maybe presumed that they

have found that the benefits to them outweigh

their costs. Some costs can be examined in the

context both of voluntary employer action and

of a legal mandate, but much of the section on

costs assumes that notice would be legally required. There is less agreement on the nature

of the costs of advance notice than of the benefits; for the description of costs OTA has relied

mostly on the arguments of business spokesmen and, insofar as information was available,

on business experience. Also, the discussion

focuses mainly on the costs of advance notice

to business and the benefits to individual workers, even though other parties are sometimes

affected too. For example, customers and creditors of a firm which is planning to close may

benefit from advance warning of the closure

while the firm itself might suffer.

OTA’S analysis of costs and benefits of advance notice is based as much as possible on

experience, not hypothetical cases. It is drawn

from the GAO survey of plant closings and major layoffs in establishments with more than

100 employees; the OTA-GAO workshop on

plant closings and further discussion with participants; a report to OTA from, and discussions

with, consultants who have helped a number

of large companies plan and set up displaced

12
worker services; discussions with officials of

Canada’s Industrial Adjustment Service (IAS),

which has more than 20 years experience in

helping set up labor-management adjustment

committees to serve workers displaced in plant

closings and mass layoffs and OTA case

studies of firms in the U.S. and Canadian forest products industries and of high-tech firms

in California’s Silicon Valley. Much of the material is anecdotal, and does not represent every

kind of company in every kind of business situation. In particular, it proved difficult to collect first-hand information from small companies with experience in plant closings and large

layoffs; one reason is that small companies

which have had these experiences often go out

of business, There is considerable variety in the

cases studied, however; interviews were conducted in firms of various sizes and industries,

in firms that do provide advance notice and

firms that do not, and in firms that provide various kinds and levels of services to displaced

workers.

Benefits, and Relation to

Worker Adjustment Programs

The best time to start a project for displaced

workers is before a plant closes or mass layoffs

begin; advance notice makes early action possible—although it does not guarantee it. Some

of the advantages of early warning are: 1) it is

easier to enroll workers in adjustment programs

before they are laid off; 2) it is easier to enlist

managers and workers as active participants

in displaced worker projects before the closing or layoff; 3) with time to plan ahead, services to workers can be ready at the time of layoff, or before; and 4) with enough lead time,

it is sometimes possible to avoid layoffs altogether. Knowing in advance about a coming

layoff is obviously of some value to individual

workers too, even if they do not get help from

an organized project, They have the opportunity to adjust financial plans and get a head

azsee U.S. Congress, Office of Technology Assessment, OP. cit.,

pp. ‘220-222 for a brief description of the Canadian IAS—how

it works, what it costs, and what it achieves.

start on job hunting. In addition, many company managers see advance notice as a benefit

to the company itself, by improving relations

with the remaining workers, enhancing the

company’s reputation in the community, and

conforming with company values of fair and

ethical treatment of its employees.

Worker Participation

Displaced workers are more likely to take part

in adjustment projects that begin before a plant

closing or major layoff.33 Not only is it far simpler to find and communicate with workers before they are out of work and out of touch; the

period between the announcement and closing is also critical to gaining the workers’

trust—to assuring that someone will be there

to help after they are laid off, and that the services will be worthwhile. The most effective displaced worker projects offer a broad range of

services, including job search instruction, job

development and placement assistance, testing

and assessment as needed, vocational and educational counseling, personal counseling (especially financial and consumer credit counseling), vocational skills training, on-the-job

training, and remedial education.34 In the period

between announcement and layoff, workers

can readily find out what the project will offer

through orientation sessions, bulletin board announcements, union newsletters, and personal

counseling.

ssThe Downriver Community Conference, for example, found

that if services are available before the plant closes, 50 percent

of the workers take advantage of them; up to a year after closing, 35 percent sign up, and after 2 years, 17 percent participate. See Kathleen Alessandro and W, Robert Schneider, “Case

Study —Retraining Workers Displaced From the Automotive

Industry Into Robotic Technicians, ” paper presented to the society of Manufacturing Engineers (Dearborn, MI: Society of Manufacturing Engineers, 1984). The Philadelphia Area Labor-Management Committee reports that when job search workshops are

given before layoffs, 70 to 80 percent of the workers participate;

afterwards, the participation rate drops off to less than 20 percent. See James Martin and Anthony Wigglesworth, “LaborManagement Cooperation at Kelsey-Hayes Leads to Help for LaidOff Workers,” a Labor-Management Cooperation Brief, U.S. Department of Labor, Bureau of Labor-Management Relations and

Cooperative Programs, May 1985,

slFor a description and analysis of displaced worker projects,

see U.S. Congress, Office of Technology Assessment, op. cit.,

ch. 6.
14

While displaced worker projects have been

started more than a year after the plant closing, and have given valuable services to workers, participation in these circumstances is low.

For example, a well-planned, high-quality project was created under a union-management

agreement in Midland, Pennsylvania, nearly a

year after 4,300 workers were displaced in a

steel plant closing. With an energetic outreach

campaign, which included knocking on doors

to acquaint people with the program and making follow-up telephone calls to those who did

not enroll, the project eventually served about

1,250 displaced workers over a period of nearly

3 years. Considering the late start, the Midland

project’s participation rate of 29 percent is unusually high; it reflects the extra efforts put into

outreach and the general excellence of the project’s services. By contrast, however, over 250

workers showed up at an orientation session

held in a Vincennes, Indiana, battery plant after notice was given that the plant would be

closed. At the time, 192 people were still working in the plant, and 146 former workers were

also invited to take part. Of the 338 eligible displaced workers, 186 (55 percent) enrolled in the

project; three-quarters were placed within a

year, despite a local unemployment rate of 11.6

percent.

Officials of Canada’s IAS also report difficulties with enrollment after the plant closes. “You

have to get a copy of the payroll just to find

the people, ” said one. “It’s so much work, so

hard to get people to come—they have to come

at their own expense, maybe hire a baby sitter,

and they’re skeptical that they’ll get anything

out of the program. ” In a small community

where everyone knows everyone else, it may

be worth the effort to try to reach and enroll

displaced workers, but in a big city the chances

of success are usually slim.

The question may be asked whether people

who do not enroll actually need services; do

they simply find jobs on their own as time

passes? Certainly, many do. But the evidence

is that, on average, displaced workers who take

part in adjustment projects get jobs sooner, stay

employed more steadily, and earn more than

they would without such help.35 People with

long experience in providing services to displaced blue-collar workers estimate that about

one-third of those laid off could probabIy fare

quite well on their own.36 The other two-thirds

are likely to do a little worse to much worse

without assistance than with it: some remain

out of work for long periods; some take parttime or poorly paid work, or work intermittently; some depend on spouses; and some become deeply discouraged and abandon the labor force.

Labor-Management Involvement

Some of the best projects serving displaced

workers are those based in plants that are closing or undergoing major layoffs, and are run

by people who work at the plant on both the

labor and management sides. Plant-based labormanagement committees have a personal stake

in the outcome and know the workers involved.

They also know the local business community,

and are often able to turn up job openings

among their acquaintances. Many employers

can contribute space in the plant for a reemployment and retraining center, and they can

supply staff, from both the company and labor

sides, to operate the project before and after

the layoffs. A strong union role contributes to

worker acceptance and trust. Moreover, company and union people, when qualified, are

especially effective as staff. Where unions do

not exist, employee representatives can also

serve effectively. Canada’s IAS, for example,

has quite often helped to establish joint workermanagement committees in non-union plants.

Most of the plant-centered projects that have

been created in this country, however, did result from company-union cooperation.

An especially valuable service employers can

offer before a major layoff is to invite prospective employers into the plant, to let them get

35u4s. congress, Office of Technology Assessment, oP. cit. t

pp. 231-233, 236-238.

soKevin Ba]fe and Ruth Fedrau, “Summary Report: Review and

Analysis of Company/Union Sponsored Comprehensive Displaced Worker Assistance Centers Receiving JTPA Title III Support,” report to the Office of Technology Assessment, April 1986.
15

acquainted with the workers while the plant

is still operating. Managers in many kinds of

firms have used this job-finding method successfully. A senior analyst in one business organization says:

Local employers don’t always realize that

some of the experience gained in large industrial plants (e.g., maintenance, shipping, etc.)

is readily adaptable to their own needs. There

may also be unfounded prejudice against the

work force in a plant that is closing. (’They were

overpaid and underworked. ’) Visits to a functioning plant have, in many instances, dispelled

these doubts, sT

The best time to enlist management and workers as active participants in displaced worker

projects is before the plant closes or layoffs begin. Labor-management teams can be created

afterwards—even as much as a year afterward,

as happened in the case of the Midland, Pennsylvania, steel mill mentioned above. This team

was formed, however, in rather special circumstances: a new owner, LTV Steel Co., bought

the plant and restarted operations with a small

work force of 300. Under its contract with the

United Steelworkers of America, LTV agreed

to mount a joint reemployment-retraining effort to serve the workers who had already been

laid off. More often, however, the chance to

form a labor-management adjustment committee is lost once the plant is closed. According

to a report of The Conference Board:

Notice is . . . critical because a functioning

plant is, perhaps, the program’s single most important resource.38

Preparation Time

The peak demand for help in finding new jobs

or entering training usually comes in the days

immediately following a plant closing. A second peak often comes about half a year later,

when unemployment insurance is near exhaussTRonald E. Berenbeim, Senior Research Associate, Corporate

Relations Research, The Conference Board, letter to Julie F. Gorte,

Project Director, Office of Technology Assessment, July 10,1986.

J8Rona]d E. Berenbeim, Company Programs To Ease the IMpact of Shutdowns (New York: The Conference Board, 1986), p. 7.

tion (this pattern holds in Canada as well as

in the United States). Both because many workers are eager to start job hunting or retraining

as soon as possible after layoff, and because

a good displaced worker project can encourage

others to do so, service providers agree that the

project should be ready the first workday after

the plant closing, or earlier if possible. For

workers who are interested in training courses

to improve their skills, an early start is especially important, since unemployment insurance—the main source of income support for

most displaced workers in training—is generally limited to 26 weeks.39

How much time does it take to plan and set

up a good project?40 The ideal combination is

several months’ advance notice—clear, certain

notice, with no wavering’or ambiguity—and

preparedness on the part of company, union

(if there is one), and government agencies, With

strong management and labor commitment,

plus experienced public or private help, it is

possible to set up a worthwhile project in less

time, sometimes as little as a few weeks. With

the shorter preparation time, however, services

such as training courses and job development

will not be ready when the project opens. Also,

several extra weeks are useful to help workers

come to terms with the job loss. There is some

limited evidence that very long advance notice

of more than a year may be less than ideal for

worker adjustment projects. However, it may

be that in the few cases where long notice appeared to inhibit effective adjustment services

the real culprit was not length of notice but

uncertainty—either about the layoff itself, or

about which people would ultimately lose their

jobs.

OTA’S information about worthwhile projects set up on very short notice in U.S. plant

closings and layoffs comes from a few cases

involving large companies (in the Fortune 500

s9FOr discussions of income support for displaced workers during training, see U.S. Congress, Office of Technology Assessment, op. cit., pp. 63-64, 256-258.

qOThe material in this section on the time and other factors

required to set up an effective plant-based displaced worker

project is drawn mostly from Balfe and Fedrau, op. cit.
16

class) with a strong commitment to serving their

displaced workers and the resources to provide

startup funds for the project, the partnership

of unions or worker representatives, expert private consultants, and an unusual degree of cooperation from the public agencies that controlled JTPA Title III funds .41 Preparedness for

fast action on the company’s part has included

these elements:

●

●

●

●

●

●

plans at the division or corporate level to

provide help to displaced workers, including commitment of company resources—

especially space and staff;

assignment of decisionmaking authority to

someone at the company or division level,

and designation of someone in the plant

to take charge of the company’s part of the

program;

willingness to work with the union (if any)

in planning and service delivery;

announcement of a worker assistance program at the same time as the plant closing

announcement;

specific plans to do the necessary homework, such as collecting information about

worker needs and characteristics and estimating costs of the program; and

plans to find out what public funds and programs are available, and readiness to-negotiate with State and local agencies to get

them. In all the cases of projects starting

up on very short notice that have come to

OTA’S attention, the company has been

willing and able to pay the costs of operating the worker assistance center for a time,

while negotiating with public agencies for

additional funds.

For unions, an important element in preparedness is experience with worker assistance projects and a conviction that the services the projects offer are helpful. Also, unions as well as

companies can contribute knowledge of and

access to JTPA Title III programs.

An essential element for setting up a good

project quickly is expert technical assistance.

This may be obtained from private consultants,

qlBalfe and Fedrau, O P. cit.

as is often the case in the United States, or from

a government agency. The ability of JTPA Title III programs to respond promptly to plant

closings with technical assistance, money, or

both is discussed in another section below.

In Canada, about three-quarters of the work

force is covered by Provincial and federal laws

that require advance notice; the notice required

varies from 8 to 16 weeks, depending on the

numbers of displaced workers involved. In

addition, many employers voluntarily give this

much or more notice in Provinces that do not

legally require it; or unions, local officials, or

the news media may provide early warning.

According to several Canadian IAS officials,

it takes all of the 8 to 16 weeks to prepare effectively for the day after the closing or layoff,

when demand for services is at a peak. The

preparation involves counseling and assessment of workers, initial negotiation with government agencies for training and other services,

and, most importantly, finding job openings in

the hidden job market (i.e., openings that are

never publicly announced) in the local and surrounding communities.

Having all the work of preparation done at

the time of layoff is the ideal situation. However, some IAS officials report that they have

given useful service even with the handicap of

very little notice (which may occur in Provinces

that do not require advance notice and in cases

of business failure in Provinces that do). With

its years of experience and well-developed ability to respond rapidly, the IAS can move into

a plant in a matter of hours and, at the least,

help to establish a labor-management adjustment committee with the promise of effective

services to come. As one IAS official put it:

Notice is great, and the more we have the better we can prepare. But notice itself is not

enough. The process that goes with it is important.

The process that goes with it is not always

enough either. Also important, indeed critical,

is the state of the local economy. If unemployment is high and the local labor market narrow, it is a forbidding task to turn up jobs, even

with the advantages of advance notice, early
17

planning, and good operation of a displaced

worker project. This reality is reflected in comments from company managers with experience in plant closings and permanent layoffs.

In most companies that have tried giving advance notice, human resource directors are

convinced of its value to displaced workers. A

few, while favoring it as a decent way to treat

employees, rate it as not very significant in helping the workers get a new job.42 The few who

expressed this opinion had had experience with

closing plants that were the sole source of economic life in the community—’’the only game

in town. ” Where there are no other jobs except

those connected with the plant that is closing,

advance notice may be of less value.

Avoiding Plant Closings and Layoffs

Some of the support for requirement of advance notice comes from the idea that, given

enough warning, management decisions to

close plants or lay off workers may perhaps be

changed, or a new owner—possibly the employees themselves—be found. Another possibility

is that, with enough time and advance planning,

companies can avoid mass dismissals through

a combination of tactics such as incentives for

early retirement, severance pay that bridges to

retirement, transfers to other company plants,

and normal attrition.

In some cases, early warning that a firm is

in trouble, combined with assistance from government agencies and communities, have helped

to turn the company around and avoid closure.

In others, the changes needed for survival are

so great that closing down is the only reasonable option. Moreover, when large multibranch

firms decide to close down a plant or product

line for strategic reasons, these decisions are

not often amenable to change. Several critical

elements are important to the success of efforts

to keep a threatened plant in business. Among

the key questions are these: 1) Are there realistic prospects for profitability, for either the

present owners or others? 2) Are both manage4ZTW0 officials of forest products companies interviewed by

OTA staff expressed this opinion. See the discussion in the section entitled “U.S.-Based Companies in Canada: The Forest Products Industry. ”

ment and labor willing to make sacrifices to

create a more productive, efficient, profitable

plant? 3) Is there enough time?Aa

The advance notice required under various

laws and proposals in the United States and

Canada is generally about 2 to A months–long

enough to prepare displaced worker services

but usually too short for rescue of a troubled

firm. Although there are instances where even

quite brief advance notice of a closing has triggered labor-management efforts or community

assistance that helped the plant to survive, this

seems to be an infrequent occurrence.44 Possibly, attempts to avoid a plant closing might have

the untoward effect of undercutting efforts to

find new jobs for displaced workers, by adding an element of uncertainty. Workers who

have put in 15 or 20 years at a plant, and often

have gone through several temporary layoffs,

usually find it hard to believe that a plant is

really closing. To first give notice and then

search for alternatives to a closing or layoff

might fortify the doubts. For this reason, many

managers think it is not a good idea to give notice until the company has made a firm decision to close the plant.

There may, however, be some less direct and

more positive connections between advance notice and saving jobs. An example is in Massachusetts, where the Governor’s Mature Industries Commission of 1984 developed a “social

compact” that encourages companies to give

displaced workers advance notice (9o days if

possible) or pay in lieu of notice, extension of

health benefits, and reemployment assistance.

qsFOr a brief discussion of conditions in which government

or community assistance may help to save troubled plants, see

U.S. Congress, Office of Technology Assessment, op. cit., pp.

209-211.

AqThe little quantitative evidence on the subject indicates that

advance notice does not often directly prevent plant closures.

See Anne Talcott Lawrence, “Organizations in Crisis: Labor

Union Responses to Plant Closures in California Manufacturing 1979 -83,” unpublished doctoral dissertation, Department of

Sociology, University of California, Berkeley, November 1985,

pp. 167-169, 172-173. However, there are indi~idual cases in

which closing decisions have been altered after advance notice

was given. An example was the reversal of a 1983 decision by

the Kelsey-Hayes jet engine company to move out of Philadelphia. City officials helped the company find a new site, where

the plant reopened and retained about half its original work force.

See Martin and Wigglesworth, op. cit.
18

Companies that get financial assistance from

certain quasi-public State agencies must, by

law, abide by the social compact insofar as possible.45 The State encourages others to do so.

As part of the same program, Massachusetts

also offers technical assistance and “high-risk

financing” for firms that are in trouble but considered viable. By May 1986 the State’s Industrial Services Program had worked with 88 companies, with 73 still surviving. According to

State officials, the connection between advance

notice and the program of assistance to troubled firms is “nebulous” but does exist. Although plant closing decisions, once announced,

are rarely reversed, the law has on the whole

drawn attention to the possibilities of avoiding closings and layoffs. Also, the State sometimes helps to arrange a sale to a new owner

after a plant has closed, and it provides funds

to do evaluations of worker buyouts. -

In firms that are not going out of business

but are reducing their work force, advance planning can help to limit or avoid layoffs. Again,

the connection with advance notice is not very

clear. For example, a pulp and paper plant operated by a Canadian subsidiary of a U.S. firm

(described in a later section) has eliminated

about 200 of 870 positions in less than 2 years,

in the course of modernizing the plant. So far,

no one has been laid off involuntarily. The company has handled the job reduction by early

retirement, large severance payments to senior workers who leave voluntarily, and the use

of surplus workers for vacation replacements.

Company managers are counting on attrition

to open permanent jobs for these floating workers. The impetus for the company’s planning

to avoid layoffs was an economic development

grant it got from the federal and Provincial

governments, on the condition that the impact

on workers of the modernization be kept to a

minimum. At one point, when it was not clear

that layoffs could be averted, the company gave

advance notice to 140 workers; this was useful

in helping workers to face the reality of work

qSThe law does not strictly require adherence to a single set

of standards for advance notice or benefits to workers; its requirements are applied by State officials with regard to the circumstances of individual firms. See the later discussion in app. B.

force reduction, according to company officials. But advance notice was only one piece

of the company’s program to avoid layoffs as

much as possible.

As discussed in a later section, some countries require consultation with worker representatives before group layoffs can take place.

The purpose is to require consideration of alternatives to the planned layoffs or plant closings

that will avoid, or at least mitigate, job losses.

Critics of mandatory consultation argue, however, that it interferes with managers’ freedom

to make decisions and thus hinders flexibility

and economic growth. Adding substantial costs

to closing down a business makes it harder to

start one up, they say.46 Whenever a proposal

to require consultation before mass layoffs has

been made in the United States, it has generated heated controversy, with business people

mostly in strong opposition and many labor

spokesmen in favor. In voting on H.R. 1616 in

November 1985, the House of Representatives

rejected such a requirement.

At the workshop, one union official said:

At least we can talk. It’s a myth that companies should have absolutely no infringement on

their unilateral decisions to close plants, decisions that affect thousands of people. What’s

wrong with talking about it? After you talk

about it then go ahead and make the decision.

Business spokesmen at the workshop, like employers generally, thought that any requirement

for consultation before layoffs would be harmful to economic health. Some said, however,

that they did not necessarily oppose voluntary

consultation. when a closing or mass layoff is

in prospect, voluntary consultation with workers may sometimes lead to bargaining for concessions on wages or work rules to help keep

the plant going.

Although advance notice may only seldom

prevent plant closures, it does seem to improve

the chances of a union’s negotiating ad hoc

severance benefits packages for workers caught

‘For an exposition of this argument see, for example, Lawrence

B. Fine and Steven R, Wall, “Plant Closing Laws: More Harmful

Than Helpful?” Legal Times, Oct. 28, 1985.
19

in the closing,47 Under U.S. labor law, companies have no legal obligation to bargain with

unions over the decision to close a plant, but

employers are required to bargain in good faith

on the effects of the closure on employees. Ad

hoc plant closure agreements, negotiated after

announcement of a closure, range from minimal requirements, such as for payouts of unused vacation time, to complex pacts covering

severance payments, extended health benefits,

rights of transfer to other plants, early retirement, and other benefits.

A study of labor union responses to plant closings in California in 1979 to 1983 found that

“the single most important predictor of the union’s success in winning ad hoc severance benefits (whether or not it already has provisions

in the contract) is the amount of advance notice it receives of the closure. ”48 The greater

the advance notice, the greater the chance of

getting an agreement, with the chances rising

from 8 or 9 percent when O to 3 weeks’ notice

is given, to 59 percent with 4 to 12 weeks’ notice, and to 80 percent with more than 12 weeks’

notice.

Benefits to Companies

Many companies have voluntarily adopted

a policy of giving advance notice of permanent

layoffs or plant closings to all employees whenever possible. Often, the foremost consideration is ethical; managers say: “We owe these

people something,” or “we believe in fair treatment for our employ ees. ” They also mention

the advantages of earning loyalty and better regard from remaining workers, as a result of fair

treatment for those they have to let go, and enhanced standing in the community, In addition,

companies may benefit from lower unemployment insurance taxes in the future if they can

help to shorten the period of unemployment

for their laid-off workers. However, State systems vary. In many, the experience rating of

employers is inadequate, so that UI tax rates

do not accurately reflect the frequency or length

of unemployment that a company’s employees

experience.

4TL~Wrence, Op. Cit., PP. 170-1 77”

qaIbid., p. 171.

Benefits to Individual Workers

Aside from what organized programs can do

for displaced workers, people benefit from

knowing if their jobs are about to vanish. They

can avoid some financially disastrous decisions

–buying a new car, for example, or deciding

that the family can do without the extra money

from a spouse’s job. Some workers will use the

time to think about new jobs, or perhaps a

change in occupation, and to come to terms

with the loss of the old job. Despite the common observation that many workers do not believe that the plant will close until the day it

happens (sometimes, not until a plant is torn

down), some do begin to adapt when they receive notice, taking such practical steps as preparing resumes and making contacts with potential employers. Hardly anyone, on principle,

disagrees with Stan Winvick, Vice President

of Human Resources at the California semiconductor firm, Advanced Micro Devices, Inc.:

When a company is considering a step as

drastic as pulling someone’s job out from under them, that person has a right to know what

is going to happen to them and try to plan for

it,49

costs

Opponents of legal requirements for advance

notice usually agree that notice is humane, decent, and helpful; many business people who

oppose legal requirements report that their own

firms give as much notice as possible. They also

emphasize, however, that a good program of

adjustment services far outweighs in importance the benefits of advance notice per se.

Against mandated advance notice they argue

the need for flexibility; they do not believe that

they will get it from government, even if the

law has escape clauses. Legal requirements,

some say, inevitably imply red tape, audits, and

government interference. Most employers prefer voluntary cooperation with public agencies

on worker adjustment programs; they say that

you cannot legislate corporate responsibility.

In their view, the benefits of mandated notice

are not worth the costs. A few think that volun49 sHERDIA N
20

tary advance notice, as a company policy, is

also too costly. The costs most often mentioned

are possible losses of a firm’s credit, customers, and key employees. The risks of these losses

are seen as greater for smaller businesses.

As noted above, OTA relied as much as possible on experience and empirical data in analyzing costs and benefits of advance notice.

Since notice is not required in most of the

United States, companies that voluntarily give

notice or include it in collective bargaining contracts have presumably found that the benefits,

from their perspective, outweigh the costs.

Those that do not give notice may have concluded that the costs are greater than the benefits—but empirical evidence of the costs is lacking in such cases, because notice was not given.

Where possible, this section relies on the experience of firms that gave advance notice;

however most of the section relies on the judgment and opinion of business representatives.so

Every Case Is Different

It is argued that advance notice does not make

sense in some cases. For example, a large multibranch company in many lines of business

decides to sell off one of its lines—telephone

handsets, say. Included in the sale is the company’s order book (which lists its customers)

as well as all its plants that manufacture handsets. Up to the last minute, the company tries

to sell all of its plants, but only three of four

are finally sold. It is useless to continue production in the fourth plant, because the product name and customer list have been sold along

with the other three plants. In the real case on

which this example is based, the company customarily gives advance notice of closings or

layoffs. In this instance, it did not give notice.

Workers who lost their jobs in the plant that

remained unsold and had to be closed received

sOEvidenCe from Canada would be useful, since about threequarters of the Canadian work force is covered by advance notice requirements. OTA is not aware of any systematic survey

of Canadian firms to discover costs that maybe associated with

advance notice in that country. Statements from the Canadian

and Ontario Chambers of Commerce, information from Canadian Government ministries, a literature search, and OTA’S case

study of U.S.-based forest products companies in Canada all suggest that advance notice is not a controversial issue in Canada.

up to 4 weeks’ extra pay in lieu of advance notice, in addition to regular severance pay. Pay

in lieu of notice is an option that some legislative proposals (e.g., H.R. 1616) mandating notice have included. But, as noted above, companies prefer to avoid the regulation and audits

that they see as tied to legal requirements. Also,

some want to be free to negotiate with unions

on other alternatives to advance notice—for example, extended health benefits.

Small Business

One aspect of the need for flexibility is that

small businesses face unique problems, which

need to be better understood. It is hard enough

for the owner of a small business to keep up

with his cash flow problems, said one businessman, much less with advance notice of layoffs.

“You talk to a small businessman about 2 or

3 months’ notice; he’s worried about paying on

his loan next week and whether his customers

will pay on time. ” Andrew Johnson of the Electronics Association of California, which represents more than 600 smaller electronics firms

in the State, said: “I can hear the CEOS now

saying, ‘I’m hemorrhaging here and you’re telling me I can’t lay people off for 90 days. ’ “51

Though supporting advance notice as a matter of national policy, Johnson thought that

companies with fewer than 200 employees

probably would not and could not comply.

Large companies have staff and financial reserves; small ones may not even have a personnel manager.

Before Massachusetts passed its mature industries legislation, a Governor’s commission

studied the problem of plant closings for a year.

One official who took part reported: “The small

business issue came up a lot. The smaller companies were clearly terrified. They did not feel

they had the lead time to comply with advance

notice rules or guidelines. ” For this reason, the

Massachusetts social compact applies only to

companies with 50 or more workers. State laws

in Wisconsin and Maine apply only to firms

with 100 or more employees. Although establishments with 100 or more employees are only

Elsheridan, op. cit.
21

2 percent of U.S. business establishments, they

account for 44 percent of the private work force,

aside from the self-employed. 52

Losing Customers

This is not a problem for large companies that

will continue to manufacture the same product in another plant, or for companies that are

selling their customer lists with the sale of a

plant. It is also not a problem when the product is a standard commodity such as plywood,

easily replaceable from another source; but it

could present a real difficulty with a specialty

product or one in which the brand name is important, according to a forest products company official. Although it seems plausible that

a firm might indeed lose customers when it

gives notice of closing, no actual case of this

kind came to OTA’S attention. This is perhaps

not surprising since most of OTA’S first-hand

informants were larger companies, some with

multiple branches, and small companies may

be most vulnerable to loss of customers.

Termination of a product may be at least

roughly analogous to going out of business, so

that IBM’s experience with its small personal

computer, the PC Jr, may shed some light on

the question of customer loss. The PC Jr was

never very successful, and in March 1985, 14

months after the first shipments, the company

announced that the PC Jr would be discontinued. Sales declined significantly throughout

the following year—despite escalating discounts

and dealer rebates, and despite the fact that continued parts and service were guaranteed by

one of the world’s most stable companies. A

smaller and less stable company would almost

certainly have seen sales plummet even faster.

According to one industry analyst, the “premature” announcement by the Osborne computer

company that it had a new product ready to

market was an important factor in Osborne’s

collapse. After the announcement, the older

model computer could not be sold.

5ZU. S. congress, Genera] Accounting Office, op. cit. An establishment is a business carried on at one location; it may be independent or may be a branch of a multibranch firm.

Losing Access to Credit

Another argument is that a company may find

that loans from financial institutions dry up or

that suppliers tighten their line of credit if there

is evidence of financial trouble, such as notice

of layoffs. For example, one company spokesman said:

We deal with a lot of people that have gone

under. We have credit limits. If the companies

we supply are in trouble or announce a shutdown, we might limit credit to such a degree

that they could go under.

An official of the National Governors’ Association has found in conversations with businessmen across the country that possible loss of

credit is their principal concern with advance

notice legislation. 53 Loss of credit may also be

a special problem for smaller companies.

Losing Key Employees

Companies do report this problem first hand.

One company said it had closed a forest products facility in a Southern State about 10 years

ago, had given notice of the closure, and then

did not have enough workers left to close the

plant down in an orderly way throughout the

notice period. Some companies do not give

severance pay to workers who leave before the

closing or layoff, although they make exceptions in individual cases. This may make it

harder for some workers to find a new job without going through a period of unemployment;

but it assures the company of an orderly shutdown. Other companies give severance pay to

all workers regardless of whether they stay, but

offer key employees stay-on bonuses—which

amounts to an added cost of advance notice.

According to The Conference Board study, executives and professionals are inclined to leave

the company after receiving advance notice,

whereas few assembly line workers look for

another job or leave before the last day of work.

sqKris M, Balderston, Research Associate for Community Development, National Governors’ Association, personal communication, July 23, 1986.
22

Unforeseen Events

When economic conditions outside the company’s control are changing fast, businesses

may not be able to anticipate layoffs. For example, an independent oil tool manufacturing

company had nearly 1,800 employees in 1985,

and in the spring of 1986 was down to about

300. In a 1982 layoff, this company gave 6

months’ notice and allowed workers as much

as 90 days for full-time job hunting while they

were still on the payroll. By 1986, the company

felt it was doing well to give 30 days’ notice.

Again, most existing and proposed advance notice laws make allowances for business exigencies, but company spokesmen say that marshaling proof that business conditions made it

impossible to comply could be a heavy burden.

When a firm’s survival is at stake, it cannot afford to spend managers’ time on compiling a

record to show that it acted within the law.

It is worth noting that dire financial emergency seems to be an infrequent factor in plant

closings and large layoffs. The GAO survey of

mass layoffs in establishments with over 100

employees found that only 7 percent of the firms

said they had undergone bankruptcy or financial reorganization before the layoff. By contrast, 70 percent of the firms cited reduced

product demand and increased competition as

factors influencing the decision to layoff workers or close a plant; more than half mentioned

high labor costs,

Media Attention and Community Resistance

Almost inevitably, any large closing attracts

public attention. Economic repercussions from

the closing affect the community as well as the

workers directly losing jobs. Said one businessman at the workshop:

If you notify in advance about a closing, you’ll

get unabated pressure . . . You get it from the

church, the Governor, the laundryman. Lots of

companies don’t need that heat. They want to

get out of town fast . . . Severance pay at the

end can accomplish the same thing as advance

notice.

This man’s company does, in fact, provide advance notice under some circumstances, as

spelled out in its union contracts. Generally,

the company’s experience with advance notice

has been good, but that experience, said the

company official, is not necessarily a model for

everybody. For some firms, the most economical course is to close quickly.

Trouble With Workers, Reduced Productivity

There seems to be general agreement that this

is a myth.54 One man, representing a company

that over the past few years has sold or closed

plants employing 25,000 workers, said:

In every plant I’ve ever closed, productivity

goes up in the last two or three months.

At a sawmill in British Columbia, workers not

only broke production records after the closing announcement, but improved safety so

much that there were no accidents. The representative of a large U.S. company said:

There’s been no sabotage, no destruction in

our company after advance notice. Employees

may want to make the plant more attractive to

another owner. Also, there’s a lot of pride. Basically, people are good people.

The Thin End of the Wedge

An objection that is not often stated but seems

to be on the minds of many opponents of mandated notice is that a simple notice requirement

might open the door to other more costly obligations related to plant closings. In Ontario,

for example, Provincial law not only mandates

8 to 16 weeks’ advance notice of group layoffs

(50 or more), but also requires severance pay

for employees dismissed in group layoffs (1

week’s pay per year of service, up to 26 weeks,

for workers with 5 years or more on the job).

The version of H.R. 1616 which was narrowly

defeated in the House of Representatives in November 1985 required advance notice only, with

provision for pay in lieu of notice and for exceptions if unforeseeable business circumstances

prevented the employer from completing the

s4A11 representatives of business at the workshop agreed that

worker morale and productivity did not suffer with advance notice of layoffs or closings. Union spokesmen confirmed the observation. So did the company officials interviewed for case

studies of the forest product and high-tech industries.
23

notice period. However, an earlier version of

the bill, reported out of the House Education

and Labor Committee, would have required employers to consult in good faith with the union

or worker representatives on possible alternatives to, or modifications of, a proposed closing or layoff. The bill defined “good faith consultation” as including the obligation to provide

employee representatives with relevant information to evaluate modifications or alternatives

to the closing. Business representatives lined

up against the consultation requirement, characterizing it as a “powerful weapon to block

plant closings” that would “tend to lock businesses into inefficient operations and unprofitable product lines. "55(Business groups also

continued to oppose H.R. 1616 after the consultation provision was removed. ) Other legislative proposals over the years have gone far

beyond the provisions in H.R. 1616, including

such requirements as severance pay, extended

health benefits, and training assistance.

SsLabor policy Association, Inc., “Special Memorandum: XI 11-6

Re: Markup of Plant Closing Legislation by the House Education and Labor Committee, ” July 18, 1985. The Labor Polic~’ Association is located at 1015 15th St., Washington, DC 20005.
RESPONSES TO ADVANCE NOTICE

Once a plant gives advance notice of a closing or layoff, what then? Assuming that the

company is not in dire financial straits, it may

provide its displaced workers with severance

pay and other benefits that will ease the transition to a new job. Some companies do more,

committing staff, space, and energy to efforts

to find new jobs for their laid-off employees.

In general, though, a comprehensive worker

adjustment project, including counseling, assessment, job search assistance, and retraining, costs more than most companies are prepared to spend. Moreover, many companies

have no experience with displaced worker services, and have no idea how to begin.

Government programs–mainly the JTPA Title III program—are intended to help organize

and pay for the services displaced workers

need; and the law provides that workers can

begin to get services before layoff, as soon as

they get notice of termination. Yet despite the

consensus that the sooner displaced workers

get help the better, delays in getting JTPA assistance seem to be the rule, not the exception.

States are responsible for operating the JTPA

Title III program; no one has systematically surveyed the States on their ability to respond rapidly and effectively to notice of plant closings

or layoffs. On the available evidence, it is fair

to say that, although most States are interested

in providing a rapid response and many are

improving, few are able to do it satisfactorily

as yet.

Moreover, it appears that relatively few displaced workers ever get help from JTPA programs. OTA estimated that it is likely that about

1 out of 20 eligible displaced workers are being served.56 A recent estimate from California’s Santa Clara County (Silicon Valley) is that

about 1 out of 35 workers losing jobs in the

county’s high-tech industries were getting JTPAfunded services in 1986.57 This does not imply

that all adult workers displaced from their jobs

want or need reemployment and retraining servSeuos. Congress, Office of Technology Assessment, oP. cit. !

p. 174.

STSheridan, op. cit., p. 23.

24

ices. Some of them—especially the younger and

better educated—have little trouble finding new

jobs. But many others—hundreds of thousands

a year—remain out of work for months or even

years, or settle for part-time or low-wage jobs.

Many of the people that government-sponsored

displaced worker programs are designed to help

are not getting helps*

Employer Responses

A substantial fraction of larger establishments

report that they give some form of severance

benefits to at least some of their employees who

lose jobs in plant closings or major work force

reductions. Employers more often provide help

of some kind to white-collar than to blue-collar

workers. The most common form of assistance

is severance pay, which slightly more than half

of employers provide to displaced white-collar

workers; about one-third offer it to blue-collar

workers. Other kinds of help, offered less commonly but still fairly often, are continued health

insurance and placement assistance of some

kind.

It is not clear that the majority of displaced

workers receive severance benefits of any sort

from employers. First, the information we have

about services to displaced workers comes from

larger establishments; smaller firms may not

provide as much assistance. Second, blue-collar

workers represent 60 percent of those displaced,59

but are less likely to get help from employers

than white-collar employees.

National Patterns

The GAO survey of establishments with 100

or more employees that had a plant closing or

SeFOr a broad &CUSSiOn of worker displacement and an evaluation of programs to help displaced workers see U.S. Congress,

Office of Technology Assessment, op. cit.

SoMichael podgursky and Paul Swaim, “Labor Market Adjustment and Job Displacement: Evidence From the January, 1984

Displaced Worker Survey, ” a report to the U.S. Department of

Labor, Bureau of International Labor Affairs (Amherst, MA:

University of Massachusetts, Department of Economics, January 1986). This report analyzed data from the Bureau of Labor

Statistics’ survey of adult workers displaced from their jobs between January 1979 and January 1984.
25

major layoff in 1983 and 1984 questioned company officials about severance benefits as well

as advance notice. Table 4 shows the kinds of

assistance given, and a breakdown by whitecollar and blue-collar workers. The most common forms of financial assistance were severance pay (54 percent of the companies said they

gave it to some or all workers), and continuation of health insurance benefits (43 percent).

white-collar workers were much more likely

to get both kinds of benefits—53 percent of employers said they gave white-collar workers

severance pay, versus 34 percent for blue-collar

workers; 42 percent provided continued health

insurance for white-collar employees, versus

32 percent for blue collar.

The same pattern prevailed for placement assistance. Thirty-two percent offered job search

assistance to white-collar workers, and 25 percent offered “administrative support, ” which

includes such things as secretarial help with

resume writing. The comparable figures for

blue-collar workers were 21 and 16 percent.

The Conference Board survey asking similar questions found a larger proportion of employers providing assistance to laid-off workers. Seventy-nine percent of the companies

answering the survey questions said they gave

extended health insurance benefits; 54 percent

continued the benefits for 3 months or longer,

Nearly 60 percent reported they offered salaried employees help in resume writing. Other

forms of assistance in getting a new job were

provided less frequently; these included contact with other companies, job search workshops, paid leave to look for another job or, in

a few cases, retraining. For hourly employees,

about half the companies contacted other companies on the workers’ behalf; a smaller number of employers reported that they offered

other kinds of placement help to hourly workers.60 As discussed in an earlier section, the

different results from the GAO and The ConGOBerenbeim, Op. cit., p. g, Chart 3 in the published report indicates that over 60 percent of companies offered hourly employees outplacement assistance, but this figure is in error. The correct figure, according to the author (personal communication),

is 39 percent, Outplacement assistance was provided to about

50 percent of salaried employees.

Table 4.—Assistance Offered to White. Collar and Blue-Collar Workers

Establishments offering assistance to workers

White collar Blue collar Overall a

Type of assistance (N = 309) (N = 292) (N = 315)

Financial assistance:

Severance pay. . . . . . . . . . . . . . . . . . . . . . . . . 53 34 54

Continuation of health insurance . . . . . . . . 42 32 43

Continuation of life insurance . . . . . . . . . . . 27 21 28

Early retirement . . . . . . . . . . . . . . . . . . . . . . . 15 10 16

Pay in lieu of notice . . . . . . . . . . . . . . . . . . . 14 10 15

Lump sum payment . . . . . . . . . . . . . . . . . . . . 9 9 10

Supplementary unemployment benefits. . . 8 9 10

Placefnent assistance:

Job search. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 21 31

Administrative support . . . . . . . . . . . . . . . . . 25 16 26

Personal counseling . . . . . . . . . . . . . . . . . . . 19 14 19

Company transfer option . . . . . . . . . . . . . . . 21 10 21

Time off for job search . . . . . . . . . . . . . . . . . 21 9 20

Career counseling . . . . . . . . . . . . . . . . . . . . . 17 10 16

Relocation assistance . . . . . . . . . . . . . . . . . . 15 5 15

Testing/assessment of worker skills. . . . . . 5 3 5

Occupational training . . . . . . . . . . . . . . . . . . 1 3 3

Job club . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 2

a&tabliShrnerltSproviding assistance either to white-collar workers or blue-collar workers or both.

SOURCE: US. Congress, General Accounting Office, “GAO’s Preliminary Analysis of U.S. Business Closures and Permanent

Layoffs During 1983 and 1984,” paper for presentation at the OTA-GAO workshop on plant closings, Apr. 30-May 1, 1986.

62-642 0 - 86 - 3 : QL 3
ference Board studies probably reflect differences in how the surveys were conducted.61

The quantitative information from these two

surveys is not very detailed, and the kind and

quality of services offered are usually not very

closely defined. “Placement assistance, ” for example, might be anything from a full-service

reemployment and retraining center, including energetic efforts to find job openings that

are not publicly listed, to a bulletin board with

postings from the local Employment Service

office. Severance pay might be anything from

2 weeks to a year.

On an individual basis, there are many accounts of firms that have provided exemplary

services to their displaced workers.BZ Some of

the best displaced worker projects, in fact, have

been those based in plants that were closing

or laying off, and were directed by labor-management committees. Valuable contributions

employers can make include space in the plant

for employment and training centers and for

suitable training courses (e.g., remedial education); paid staff, both from the union and management side, to run the centers; time off for

employees to attend counseling and job search

workshops; and personal contacts with prospective employers. Some companies keep employment centers located in plants open even

after the plant closes. Some, as discussed below, advance most of the funds to operate employment centers while awaiting money from

government programs. Among the companyunion programs that have given outstanding

service to displaced workers was the FordUAW program in an auto assembly plant that

closed in Milpitas, California, in 1983. A labormanagement committee created a retraining

and reemployment center in the plant within

61The GAO study was based on a random sample of all LJ. S.

establishments with 100 or more employees that experienced

a plant closing or major layoff in 1983 or 1984. There was more

self-selection in The Conference Board sample; it was made up

of 224 companies that: 1) replied to a questionnaire sent to 1,900

large companies, and 2) had at least one plant closure in the period

1982-84.

ezsee, for example, U.S. Department of Labor, Labor Management Services Administration, Plant Closings: What Can Be

Learned From Best Practice (Washington, DC: U.S. Government

Printing Office, 1982); U.S. Congress, Office of Technology

Assessment, op. cit., ch. 6; Berenbeim, op. cit., Part II.

days of the closure announcement, which was

made 6 months in advance; the company kept

a plant building open to house the center and

paid a small staff to operate it for 16 months

after production ended.63

Of course, not all employers are able to set

up a full-service reemployment center for their

displaced workers; however, many large companies that are closing plants in the course of

restructuring their businesses can afford to provide top-quality assistance. But some do not

know how. And some are rather perfunctory—

for example, they may hire a consultant to run

job search workshops for a few days. Some do

almost nothing. The range of practice among

different companies and different industries is

wide.

Case Study: Silicon Valley

In the high-tech industries of Santa Clara

County, California, for example, the general

pattern is that laid-off workers get little notice

and few benefits; yet layoff practice varies

greatly from one company to the next.64 Quantitative information is sparse, but knowledgeable observers say that a typical package in

Silicon Valley is 2 weeks’ severance pay, no continuation of health insurance benefits, and little placement assistance from the employer.65

Except for defense contractors, Silicon Valley

is almost entirely non-union; here as elsewhere,

non-union workers generally get less advance

notice and fewer severance benefits than

unionized workers.66 There are striking differences among individual firms however. At one

end of the spectrum are some of the circuit

essee Berenbeim, op. cit., pp. 51-57; and U.S. Congress, Office

of Technology Assessment, op. cit., p. 237 and ch. 6, passim,

for more detailed descriptions of the Ford-UAW Milpitas program.

8QThe definition used here for high-tech industries in Santa

Clara County is rather narrow; it includes electronic equipment

and parts (including semiconductors), computers and computer

peripherals, and instruments.

essheridan, op. cit. Most of the material in this section, unless

otherwise noted, is drawn from Sheridan’s contract report to

OTA.

~BRichard Freeman and James Medoff, What DO Unions Do?

(New York: Basic Books, 1984), pp. 64-65, cited in Sheridan, op.

cit. The GAO plant closing survey also found that union blue-

-collar workers are more likely than non-union workers to get

advance notice.
27

board assembly job shops, which employ lesseducated workers (often illegal aliens), and

which simply cut the workers loose with no notice and no benefits if business drops off. At

the other end are companies like Hewlett Packard and Advanced Micro Devices, which laid

nobody off in 1985, when tens of thousands of

high-tech workers were losing their jobs.B’

Thirty-seven percent of Santa Clara’s 200,900

high-tech workers are employed by firms with

fewer than 100 employees; in the smaller of

these firms, failure rates—and displacement of

workers—are typically high. However, many

thousands of workers have been laid off from

larger firms in recent years as employment in

the industry has shrunk. For example, from

1983 to 1985, one company—Atari, the videogame and home computer manufacturer, owned

at the time by Warner Communications—permanently laid off more than 5,000 people. 68 In

1985 alone, at least 10,000 workers lost jobs in

36 layoffs announced by high-tech firms employing 500 or more people.69

Some of the larger high-tech companies,

while about equal to the industry norm in severance pay and other financial benefits, do offer

more job-hunting help. For example, National

Semiconductor, which had sales of $1.8 billion

and a worldwide work force of 38,000 as of

1984, laid off 1,600 employees in California,

Utah, Connecticut, and Virginia in 1985. The

company gave only 2 weeks’ advance notice

and 1 to 4 weeks’ severance pay, but offered

considerable placement help. It assigned a job

counselor to every worker, provided job-hunting advice, held workshops on job search skills

and financial planning, and kept a job resource

center open for 4 months. While the placement

assistance was useful to many white collar and

professional workers, it proved less helpful to

blue-collar workers, partly because the staff had

f37As noted above, Advanced Micro Devices announced in August 1986 that, after continuing financial losses, it would have

to depart from its no-layoff policy.

~8Te]ephone interview with Philip Shapira, doctoral candidate,

Department of City and Regional Planning, University of California, Berkeley, July 14, 1986.

6QTe]ephone interview with Rica Pirani, San Jose office of the

California Employment Development Department, July 15, 1986.

little experience with these workers.’” Intel,

another large company (21,500 employees), provided similar placement help to 2,000 employees who were laid off in 1985 to 1986; this company gave no advance notice but provided 2

to 9 weeks’ severance pay.

Some companies offer much more than the

industry norm to their displaced workers. For

example, when Apple Computer, Inc., laid off

1,200 permanent full-time workers in 1985, all

of them—even those just hired—got at least 6

weeks’ severance pay. Apple’s placement center was highly successful, helping 90 percent

of the displaced workers find jobs before their

severance pay ran out. Also, Apple gave its laidoff workers first chance at jobs in the company

when it began to rehire. (About 1,500 temporary

workers laid off at about the same time as the

permanent workers did not receive severance

benefits.)

The companies that have managed to avoid

layoffs–such as Hewlett Packard and Advanced

Micro Devices in California and Materials Research Corp. in New York—use an array of devices, including hiring freezes and attrition,

reassignment of surplus workers to unaccustomed tasks (tending the flower beds, for example), pay cuts for managers and professionals,

and a 4-day workweek for production workers.

(California is one of the States with short-time

compensation in the unemployment insurance

program, so that workers on a 4-day workweek

can collect UI for the fifth day.) Rolm Corp.

(recently bought by IBM) was able to survive

recessions and shifts in demand by changing

the products it made and sold, and never laid

anyone off in 15 years.

These kinds of benefits and job protection are

exceptional even for regular employees, and

in any case do not extend to the industry’s many

temporary workers. On the whole, high-tech

workers in Santa Clara County appear to get

modest severance benefits from employers, and

temporary workers, whose presence in Silicon

Valley is rapidly growing, get little or none.

ToDavid Sheridan, persona] communication, July 25, 1986.
28

Government Responses

The main source of government help to displaced workers is the federally funded, Staterun programs authorized by Title III of the Job

Training Partnership Act of 1982 (JTPA). Title

III programs can offer reemployment and retraining assistance to workers before they are

laid off, so long as the workers have received

notice of termination. Several States are putting a good deal of effort into prelayoff services. Title III programs can also support plantcentered projects, begun before layoff in cooperation with management and labor. It appears that few of the programs are doing so.

The observations in this section are based on

anecdotes and partial reports, not on any systematic survey. They do represent a quite consistent sense among informed observers of the

current state of government response. On the

whole, it appears that most States have not yet

organized their Title III programs in ways that

make it easy to respond rapidly and effectively

to plant closings and mass layoffs. Only a minority of Title III programs take the initiative

to serve displaced workers, even when employers give early warning of a closing or layoff.

Few if any States are organized to help employers and workers set up labor-management

committees to operate plant-based displaced

worker centers, despite the many advantages

of this kind of project. ’l

More than 2 years after States officially began their Title III programs, many companies

still do not know that the programs exist. If they

do know, and ask for help for their workers,

the response—either in the form of technical

assistance or funds or both—is often slow in

coming (though there are recent improvements

among local JTPA agencies). Some delays seem

built into the JTPA funding structure–especially in dispensing the Secretary of Labor’s discretionary fund which, paradoxically, was designed in part for responses to unforeseen plant

closings. Getting Title III funds to where they

are needed, when they are needed, seems hard

71 For a discussion of experience with plant-centered displaced

worker projects see U.S. Congress, Office of Technology Assessment, op. cit., pp. 234-236.

to accomplish; and the difficulties are compounded with the 1986 funding cut, which is

hardest on States that started an active displaced worker program early and have little

carryover of funds from previous years. The

result is that many displaced workers who

could use help do not get it.

Programs for displaced workers are quite

new. State Title III officials believe their programs will improve as they gain experience,

and point to a creditable placement record (65

to 70 percent nationwide) for the workers

served in the program’s first 2 years. Many

States would welcome more technical assistance from the U.S. Department of Labor in

how to run successful programs, possibly in

the form of an information clearinghouse.

States also emphasize the need for stable adequate Federal funding of the Title III program.

Most States are keenly aware of the need to

improve their rapid response abilities. In the

spring of 1986, when the National Governors’

Association and the U.S. Department of Labor

organized two conferences on how Canada’s

Industrial Adjustment Service works, 35 States

signed up. The conference organizers had expected about 10. Clearly, the interest is there.

Some States are already doing a fair job of rapid

response to plant closings, and many others are

improving or want to begin.

Rapid Response Teams

Several States—among them Arizona, Connecticut, Massachusetts, New Jersey, Rhode Island, South Carolina, and Texas–have rapid

response teams which attempt to find out about

impending layoffs and bring services to the

workers early. Since most States do not require

advance notice of closings, the teams use various methods to learn about planned layoffs;

often they try to get voluntary cooperation from

companies in giving early warning, and a number say that they are increasingly successful in

getting this cooperation. Typically, rapid response teams mobilize and coordinate responses

from a number of State and local agencies. A

team representative may visit the plant, bringing some services (such as testing, assessment,
29

and signup for unemployment insurance) to the

site, and acquainting the workers with other

services, such as job search assistance and

referral to training.

A few States, coming closer to the Canadian

model, try to enlist the company as cosponsor

of displaced worker services, establish resource

centers in the plant, and staff them as much

as possible with company employees and laidoff workers. The Massachusetts Industrial Services Program, for example, has set up half a

dozen centers in plants, and other centers in

nearby sites such as union halls or community

colleges, to serve everyone involved in a big

plant closing or layoff. Within a day—often

within hours—of a plant closing announcement, a top official of the State program meets

with the chief executive officer of the company

to plan services for the workers. Direct contact between a person with authority from the

State and someone with authority from the company, said one State official, “takes off months”

in getting the program going. Union representatives are also asked to participate.

Companies are encouraged to donate space

and pay some staff for the center, and the Industrial Services Program provides funds for

training and paying other staff members (usually hourly workers who have lost their jobs in

the closing). Massachusetts officials report success in employing displaced workers as staff

in these reemployment and retraining centers.

One said: “We will not fund the program if there

are not at least one or two of the displaced workers serving the people. I haven’t seen one smart,

caring worker who can’t pick it all up in three

months. ” One of the 50 displaced worker centers established by steel companies and the

United Steelworkers of America in the Monongahela Valley is directed by a former underground coal miner.

While the Massachusetts program strongly

encourages participation by both employers

and workers, it is not structured to help labormanagement committees take charge of reemployment efforts, as the Canadian IAS does, No

State, in fact, has an institution comparable to

the IAS, though some have shown a strong interest in creating such an agency.

Technical Assistance for Plant-Based Projects

When companies and worker representatives

go to a JTPA agency for help in setting up a

comprehensive, plant-centered displaced worker project, 72 they usually get funds—though

sometimes with a delay of several months or

even more than a year. Most of the time, according to two experienced private consultants, the

public funding is offered “passively or reluctantly but, in the long run, cooperatively, ” although firms quite often complain about rigid

bureaucratic requirements.73 As a rule, however, the Title III programs offer only funds,

not expert help, to plant-based projects. In at

least two-thirds of the cases the consultants

studied, the JTPA agency did little more than

handle the mechanics of grant administration,

This passive public role is not characteristic

of every State or local JTPA agency. Increasingly, some agencies are taking an active part

in plant-based displaced worker centers, providing planning help, staff, or referral services.

However, even the more active JTPA agencies

are usually not geared toward educating and

encouraging management and workers to help

themselves. Typically, these agencies will come

to a plant, explain the services they have to offer, market their expertise, assure companies

that workers will receive high-quality professional help, and ask for referral of workers. 74

Sometimes they ask the company to help with

match funding, but often they do not seek any

contribution from the company. 75 In a few instances, JTPA agencies have opposed the creation of a plant-based project, on the grounds

that a communitywide project under the agency’s direction already exists, and that scarce

TZThe JTPA agency is u.sua]]y either a unit of local or State gOlrernment or the local Private Industry Council, a body defined

by the law which includes a majority of members from private

business but also includes representatives from organized labor,

education and rehabilitation agencies, economic development

agencies, community-based organizations, and the Employment

Service.

ToBalfe and Fedrau, op. cit.

7

a Ibid.

TsRuth Fedrau, personal communication, JUIY 18, 1 ~~~.
30

Title III funds should be used efficiently. Overall, it appears that few JTPA agencies are prepared to give companies and workers prompt

expert assistance in setting up plant-based displaced worker projects. Companies that are determined to move ahead often hire private consultants to help get the project underway.

By contrast, the Canadian IAS has developed

through its 20 years of experience a simple, inexpensive way of providing technical assistance to plant-based projects. First, a field officer of IAS calls on companies that are closing

plants or laying off workers, nearly always

within a day of the announcement, to offer help.

The officer explains how a labor-management

adjustment committee can be created, and

offers government funds to pay half the costs;

he is authorized to commit up to $15,000 without consulting superiors. Once the company

and workers agree to form a committee, IAS

furnishes a list of experienced independent

chairmen (many are retired businessmen) who

can provide leadership and know-how. By all

accounts, the independent chairman plays a

crucial role. His technical expertise keeps the

committee’s work on track, and his impartiality gives the committee credibility with the

workers. Chairmen are, in effect, in the business of getting displaced workers reemployed.

If they succeed, they are likely to be chosen by

the next committee. If not, their reputations decline and they are soon out of business.

One analyst with experience in both the Canadian IAS program and JTPA programs in the

United States described the two in this way:

The services offered are about the same—

counseling, assessment, job development and

matching, job search skills training, referral to

remedial or vocational education. But there are

two big differences. First, in Canada there is

one place where you can get everything; there’s

no mumbo-jumbo about different agencies where

the workers can go for services. Second, there

is the personal commitment of the committee

members [in Canada’s IAS system]. The worker

has an ombudsman, who goes to other employers or trainers on the worker’s behalf.

Funding Delays

Getting funds in time to set up a displaced

worker project before the layoffs begin is often

a difficult proposition. The two private consultants who reported to OTA said that, in their

experiences, significant delays in obtaining Title III funds occurred more than half of the

time—and this estimate probably understates

the problem, because these consultants worked

for big companies that usually paid the earlystage costs of establishing displaced worker

centers.’B A human resources manager of a firm

employing about 5,500 people told the workshop that more than a year passed from the time

his company started a project until the time it

received Title III funds. The difficulties, he said,

are not so great with large-companies; they have

the money to start a project. His own company

advanced $1.5 million for its project serving

more than 1,000 displaced workers. But small

companies have no upfront money .77

At least one State, Massachusetts, uses Stateprovided funds to startup projects. The Industrial Services Program can commit $10,000 to

$15,000 for 45 days to help create a plant-based

center, have it open the day layoffs begin, and

operate it for a time while awaiting a Title III

grant. But few other States with rapid response

teams have State funds available that are dedicated to displaced worker projects. Typically,

rapid response teams offer prelayoff services

from existing agencies, such as the Employment Service, the Federal-State vocational and

adult education programs, and local JTPA agencies. Most have no source of funds to draw on

to help set up plant-based centers as soon as

a company gives notice of a layoff. In fact, much

of the team’s effort goes into putting a funding

package together.

7eIbid,

ppAccording to one experienced private consultant, small and

midsize companies can make important contributions to getting

adjustment services promptly for their displaced workers, even

if they cannot provide startup funds for an adjustment center.

They can make the essential contacts with Title 111 and other

community agencies, speaking up for their workers and making

sure they get attention.
31

Even if money is available for a 45-day startup

period, as in Massachusetts, this is often not

a long enough time to be sure that the project

will get enough funding to last. As Title III programs mature and more States delegate money

and decisions to local agencies, some of the delays in getting Title III grants are getting to be

briefer; local agencies sometimes make funds

available right away. Yet it is still not unusual

to have a delay of 3 or 4 months from the time

a JTPA agency commits to fund a project till

it actually executes the grant .78 Reasons for delay include revisions of the proposed project

activities, time-consuming regulatory requirements, and bureaucratic holdups in getting the

contract signed. Agencies may demand, for example, that a displaced worker center establish its own grievance procedures, or document

its financial capability. In one case, a grant was

held up when a State demanded that a firm provide a copy of its articles of incorporation.7g

Three-quarters of the Federal Title III money

appropriated by Congress is allocated to the

States according to a formula in the law, based

on the size of the State’s work force and local

unemployment rates. One-quarter is reserved

for the Secretary of Labor to distribute at his

discretion, to respond to such contingencies

as mass layoffs or natural disasters, to ease the

effects of relocating Federal Government facilities, or to give extra help to areas of high unemployment.

projects are likely to run into the longest delays when they apply for a Federal discretionary grant. The proposal usually has to run the

gauntlet of local, State, and Federal approval,

and only then does the State start the process

(sometimes with heavy bureaucratic encumbrance) of executing the grant. Even with efforts by the U.S. Department of Labor to reduce

delays at the Federal level, the long decisionmaking chain makes fast action very difficult.

One State official told the workshop that there

is no way to get a Federal discretionary grant

T8Ba]fe and Fedrau, op. cit., p. 8.

791bid.

in less than 4 or 5 months—”it just doesn’t

happen” —and it can take much longer. The

consultants’ report to OTA said that months

of delay could follow each stage, from local to

Federal approval, and that even moderate delays at each stage results in several months of

waiting. Meanwhile, even if the State has funds

to commit, the uncertainty about whether Federal JTPA money will be granted makes it hard

to plan the project, much less start giving

service.

The cut in Title III funds for fiscal year 1986

could add to these difficulties (note that the

JTPA program starts in July, 9 months after the

fiscal year begins). Congress reduced Title III

funding from $223 million in fiscal year 1985

to $100 million in 1986. The reason was that,

nationwide, the Title III program had a large

carryover of funds—$185 million as of June 30,

1985. There are big differences among States,

however, in rates of spending and funds carried over. Some States got a slow start with this

new program (initiated in October 1983), but

others undertook an active program more

quickly. The General Accounting Office found

that, with the budget cut, 23 States would have

less money for services to displaced workers

in 1986 than was allocated to them in 1985.60

Since the formula for allocating three-quarters

of Title 111 money among the States is written

in the law, changing the allocations would be

difficult.

In making the budget cut, Congress indicated

that it did not expect a reduction in levels of

service to displaced workers. The conference

report that approved funding for the program

directed the Secretary of Labor to give first priority for discretionary funds to States that

would otherwise have to cutback services, and

to report on possible needs for added funds to

‘For further discussion of Title 111 funding, see U.S. Congress,

Office of Technology Assessment, op. cit., pp. 186-189. See also

U.S. Congress, House Committee on Education and Labor, Subcommittee on Employment Opportunities, Hearings on the Job

Training Partnership Act, Title III, testimony of William J. Gainer,

Associate Director, Human Resources Division, U.S. General

Accounting Office, Nov. 8, 1985,
32

maintain program levels. States that started an

active program early, and had less carryover

of funds, are now more dependent on Federal

discretionary grants–and thus may be subject

to greater delay in funding individual projects.

There is some evidence, too, that despite the

law’s provisions for flexible responses to unforeseen layoffs, workers in industries and

areas that are hard hit may not be adequately

served. For example, according to a local JTPA

agency spokesman, about 800 workers in Santa

Clara County, California, are getting Title III

services in 1986. An official of the State Employment Development Department estimated

roughly that half of those being served were

displaced from the high-tech industries, and

that about one-quarter of the 55,200 unemployed workers in Santa Clara County in February 1986 were displaced high-tech workers,

On the basis of these estimates, approximately

1 in 35 displaced high-tech workers were getting JTPA-funded assistance.

In essence, the Santa Clara County JTPA official said that the county did not have the money

to serve more—that it had already applied for,

and received, as much extra money from the

State as could be expected to serve workers

from the distressed high-tech industries. This

local agency counted high-tech workers as eligible for assistance only if they were displaced

in plant closings. Yet thousands of workers lost

their high-tech jobs in mass layoffs, not closings. The definition of displaced workers in the

Job Training Partnership Act is broad, and allows States a great deal of leeway in applying

the definition; it does not confine eligibility to

workers displaced in plant closings, but includes others who are not likely to get their old

jobs back. The reasoning of the Santa Clara

County agency was that if the plant still existed,

the workers might be recalled. However, research on what happened to 177,000 workers

displaced from high-tech industries in California from 1979 to 1984 shows that only 24 percent of them were reemployed in those industries.81 Thus, many high-tech workers who are

in all likelihood permanently displaced from

their old jobs are not getting retraining and

reemployment help.

Knowledge About Government Programs

One problem with bringing services to displaced workers is that many people do not

know the JTPA Title III program exists. In the

GAO survey of establishments that had closed

plants or laid off large numbers of workers in

1983 and 1984,80 percent responded that they

had not heard of the Title III program. (The law

was passed in 1982, and State JTPA programs

officially got underway in October 1983.) In the

OTA-GAO workshop, a human resource manager from a large multinational firm said he had

not known about the Title III program until a

consultant he hired to help plan displaced

worker services introduced him to it. There is

no real effort, he said, to promote Title III services in the private sector. Another participant

said that even the unions in his part of the country do not know about the Title III program—

the information is not getting out. Likewise, human resource managers in the corporate headquarters of forest product companies said, in

interviews with OTA staff, either that they did

not know the program existed, or that they had

barely heard of it.

elPhilip Shapira, “Industry and Jobs in Transition: A Study

of Industrial Restructuring and Worker Displacement in California,” unpublished doctoral dissertation, Department of City

and Regional Planning, University of California, Berkeley, 1986,

p. 7-27.
—

THE FOREIGN EXPERIENCE WITH ADVANCE NOTICE

Experience with advance notice in the United

States is based almost entirely on notice offered

voluntarily by employers or provided under

agreements with unions. Five States do have

advance notice laws on the books, but these

laws are either voluntary, seldom enforced, or

too recent in origin for evaluation data to be

available. Thus it is instructive to look at the

experience with advance notice requirements

in other countries. A comprehensive look at this

question is beyond the scope of this report;

according to a 1980 International Labour Office (ILO) report, at least 38 countries have laws

requiring employers to provide some form of

advance notice of work force reductions or collective dismissals of workers.82 Some of these

programs are briefly discussed in appendix B;

they differ greatly in scope and coverage. Countries that have advance notice laws also vary

greatly; they include several developing countries of the Third World as well as many highly

industrialized nations.

Of the different approaches used in various

countries, the laws in Canada and Western

Europe probably are most relevant to the U.S.

debate about advance notice. Most Western

European countries require notice so that adjustment services for workers can be planned,

and also require consultation on alternatives

for limiting or avoiding the dismissals. In Canada, several Provinces and the federal labor

code (covering certain classes of workers) require advance notice, generally with fewer additional obligations than many Western European countries. However, some jurisdictions

in Canada can require employers to cooperate

in developing a program to eliminate the need

for dismissals or to minimize the impact of dismissals on the workers.

aZInternationa] Labour office, Termination Of ~mp)oyment at

the Initiative of the Employer, International Labour Conference,

67th sess., 1981, Report VIII(1) (Geneva: 1980). In the discussion

below, OTA has used ILO’s terms wherever possible to avoid

confusion. “Work force reduction” refers to the dismissal or longterm layoff of workers because of economic, technological, or

structural changes affecting an enterprise. The term “collective

dismissal” is used to refer to special procedures governing the

dismissal of more than one worker. Some countries also have

special procedures governing the dismissal of individual workers.

Advance Notice and Rapid

in Canada

Response

In Canada, six Provinces and one territory

have laws requiring advance notice of collective dismissals, and a notice requirement in the

federal labor code covers about 6 percent of

the Canadian work force. Elsewhere, notice is

voluntary.83 Altogether, about three-quarters of

Canada’s work force is covered by advance notice requirements for collective dismissals,

The advance notice requirements vary by

jurisdiction. Employers covered by the federal

code must notify the Minister of Labour 16

weeks before dismissing 50 or more employees who have worked 3 consecutive months or

more. Temporary layoffs are not covered by the

notice law.84 Several Provinces with notice requirements—Manitoba, Newfoundland, Nova

Scotia, Ontario, and Quebec—require at least

8 weeks’ notice when 50 workers are to be dismissed, and 16 weeks when dismissals will affect 500 or more workers. Some of these Provinces require more than this; Quebec and Nova

Scotia, for example, require 8 weeks’ notice

when as few as 10 workers are dismissed. The

Yukon Territory requires 4 weeks’ notice when

25 to 49 employees would be dismissed. A more

limited notice requirement for group dismissals, applying only to workers under collective

agreements, is in effect in New Brunswick.

In several Provinces, employers have the option of providing workers with payment in lieu

of notice. These payments are separate from

the mandatory severance pay required in some

jurisdictions.

Both the Ontario law and the federal labor

code require employers to provide severance

pay to some workers losing their job in group

63]ndividual notice requirements are also in effect in most

Provinces and for workers covered by the federal labor code.

easeveral kinds of layoffs are exempted. For example, notice

is not required for layoffs of 3 months or less; for layoffs of more

than 3 months if the employees are notified that they will be

recalled within 6 months; for layoffs of 3 months or more if an

employer continues payments on a pension or insurance plan,

or if the employee receives supplementary unemployment

benefits.

33
34

dismissals. The Ontario law entitles workers

employed by the firm for 5 or more years to

1 week’s pay for each year of service, up to a

maximum of 26 weeks’ pay. The federal labor

code entitles workers employed for at least 12

consecutive months to 2 days’ severance pay

for each year of service, but not less than 5 days’

pay.

Advance notice in Canada is usually combined with rapid provision of services to workers affected by plant closings or mass layoffs.

When government agencies receive notice of

a closing or mass layoff, the Industrial Adjustment Service (IAS), a small federal agency, immediately steps in with its offer to help workers find new jobs. providing technical and

modest financial assistance, IAS helps to establish labor-management adjustment committees

that try to place workers in new jobs as quickly

as possible. IAS services are available throughout Canada, and usually begin well in advance

of the layoffs or closings. In provinces that do

not require notice, employers may volunteer

information about impending layoffs or closings, or IAS may learn of them through news

accounts or word of mouth.

The period of advance notice is sometimes

used to look for ways to avoid dismissals or mitigate their effects. Employers under the jurisdiction of the federal labor code must set up

joint planning committees, comprised of management and worker representatives, when

they give notice of group dismissals. The committees are charged with devising an adjustment program to eliminate the need for the dismissals, or to minimize their impact on the

workers and help them find other jobs. Once

the adjustment program is developed, it is to

be implemented by the employer in cooperation with the union or the redundant employees. In Manitoba, Ontario, and Quebec, employers can be required to undertake or cooperate

in adjustment programs at the discretion of the

Provincial labor minister.

Advance Notice and Consultation Laws

in Western Europe

Notice laws in many Western European countries closely resemble each other. Most members of the European Community (EC) have

complied with a 1975 directive from the EC

governing council that called on member states

to “approximate in law” some common requirements for notice and consultation with workers when undertaking collective dismissals.as

Some non-EC members in Western Europe

(such as Sweden) have more stringent advance

notice requirements than is called for by the

EC directive.

The threshold triggering notice requirements

is quite low in most EC countries. For example, Denmark requires firms that employ 20 to

99 workers to give advance notice before dismissing 10 or more workers in a 30-day period.

Danish firms employing 100 to 299 workers

must comply if they plan to dismiss at least 10

percent of their workers over a 30-day period;

firms with 300 or more workers must comply

when at least 30 dismissals are proposed, The

Danish approach is one of two options stated

in the EC directive. The other requires notice

when at least 20 workers would be dismissed

over a period of 90 days, whatever the size of

the firm’s work force.

The EC model also requires employers to consult with the workers’ representative “with a

view to reaching an agreement” on the proposed dismissals. The directive specifies that

the consultations are to cover ways to avoid

the dismissals or reduce the number of workers affected by them, and ameliorate the consequences of the dismissals. The employer must

supply “all relevant information, ” and give a

written account of the reasons for the proposed

dismissals, the number of workers to be dismissed, the number of workers ordinarily employed at the establishment, and the time period

for the dismissals. In some countries, the period

of formal notice to a government agency can

be short. The EC directive requires only 30 days’

~“Council Directive of 17 February 1975 on the Approximation of the Laws of the Member States Relating to Collective

Redundancies, “ in the Offi”cial Journal of the European Communities, 75/129/EC No. L 48/29-30, Feb. 22, 1975. All 10 countries that were full members of the EC at the end of 1985 had

responded to the Council Directive with legislation; however,

the European Commission found the responses of three of these

countries unsatisfactory. Two additional countries, Spain and

Portugal, became full members of the EC in 1986.
35

formal notice.86 However, the consultation

process usually precedes the formal notice and

it can be protracted. Some countries require

far more notice than 30 days. In Sweden, for

example, the notice period is 6 months for

layoffs of more than 100 workers, and if there

is disagreement between workers and managers, layoffs can be delayed until a Labour

Court rules on how they are to take place.

France is unusual in that the government can

actually deny permission for the dismissals.

Many Western European countries also require extensive consultation with worker representatives on business plans that might affect the work force. For example, in West

Germany, an employer must disclose to the

works council any proposed plans for changes

in the organization that could lead to redundancies or otherwise disadvantage the work

force. Also, West German employers must

notify the regional employment agency of foreseeable changes over the next year that might

lead to the dismissal of workers or downgrading of personnel. The opinion of the works

council on the change is appended to the notice. The purpose of the notice, says one analyst, is to facilitate “long-range observation of

labour market developments and to permit all

parties concerned to take preparatory steps that

would smooth the transition to new employmerit."87 

Labor Market Flexibility and Collective

Dismissal Laws in Western Europe

In most Western European countries, the

laws calling for advance notice do not stand

alone, but are part of more comprehensive programs governing the dismissal of workers.

Other obligations placed on the employer may

include consultation on alternatives to the collective dismissals or ways to minimize the impact of the dismissals, severance pay for those

who do lose jobs in collective dismissals, and

~The government authority may be empowered to reduce or

extend the notice period.

‘WVerner Sengenberger, “Federal Republic of Germany, ” Work

Force Reductions in Undertakings: Policies and Measures for

the Protection of Redundant Workers in Seven Industralised Market Economy Countries, Edward Yemin (cd.) (Geneva: International Labour Office, 1982), pp. 91-92.

additional requirements applying to the dismissal of individual workers.

These legal requirements on individual and

collective dismissals, as well as collective bargining agreements and social understandings,

make it more difficult for Western European

employers to dismiss workers than for employers in this country. In essence, the European

approach emphasizes protection of employed

workers when firms seek to change operations

or to redefine or eliminate jobs. The European

approach gives employed workers more employment stability than most American workers get; however, the requirements may also,

in the long run, contribute to reduced labor mobility and thus hinder job creation, For example, employers may be more reluctant to hire

new workers if they anticipate high costs in letting workers go later on. The lack of geographic

mobility of labor in Europe, due to national

boundaries and cultural values, also may be a

factor. 88

While it is plausible that the European policies on dismissals make employers more reluctant to hire, it is difficult to reach any overall

conclusions about what this means in terms of

the national employment trends of various countries. It is true, for example, that the United

States has outperformed Western European

countries in both aggregate job creation and

the rate of job creation for over a decade; however, many different factors have contributed

to this, including the demographic fact that the

United States had the fastest growing work

force. Until recently, unemployment in most

of Europe was lower than in the United States;

the West German and French unemployment

rates were lower than the U.S. rate until 1984;

until 1980 the unemployment rate was lower

in the United Kingdom. In the past few years,

the situation has reversed and unemployment

rates are higher in most West European countries than in the United States.89

The difference between the Western European and American experience with job crea8eFor a more detailed discussion of possible effects of both Occupational and geographical mobility on job creation, see U.S.

Congress, Office of Technology Assessment, op. cit., pp. 152-153.

~Employment trends in the United States and in Western European countries are discussed in Ibid., pp. 144-160.
36

tion probably has many causes, including differences related to the structures of the various

economies, industrial competitiveness, trade

laws and agreements, and capital flows. While

labor immobilities resulting from European labor laws probably hinder job creation in Europe, it is not clear how important a factor they

are. Moreover, the relative importance of advance notice for collective dismissals, separate

from other European labor laws and practices,

is even less clear.

Business representatives at the OTA-GAO

workshop characterized the Western European

laws governing collective dismissals as onerous and as a factor contributing to unemployment in the region. One business representative said that his company had closed facilities

in Europe, had found it a very expensive proposition, and was reluctant to make additional

investments there. Another business representative said that companies make investment

decisions on the basis of many factors; their

investment in countries with plant closing requirements does not imply that the requirements impose no burden.

Labor representatives countered that Europe

had prospered for a long time under the programs governing collective dismissals, that the

current economic difficulties in Europe were

of recent origin, and that they reflect macroeconomic policies unrelated to advance notice

requirements. Heavy U.S. investment in Europe and Canada continues despite the plant

closing rules. One labor representative said that

workers in the United States can in effect feel

the backlash from plant closing costs in Europe. One multinational firm decided to close

a plant in the United States, he said, because

it would be less costly than shutting down its

operations in Italy or Holland, which have plant

closing requirements.

Some U.S. employers may view advance notice legislation proposed in this country as the

first step toward a Western European-style

plant closing program, one workshop participant told OTA staff after the session. Employers

are concerned about losing the flexibility to

make management decisions efficiently. The

possibility that sooner or later other requirements (such as for consultation, severance pay,

or payment of health benefits) could be added

to notice requirements maybe a principal reason for opposing any notice requirement.

According to a recent report from the International Organisation of Employers (IOE),

many European employers apparently view the

requirements governing dismissals of workers

(both collective dismissals and individual dismissals) as burdensome. In a survey of European employer federations on the functioning

of the labor market, IOE asked respondents to

characterize obstacles to freedom to terminate

employment in their countries. Responses to

the IOE survey were received from 18 European members and from Canada and New

Zealand. Six of the twenty respondents called

obstacles to termination of employment “fundamental”; eight (including Canada) termed

them “serious”; five found them minor or insignificant; one did not respond.

According to the employer federations, the

chief obstacles to the freedom to terminate employment were “rigid legislation, ” “long and

complex administrative formalities, ” certain

privileges (such as seniority), union positions

that were unsympathetic to the problems of the

enterprises, and restrictive legal interpretations. Some countries also found serious obstacles in the need for administrative clearance

before terminating employment, very high redundancy payments, “lack of flexibility to adapt

size of staff in small enterprises, ” and “excessive formalities (such as excessive advance notice in certain cases of individual dismissals).”go

The question of whether the Western European countries have gone too far, or the United

States not far enough, in protecting workers

against the impacts of collective dismissals is

part of a broader debate about labor market flex-

‘Jose-Maria Lacasa Aso, “Obstacles to Freedom To Terminate

Employ merit,” paper reproduced in Adapting the L.abour A4arket: Restoring Enterprise Competitiveness in Europe, Responding to New Employee Expectations, a debate among IOE European member federations on freedom of action of enterprises

and freedom of choice of employees in today’s and tomorrow’s

labor market (Oslo: International Organisation of Employers, September 1985),
37

ibility. A recent report to the Secretary General of the Organization for Economic Cooperation and Development put the matter this

way:

This then is the issue: both security and flexibility are desirable. When it comes to conditions of employment, the two are probably in

conflict, though the evidence is not clear. For

these reasons of value and of fact, it would be

wrong to come down firmly on one side or the

other. The practical question is how one can

strike a balance between desirable job security and necessary labour market flexibility.

The answer may well be different in different

historical and institutional context, though a

rising tide of economic development leading

to increasing levels of employment would help

in generating confidence that flexibility is a

desirable feature of any labour market policy.91

U.S.-Based Companies in Canada:

The Forest Products Industry

Canada’s laws on group dismissals generally

put fewer obligations on employers than the

laws of Western European countries, but more

than those of the United States. Mainly, the obligation consists of advance notice, with the addition of severance pay under the Ontario and

federal laws. Also, as noted above, the federal

law and a few Provincial laws contain provisions for planning to avoid or mitigate work

force reductions. No one has surveyed any large

number of U, S.-based companies operating in

Canada to see if the advance notice requirements are considered onerous, or if they figure in decisions to invest or locate in Canada,

However, the little evidence that is available

suggests that advance notice is not an issue for

these U.S.-based firms,

An OTA case study of three U.S. forest products companies with branches in Canada found

that the Canadian subsidiaries seem to accept

quite readily the laws and customs of the coungll~abour Market F]exjbj]jtJ,: Report b~’ a High-Let’el GrouP of

Experts to the Secretary-Genera/ (Paris: Organisation for Economic Co-operation and Development, 1986), p. 11.

try relating to group dismissals.92 One, operating in Ontario, complies with the Provincial

advance notice law with no mention of difficulties; in British Columbia, where advance notice is not legally required but appears to be

customary for larger companies, the other two

provide it. All three Canadian companies offer considerably more than the law requires in

benefits to displaced workers. They seem to

share common assumptions about what they

owe workers displaced by structural or technological change.

In the United States, the parent companies

differ markedly, both from their Canadian subsidiaries and from each other. All three strongly

oppose any legal requirement for advance notice, and two of the three do not favor it as

voluntary company policy; the other has a company policy of providing advance notice. Benefits vary a great deal from one company to the

next. One is quite generous to salaried workers but gives hourly (union) workers only what

local union contracts require, which is often

very little. Another treats salaried and hourly

workers much the same, providing benefits to

both that are at least the equal of those offered

in Canada. The third occupies a middle position. Whatever severance benefits and advance

notice these companies provide generally go

beyond legal requirements, since few such requirements exist in the United States.

8ZIn the spring of 1986, OTA staff members interviewed Officials of three U.S. forest products companies, at corporate headquarters of the companies in the United States, and at offices

or plants of subsidiaries of the same firms in Canada, All the

firms had experienced plant closings or permanent reductions

in work force in the past 3 years, in both U.S. and Canadian

facilities. Company officials were asked about their firms’ policy and practice in plant closures and permanent layoffs, and

in particular about advance notice and company-provided services and benefits to the displaced workers. They were also asked

about government services to displaced workers—what was

offered and how worthwhile it proved to be. The companies that

cooperated with OTA in this project were Boise Cascade Corp.,

at its corporate headquarters in Boise, ID, and at the Kenora,

Ontario pulp and paper mill operated by Boise Cascade’s Canadian subsidiary; the Champion International Corp., at corporate

headquarters in Stamford, CT, and at the Vancouver, B.C. office of Weldwood, a Champion subsidiary; and the Weyerhaeuser

Co., at corporate headquarters in Tacoma, WA, and at the Vancouver, B.C. office of its subsidiary, Weyerhaeuser Canada, Officials interviewed included corporate vice-presidents; corporate

and division human resource managers; and the manager and

human resource director and staff of a plant.
Advance Notice

In Canada, advance notice of plant closings

and mass layoffs seems to be taken as a matter

of course. According to a regional official of

the federal Industrial Adjustment Service in

British Columbia (where advance notice is not

legally required), there are sometimes unannounced “Friday night closings” of sawmills.

But when this happens, it usually involves a

smaller firm operating in only one location;

companies with other plants that are still in

business “have to be more aware of the good

will factor. ”

All three Canadian subsidiaries of the U.S.

forest products firms included in the OTA case

study give 2 to 6 months’ advance notice. None

has had difficulties with workers as a result of

advance notice, and one company noted that

productivity and safety both improved after notice of a permanent layoff. None of the firms

lost credit or customers after giving advance

notice of a closing. One company spokesman

mentioned, however, that makers of specialty

products might lose customers after giving notice (his own firm is a producer of standard

commodities such as plywood), and that smaller

firms might find their lines of credit from suppliers restricted.

Spokesmen at one Canadian company said

that notice was useful in bringing home the reality of a work force reduction; this company

planned for layoffs and gave notice, but has

been able to avoid dismissing anyone involuntarily during the reduction. At another company, an official said that notice was probably

most helpful to individual workers in making

financial decisions, but less so in helping workers get new jobs (this was in Vancouver, however, where unemployment was at 12 percent).

This official said that laws requiring advance

notice or adjustment services to displaced

workers are not what makes the effort succeed.

What counts, he said, is the company’s commitment—’’the willingness to accept that we

owe these people something. ” The spokesman

at a third Canadian company saw advance notice as an asset in employee relations. Any company that tries to treat its employees well, he

said, will earn better regard from its workers.

“Also,” he said, “we have our own set of values”

for fair treatment of employees.

At U.S. corporate headquarters of this third

firm, officials said that a companywide policy

for advance notice is “impossible” because

every plant is different and closings cannot always be anticipated. The U.S. company does

have a policy of giving at least 1 month’s advance notice to salaried workers, and usually

gives 2 months, during which employees are

free to hunt for jobs. For unionized hourly workers, advance notice and severance benefits are

provided only as required by collective bargaining contracts, plant-by-plant. Some of the local contracts require severance pay, but none

require advance notice. This company considers advance notice an economic issue, to be bargained for like wages, work rules, and severance benefits. According to the spokesmen, the

company shares information with hourly workers on the competitive and profit situation of

each plant—for example, that a plant down the

road is paying wages of $6 per hour. Communication, said the spokesmen, serves the same

purpose as advance notice, which is to spare

workers surprise. “It should not be a surprise

in any mill we shut down in the west that we’re

losing money,” said one official.

At the U.S. headquarters of another company,

officials said that advance notice makes no economic sense, for two reasons: 1) the company

often waits for year-end financial information

to make decisions about closing, and once the

information is in, there is no point in delay; and

2) when you give advance notice, you accelerate the conditions that led to the decision (e. g.,

loss of customers). The company has no policy

prohibiting advance notice, but in about 80 percent of the cases does not give it. This firm looks

at severance pay and advance notice as interchangeable, and favors severance pay.

The third U.S. company, facing several plant

closings in the West, adopted a corporate guideline of 90 days’ advance notice; there is some

deviation, but this is the recommended minimum. Despite some apprehension that workers who were still needed might leave before
39

the closing, this turned out not to be a major

problem. Nor did the company have any difficulty with lowered morale, or with loss of credit

or customers. A spokesman for this firm had

mixed feelings about the usefulness of advance

notice. Clearly, he said, companies should provide a reasonable amount—’’Friday night closings are obviously horrendous. ” However, there

seemed to him little difference between 6 weeks’

and 6 months’ notice, so far as providing reemployment services to workers was concerned.

Where the plant was the sole economic support of the community, no amount of notice

seemed to help. This man, like all the company

spokesmen at U.S. corporate headquarters, opposed plant closing legislation. “I’m philosophically opposed to this kind of law, ” he said.

“Ethical values cannot be legislated.’’”

Benefits and Services to Workers

Like advance notice, severance benefits and

adjustment services for displaced workers are

seen as a company obligation by the U.S.-based

firms in Canada, All three offer early retirement

and generous severance pay in addition to notice to workers slated for layoff. Two of the

three have saved slots in other plants for their

laid-off workers. All have staved off displacement by using workers who are either laid off

or on notice of layoff as vacation relief workers; in some cases, attrition opens up permanent jobs for these workers. However, turnover

in the forest products industry in western Canada is now near zero, and productivity is rising, so that attrition may be very slow.

Two of the Canadian companies expressed

pride in their own records with displaced workers compared with that of other companies. One

man contrasted his firm’s practice of saving

jobs at its other plants for displaced workers

with companies which, he said, simply start

over and hire the highest caliber worker they

can find, Another said: “Our company has

spent twice as much on our displaced workers

assee the section entitled “Costs and Benefits of Advance Notice” for further discussion of these issues from the point of view

of companies, displaced workers, and service providers.

as others in the Province. Some companies just

say goodbye. ”

The third company made a formal agreement

with the Canadian Government to relocate,

retrain, voluntarily retire, and otherwise ease

the impacts on workers facing displacement

as a result of plant modernization. No worker

has been laid off involuntarily at this plant in

the 2 years since modernization began, and it

is hoped that none will be. So far, about 200

of 870 jobs in the plant have been eliminated,

but early retirement, attrition, and the use of

surplus workers as vacation replacements have

all helped to avert forced layoffs.

In the United States, the practices of the three

companies varied widely. The company that

distinguishes between salaried and hourly employees offers its displaced salaried workers

severance pay, extended health benefits, early

retirement, and placement assistance, in addition to advance notice. Severance benefits for

hourly displaced workers are restricted to what

local union contracts require. Some call for

severance pay, many do not. In a few cases,

this company has voluntarily offered job search

workshops to hourly employees.

A second U.S. company has negotiated substantial severance payments for most employees displaced in plant closings, and considers

this a substitute for advance notice. The company has also offered some of its displaced

workers transfers to jobs in other plants, and

on occasion has worked with public agencies

to provide job search assistance. An early retirement plan is available only to salaried employees.

The third company, applying what it calls a

“corporate philosophy of fair and thoughtful

treatment” for all its employees, salaried and

hourly, offers a broader range of benefits and

services. Besides giving advance notice, this

company has provided generous severance payments (up to 1 year’s pay), an early retirement

option, hiring preference for jobs at other plants,

financial and personal counseling, and an energetic job search assistance program, including

newspaper ads soliciting jobs for its “good em-
40

ployees” and a labor exchange with a free longdistance number.

Government Assistance to Displaced Workers

Government assistance was a consistent, if

sometimes inconspicuous, feature of the Canadian companies’ plant closing and layoff experience. The companies tended to give only

mediocre marks to “government help” as such;

yet detailed discussion revealed that they set

a high value on some aspects of the work done

by the Industrial Adjustment Service (without

always fully realizing the role the government

had played). For example, one company, after

downplaying the government role, praised the

independent chairman of the labor-management adjustment committee formed under IAS

auspices, and remarked that workers could

trust that their interests were being looked after, since a neutral chairman was in charge.

Also, the labor management adjustment committee in one of this company’s plant closings

discovered a large number of job openings at

a new plant in the Province.

In the United States, at least at corporate

headquarters, there was little awareness of the

services that JTPA Title III programs could offer. One corporate human resources manager

had never heard of JTPA Title III, but did know

of a plant closing in which the plant manager

had enlisted help from the State (probably a Title III agency). At another corporate headquarters, there was little more awareness of this federally authorized and funded program. Officials

knew of one plant in which a manager had arranged to get worker adjustment services from

the State.95

In many ways, U.S. forest products companies and their Canadian subsidiaries face the

same economic situation, problems, and opportunities, but there are differences. Both are

pressed by oversupply in wood products and

increasing international competition in pulp

and paper. Both are benefiting from the strong

revival of construction in the United States. The

U.S. firms, however, have had to contend with

the strong U.S. dollar vis-a-vis the Canadian.

These companies have closed more plants in

the United States in the past few years, with

greater loss of jobs, than in Canada.

Overall, the differences in company outlook

and practice regarding plant closings in the two

countries are uneven, but large. Canadian subsidiaries of the U.S. firms seem to live easily

with Canadian laws and customs that favor advance notice of plant closings. Their policies

for services and benefits to displaced workers

reflect the attitude that “we owe these people

something. ” Among the same companies in the

United States, advance notice as a company policy is considered impossible by one, potentially

harmful by another, and ethical and fair by the

third. All are against a legal requirement. On

employer-provided benefits, one regards services to unionized displaced workers as economic issues subject to bargaining; another substitutes severance pay for advance notice; the

third tempers economic considerations with

“fair treatment” and “ethical values.”

‘See the section entitled “Responses to Advance Notice” for

further discussion of employer-provided benefits and services.

s5For further discussion of government responses to plant clOsings, see the section entitled “Responses to Advance Notice”.
ADVANCE NOTICE PROGRAMS AND PROPOSALS IN THE UNITED STATES

Advance notice legislation has been proposed

in at least 20 States over the years. At least five

States have legislative provisions calling for advance notice (either voluntary or mandatory.)

Aside from advance notice, several States have

other laws related to plant closings: some require continuation of health insurance coverage for workers after layoffs or closings; although this is usually offered at the employees’

expense, one State (Connecticut) requires the

employer to pay for continued health insurance

benefits for workers affected by certain plant

closings or relocations. Several States offer

technical and financial assistance to aid employees in buying plants that are closing. Some

States also provide assistance to troubled firms

to help them stay in business, and thus avoid

shutting down or laying off people. Finally, a

number of State legislatures have authorized

special studies or commissions on plant closing issues.

At the Federal level, bills calling for advance

notice of plant closings or large layoffs have

been introduced in every Congress since 1973.

Aside from a purely voluntary notice provision

in the Trade Act of 1974, no legislation for advance notice has ever been enacted, and only

one bill has ever been considered on the floor

of either House. This bill, H.R. 1616 in the 99th

Congress, was defeated in the House in November 1985 by a vote of 208 to 203.

Existing State advance notice laws, and Federal proposals and activities related to advance

notice are discussed briefly below. Readers interested in more detail about the State and local programs can find it in appendix B.

State and Local Programs

States with laws calling for advance notice

include Maine, Wisconsin, Massachusetts, Michigan, and Maryland. The Maine and Wisconsin laws require firms to provide notice, although penalties for not complying are modest.

The Massachusetts notice law is voluntary, although firms receiving certain kinds of State

or State-backed financial assistance are to accept its terms. The Michigan and Maryland programs are entirely voluntary.

Maine and Wisconsin have required advance

notice for more than a decade. The Maine program requires firms to provide 60 days’ notice

and severance pay when closing or relocating

covered facilities employing 100 or more people. Wisconsin requires 60 days’ advance notice when a firm employing at least 100 or more

workers within the State plans a merger, liquidation, disposition, or relocation that would

cause a cessation of business activities affecting 10 or more people. Penalties for not complying with the two laws are modest: the most

a firm can be fined in Maine is $500; in Wisconsin, the maximum fine is $50 per affected

employee.

Under the Massachusetts mature industries

legislation, adopted in 1984, all firms are urged

to adopt a voluntary standard for corporate behavior on advance notice. Some firms (those

applying for financial aid from certain agencies) must agree to accept the standard as a

condition for aid. This requirement is quite flexible, however: in accepting the “social compact,” employers agree to make “a good faith

effort” to provide employees with the “maximum practicable combination” of advance notice and maintenance of income and health insurance benefits. The law does not state a

minimum notice standard, but does say that the

State “expects” firms to provide “at least 90

days’ notice or equivalent benefits. ” The law

also calls on companies to help reemploy the

workers. An evaluation of the program is in

progress.

Maryland’s law, passed in 1985, established

a quick response program and also called for

voluntary guidelines to employers who are reducing operations. The law and the guidelines

(issued in June 1986) urge at least 90 days’ notice when possible and appropriate, and continuation of benefits; the guidelines also identify contact points for State assistance. The

voluntary advance notice in Michigan law has

41
4

not been actively implemented, and it appears

that the State has hardly ever been officially

given notice of a closing.

A few localities have advance notice ordinances. A Philadelphia ordinance, adopted in

1982, requires firms to provide 60 days’ notice

when closing down or moving to a location

beyond commuting distance from the city.

Vacaville, California, adopted an ordinance in

1984 that requires firms relocating to a special

redevelopment area who apply for certain local development assistance to agree to provide

at least 3 months’ advance notice, if possible.

The ordinance will expire in January 1987 unless extended.

Existing and Proposed Federal Programs

Trade Act of 1974

Section 283 of the Trade Act urges firms moving facilities to foreign countries to provide 60

days’ notice. Specifically, the section says:

Before moving productive facilities from the

United States to a foreign country, every firm

should:

(1) provide notice of the move to its employees who are likely to be totally or partially separated as a result of the move at least 60 days

before the date of such move, and

(2) provide notice of the move to the Secretary of Labor and the Secretary of Commerce

on the day it notified employees under paragraph (1).g8

The law goes onto state that it is the “sense

of the Congress” that such firms should: 1) apply for and use adjustment assistance; 2) offer employment opportunities (if any exist) to

its employees who are affected by the move;

and 3) “assist” in relocating employees to other

areas in the United States where employment

opportunities exist.

The voluntary notice provisions in Section

283 have not been widely publicized. Officials

at the Department of Labor told OTA that they

were not aware of any firms moving abroad

that first gave formal notice to the Department.

9619 u.S.C. 2394 (public Law 93-618, Title II, Section 283)

It is not known how many of these firms have

given notice to their employees.

Data on Plant Closings and Permanent Layoffs

Section 462(e) of the Job Training Partnership

Act calls on the Secretary of Labor to develop

and maintain statistical data on plant closings

and permanent layoffs. Specific kinds of information to be collected include data on the number of closings, the number of workers displaced,

the location of affected industries, and the types

of industries involved.

The Bureau of Labor Statistics is in the process of establishing a plant closing databank,

through contracts with State employment agencies. Participating States will review initial

claims for unemployment insurance (UI) to

identify cases where 50 or more claims are filed

from employees at a single firm over a 3-week

period. The State will then call the firm to verify whether a layoff or closing has occurred and

the reasons for the closing. When a closing or

layoff is verified, UI claims data will be used

to track the status of these workers through the

duration of UI benefits.

The law calls for publication of a report on

plant closings each year. However, progress in

establishing the databank has been slow, reflecting delays in funding for the program, and no

report has been issued to date, In fiscal year

1984, Congress appropriated $1 million for an

initial program to develop plant closing information based on unemployment insurance data

from eight States. In fiscal year 1985, Congress

appropriated $5 million for extension of the program to all States; the Administration proposed

a rescission of this money, but Congress did

not act on the proposal. For fiscal year 1986,

$4,785,000 was made available for the plant

closing data program, a figure that reflects the

Gramm-Rudman-Hollings reduction. It is expected that an initial report covering plant closings and layoffs in 12 States from January to

December 1986 will be issued in the spring of

1987. A nationwide study, covering most States,

is not expected until sometime in fiscal year

1988.
43

Secretary’s Commission on Plant Closings

Secretary of Labor William Brock appointed

a Task Force on Economic Adjustment and

Worker Dislocation in October 1985. The 21-

member task force is to report back to the Secretary in December 1986. The Task Force has

established subcommittees in four areas—the

nature and identification of the problem, public policy responses, private responses, and the

foreign experience.

Legislative Proposals

Legislation calling for some form of prenotification or advance notice of plant closings has

been proposed in every Congress since 1973,

but it was not until 1985, in the 99th Congress,

that a bill was reported out of a full committee

of either House. The House Committee on Education and Labor reported H.R. 1616 in October

1985. After significant revisions were made on

the House floor, the bill was defeated by a vote

of 203 to 208 on November 21, 1985.97

The version of H.R. 1616 that was reported

out of the Education and Labor Committee

would have required employers of 50 or more

people to provide 90 days’ written notice before ordering plant closings or mass layoffs that

would result in an employment loss for 50 or

more employees at any site during any 30-day

period, An employer could proceed with the

layoff or closing before the end of the 90-day

period in the case of “unavoidable” business

circumstances.

The version of the bill that came to a final

House vote on November 21, 1985, after amendment on the House floor, would also have required 90 days’ notice, but in fewer circumstances than the committee-reported bill.98 For

example, the definition of an employer falling

under the bill’s coverage was narrowed to ing7As Origlna]]y introduced, H .R. 1616 was entitled the “LaborManagement Notification and Consultation Act of 1985”; the

version of H. R. 1616 that was voted down by the House was entitled the “Community and Dislocated Worker Notification Act, ”

s8For the debate on the bill, see the Congressional Record, NOV.

12, 1985, pp. H9992-H1OOO8; NOV. 14, 1985, pp. H10213-H0242:

NOV. 21, 1985, pp. Ei104665-FI10487.

elude 50 or more full-time employees (or 50 or

more employees working a total of 2,000 hours

a week without overtime) “at a single site. ”

These employers would be required to provide

90 days’ notice of plant closings or mass layoffs

involving an employment loss of: 1) either 30

percent of the employees or 50 employees

(whichever number was greater) of any employer at any site during any 30-day period; or

2) 100 or more employees at any site during a

30-day period, Employers could order the plant

closing or layoff before the end of the 90-day

period as a consequence of “unforeseeable”

business circumstances.

The committee-reported version of H,R. 1616

also contained consultation provisions that

were deleted on the House floor. In this version, the bill would have required employers

to consult “in good faith” with an employee

representative (if one existed) for the “purpose

of agreeing to a mutually satisfactory alternative to or modification” of a proposed plant closing or layoff. “Good faith” consultation would

include providing the employee representative

with relevant information needed to thoroughly

evaluate the proposed plant closing or layoff

or to evaluate the alternatives or modifications. gg

The committee-reported version of the bill

also proposed to give the Labor Department a

direct role in enforcement, requiring the Secretary of Labor to investigate complaints that

an employer had violated the notice and consultation provisions of the bill. On finding that

the allegations had merit, the Secretary would

then petition a U.S. District Court for injunctive relief. The court could have ordered several forms of relief, such as requiring the employer to give notice, extending the consultation

period beyond 90 days, and requiring reinstatement with back pay and benefits, The version

of the bill voted on by the House did not contain provisions for injunctive action.

~For a discussion of objections of employers to these requirements, see the earlier sections entitled “Avoiding Plant Closings and Layoffs” and “Labor Market Flexibility y and Collective

Dismissal Laws in Western Europe. ”
— —

44

Both versions of the bill specified that employees could sue noncomplying employers for

back pay and related benefits for each day of

violation, up to 90 days. Employees or other

persons could seek to enforce this liability by

bringing suit in a U.S. District Court. The courts

also could award reasonable attorneys’ fees to

be paid by the defendant, together with the costs

of the action. The committee’s version of the

bill would have allowed the courts to award

both general and punitive damages, if it found

such an award appropriate. This provision for

punitive damages was deleted from the version

of the bill voted on by the House. Also, the final version specified that the bill’s procedures

for taking civil actions against employers would

be the exclusive remedies for violations of the

bill.
ISSUES IN THE DEBATE ABOUT ADVANCE NOTICE LEGISLATION

Whether the Federal Government should require employers to provide advance notice of

plant closings and large layoffs has been a persistent and controversial issue in Congress. In

the 13 years since legislation on the subject was

first proposed, positions on the part of management and labor have remained highly polarized. (The benefits and costs of advance notice are discussed in detail in an earlier section

of this report.)

Nothing said at the OTA-GAO workshop suggests any softening of these polarized positions.

Industry spokesmen, including some from companies that give substantial notice when closing plants or laying off employees, were united

in opposing Federal notice legislation; labor

union representatives were just as solidly in

favor.

Is there any common ground? Despite appearances, there may be. All sides did agree on the

need to provide adjustment services to workers displaced in plant closings and layoffs more

promptly and more effectively. Although the

business representatives at the workshop opposed mandatory advance notice, most agreed

that voluntary advance notice was generally

desirable. They did think that the value of notice was overemphasized; more important was

provision of high-quality adjustment services

to the workers—something that notice could facilitate but not guarantee. Labor representatives, while insistent that notice should be required by national policy, also emphasized the

importance of adjustment services.

The discussion below examines several issues

in the debate about advance notice from the

perspective of improving adjustment services

to workers displaced by plant closings or permanent layoffs. Some of the options discussed

would not necessarily have to be linked with

a requirement for notice, while others clearly

would.

Rapid Response and Prelayoff Assistance

Advance notice provides the opportunity to

set up a project for serving displaced workers

before the plant closes or the layoffs begin.100

Such projects may be located at the plant site,

and involve the active participation of both

management and labor. Job Training Partnership Act Title 111 funds can be used for projects

of this sort. Several States have rapid response

teams that bring information services to the affected workers when warning is given of a plant

closing. At present, however, it is unusual to

find worker adjustment projects fully established in plants before layoffs begin.

Obviously, advance notice is a prerequisite

for prelayoff assistance. However, many improvements could be made in rapid response

delivery systems whether or not a legislative

requirement for advance notice is in effect.

Legislative options for encouraging rapid response could be pursued either in conjunction

with, or independently of, the issue of mandatory notice.

Outreach

As discussed previously, many employers are

not aware that the Title III program exists,

much less that it can be used for in-plant prelayoff assistance to workers who have received

a notice of termination or layoff. Greater effort

by governments (local, State, and Federal) to

get the word out to employers and workers

about Title 111 assistance would help. With more

aggressive outreach, more employers might be

encouraged to provide advance notice and to

participate in prelayoff assistance projects. Improved outreach would not necessarily require

new legislative authority, and the direct costs

would be modest. However, if the outreach

succeeds—that is, attracts more people to JTPA

Title 111 projects—then more funding would be

required. At present, some States say they do

not emphasize outreach because they do not

have the funds to provide services if more people are attracted to Title III projects.

Active involvement of trade associations,

business groups, unions, and others in the priIwsee the Section entitled “Benefits, and Relation to worker

Adjustment Programs” for a discussion of the advantages of such

projects,

45
46

vate sector can be a key factor in making outreach succeed. For example, in Massachusetts,

some business and trade associations are publicizing the State’s “social compact” to their

members, and urging them to adopt voluntary,

internal corporate policies to provide advance

notice and services to displaced workers, insofar as possible.

At the national level, business leaders established the National Center for Occupational

Readjustment (NaCOR) in 1983. This nonprofit

clearinghouse collects and disseminates information about ways to ease the effects of shutdowns. The Department of Labor helped provide initial support for NaCOR through a JTPA

demonstration grant; NaCOR is now entirely

supported by private sources.101 Other national

business organizations, including the Business

Roundtable and the National Association of

Manufacturers, have issued reports or model

guidelines for corporate practices on plant closings. The U.S. Department of Labor’s Division

of Cooperative Labor-Management Programs,

a modestIy funded agency set up to encourage

joint efforts by employers and employees, has

been active in distributing information about

the best practices to follow in plant closings.

Some State officials of Title III programs say

they would welcome additional advice and technical assistance from the U.S. Department of

Labor on how best to manage rapid response

to plant closings and layoffs.

Improving Rapid Response

Lack of information about prelayoff assistance is not the only impediment to rapid response. As discussed earlier, some efforts to

establish displaced worker projects in plants

before layoffs have encountered delays in funding, lack of technical assistance, and problems

in coordinating assistance from multiple

agencies.

Government agencies, employers, and worker representatives have all shown a strong inIOIPart of the Department of Labor grant was used by NaCOR

to produce a detailed employer’s guidebook on approaches for

softening the impact of plant closings. See Managing Plant Closings and Occupational Readjustment: An Employer’s Guidebook,

Richard P. Swigart (cd.) (Washington, DC: National Center on

Occupational Readjustment, 1984).

terest in expediting the delivery of adjustment

services to workers affected by plant closings

and large layoffs. Rapid response teams, made

up of several State government officials who

visit plants to acquaint workers with available

services, is an option that several States now

use. Another option is for employers to bring

private consultants into plants to advise them

on how to set up and operate an in-plant project.

Another approach that is generating a great

deal of interest in the United States is that used

by the Canadian Industrial Adjustment Services (IAS) for over 20 years. As soon as it receives word that a plant may close or layoff

workers, IAS offers to help establish a labormanagement adjustment committee in the plant

to direct prelayoff assistance. An IAS approach

might encourage employers to provide more

notice of layoffs and closings voluntarily, since

they could be reasonably sure of getting effective help once notice was given. In Canada, IAS

operates in Provinces that do not have advance

notice requirements as well as those that do,

and apparently elicits a good deal of cooperation from employers.

If the IAS approach were adopted in this

country, it might be necessary to establish a

small consultative agency—either at the Federal level or in the individual States—that specializes in helping to set up in-plant labormanagement committees. How this approach

could work in the United States may be more

clearly understood in a year or so. The Department of Labor is planning to fund several State

demonstration projects, using the IAS model.

Six States are expected to receive small discretionary grants (about $20,000 per State), which

each will use to fund two in-plant demonstration projects. The plan is to establish in-plant

labor-management committees, each with an

independent chairman and a State official as

a staff consultant. Most of the projects probably will take place where companies have provided substantial advance notice. The National

Governors’ Association, which is helping to direct the pilot projects, is expected to make a

report on them.

A particularly difficult problem for States that

wish to emphasize rapid response is delays in
47

funding projects and services under Title III

of JTPA. Displaced worker projects often encounter delays of several months between the

time JTPA agencies initially commit to projects

and the time grants are executed.

There may be several ways to expedite funding for displaced worker projects. Other States

might follow the example of the Massachusetts

Industrial Services Program, which can immediately commit State-provided funds to startup

plant-based projects. Possibly, the Federal Government could help States improve rapid response by providing small grants for such

startup activities, or encouraging them to use

their Title III formula grants for that purpose.

As discussed earlier, a complex funding situation has arisen because of budget cutbacks

for Title III in fiscal year 1986. Three-fourths

of the Title III grants go to States on the basis

of a statutory formula; the other 25 percent is

disbursed through the Secretary of Labor on

a discretionary basis. Some States have substantial carryover funds from formula-based Title

111 grants from previous years; other States do

not.

Rapid response capabilities might be increased

if States were encouraged to earmark a portion

of their Title III grant for this purpose; one option might be for the Secretary of Labor to reallocate some carryover funds among States for

this purpose. Section 301(d) of JTPA gives the

Secretary of Labor limited authority to reallot

State funds, on determining that the State would

not be able to obligate the funds within a year

of receipt. However, it might be necessary for

Congress to give the Secretary new authority

specifically to reallocate funds for rapid response.

The States with little carryover funding can

apply for discretionary grants from the Secretary of Labor. Yet, projects seeking Federal discretionary grants typically encounter even

longer delays than in those funded by Stateadministered formula grants. Proposals for

these Federal grants usually must clear local,

State, and Federal approvals before the grant

can be executed. States that depend more heavily on the discretionary fund may thus have the

biggest problems in getting funds quickly. Ways

to speed up the clearance process are clearly

needed. This will become an especially urgent

matter if, as the Reagan Administration has proposed for fiscal year 1987, all Title III funding

is made through the Secretary’s discretionary

fund.

Legislative Questions About Advance Notice

Voluntary or Mandatory Notice

The fundamental question in the debate about

advance notice is whether it should be voluntary or required by law. Business representatives, with few exceptions, have opposed any

legal requirement for notice. At the OTA-GAO

workshop, business spokesmen argued that

each plant closing and layoff is unique, and that

a mandated requirement for notice would be

inflexible. For smaller businesses, one participant said, notice requirements might stifle the

entrepreneurial spirit, making it unattractive

to expand the firm by adding more employees.

Labor spokesmen strongly support mandatory advance notice. At the workshop, one argued that business had not done a good enough

job with voluntary notice; while there might

be exceptional cases when overriding reasons

prevented giving notice, the exceptions should

not dictate policy. Another participant said that

agreements between companies and unions are

not sufficient, since most employees are not

covered by union agreements.

The options for Federal policy on advance

notice lie along a continuum, ranging from no

Federal action at all to a comprehensive national program such as those in Western Europe. Between these poles lie a variety of approaches, such as encouraging notice on a

voluntary basis, or requiring notice by Federal

law but imposing no requirements for consultation on alternatives to the layoffs, or requiring notice and consultation but no other obligations such as severance pay.

Incentives and Notice

Possibly, the Federal Government might offer incentives to firms to provide advance notice. Massachusetts is experimenting with this
48

approach at the State level, through its social

compact concept. With properly selected Federal incentives, more companies might be encouraged to provide notice, either voluntarily

or as a condition for receiving assistance.

One possibility would be to get firms receiving certain kinds of financial assistance to agree

to provide notice if they found it necessary in

the future to close or to lay off employees. Massachusetts takes this approach, Firms applying

for financial aid from certain financing authorities agree to accept a voluntary standard for

corporate behavior; they pledge a good faith

effort to provide a combination of notice and

income and health benefits, where possible, in

future layoffs or closings. A similar approach

might be adapted for Federal or federally supported financing.

Another possible incentive would be to give

companies that provide notice more favorable

tax treatment in meeting obligations to the government than they would get otherwise. However, tax breaks for notice may be viewed as

inappropriate, in light of concerns about Federal budget deficits and may be inconsistent

with tax reform objectives. Moreover, it is not

clear that tax breaks would automatically encourage more firms to provide notice; they

might simply benefit firms that would have provided notice anyway.

Another possibility, as noted above, is that

a greater Federal effort to encourage rapid response might in itself be an incentive for some

companies to give more notice, particularly if

accompanied by a concerted effort on the part

of government and business organizations to

acquaint companies with displaced worker

assistance programs. In fact, some State Title

III program directors have told the National

Governors’ Association that more employers

are providing advance notice voluntarily as the

Title III program becomes better known.

Size of Firms and Size of Layoffs

It is generally contended that small businesses have a harder time giving advance notice than large firms, and are less likely to give

it. From a policy standpoint, this poses a dilemma: the firms most likely to be burdened

by advance notice requirements are also those

firms that are least likely to give it. From an

administrative standpoint, small firms are also

harder to track in monitoring compliance.

Some legislative proposals for advance notice

have exempted small firms from notice requirements, with the number of the firm’s employees defining the threshold for notice requirements to apply. Other proposals refer to the

number of employees of a firm at a single establishment, or site. There is little agreement about

the size of an enterprise or establishment to exempt from notice, as is suggested by the modifications made in H.R. 1616, the advance notice

legislation that was defeated in the House in

1985. In the version of the bill that was reported

out of the House Education and Labor Committee, only firms with fewer than 50 employees were excluded from the bill’s coverage. The

version of the bill that came to a final vote on

the House floor excluded business enterprises

employing fewer than 50 full-time workers at

a single site from the requirements of the bill.

Before defeating the measure, the House rejected a proposal to require notice only of firms

that employed at least 200 full-time employees

at a single site.

The argument for the 200-worker” minimum

was that large corporations with money, staff,

and ability to plan ahead ought to give notice,

but that a 50-worker minimum would burden

small business. On the other side, it was argued

that the 200-worker threshold would exclude

the majority of closings or layoffs, so that much

of the point of the legislation would be lost.

Another key question is how large a layoff

or plant closing must be before triggering notice requirements. The committee-reported version of H.R. 1616 would have required employers to provide notice when dismissing or laying

off 50 or more employees at a single site over

a 30-day period. The version of the bill ultimately defeated by the House would have required notice of layoffs or closings affecting

between 50 and 100 employees at a single site

if 30 percent of the work force were involved,

and notice for all closings or layoffs affecting

more than 100 workers at a single site.
49

Threshold questions also arise in distinguishing between temporary, indefinite, and permanent layoffs. Temporary layoffs may occur for

several reasons—closing down facilities while

retooling, or while inventories are being reduced. Sometimes, however, unforeseen circumstances may turn a temporary layoff into

a permanent one. Whether temporary or indefinite layoffs should be treated differently from

permanent ones has become an issue. The committee-reported version of H.R. 1616 defined

employment losses as an employment termination other than for cause, a layoff of indefinite duration, a layoff of more than 6 months,

or a work reduction of more than 50 percent

during any 6-month period. In the version of

the bill finally voted on in the House, the last

item (pertaining to 50-percent work reduction

over a 6-month period) had been removed, but

the other three items were kept. In Canada, the

notice law that applies in the federal jurisdiction does not require employers to provide notice in layoffs lasting 3 months or less, or if employees are told they will be recalled within 6

months. Notice also is not required in layoffs

of 3 months or more when the employer continues to make payments on a pension or insurance plan, or if the employee receives supplementary unemployment benefits.

How Much Notice?

Proposals have varied on the amount of notice to require, some calling for as much as 6

months’ notice, and others for as little as 30

days, H.R. 1616 proposed 90 days’ notice, except when unforeseeable business circumstances

prevented completion of the notice period. Opponents of the 90-day notice period regard it

as too inflexible, imposing a burdensome mandatory national standard on small and mediumsize business. To some, a 60-day notice period

—as required in Maine and Wisconsin—is more

acceptable. Supporters of a 90-day notice requirement argue that the exception for unforeseeable business circumstances gives sufficient

flexibility.

Both the purpose of notice and the institutional setting in which it occurs are relevant

to the amount of notice that is desirable. Generally, 2 to 4 months is needed to put in place

a comprehensive program of adjustment services for workers. The amount of notice needed

depends in part on whether an effective institution (like IAS) is available. In exceptional circumstances, effective projects have been set up

in just a few weeks; however, IAS generally

finds that 2 to 4 months’ notice, depending on

the number of workers affected, is just about

adequate to get a program of adjustment services launched.

Other Components of Plant Closing Legislation

Over the years, many legislative proposals on

plant closings have included other components

besides advance notice—for example, the consultation requirement that was in the initial version of H.R. 1616 (but deleted before the final

vote on the bill in the House). Other proposals

have called for mandatory severance pay for

workers, continuing health insurance coverage

at the company’s expense, and transfer rights

for workers to other facilities owned by the

company. Like the narrower issue of advance

notice, these additional components of plant

closing bills have generally received support

from labor representatives, but have been opposed by employers and business groups.

Information and Data Questions

The debate about advance notice legislation

has been hampered by the absence of reliable

national information on plant closings or large

layoffs, and the amount of notice provided to

workers. Nearly all estimates of plant closings

have been based on anecdotes reported in the

general or trade press, or on proxy business information that was not collected for the purpose of counting plant closings or layoffs and

the number of workers involved. Even less information has been collected on the amount of

advance notice given by U.S. firms. Depending on what sources are used, very different

pictures emerge about the size of the plant closing problem.

The General Accounting Office’s study of

business closures and permanent layoffs among

establishments with 100 or more employees
50

provides the first national estimates of plant

closings and layoffs based on verified business

data and using statistically valid methods. The

GAO report is not scheduled for repetition.

In 1982, Congress called on the Department

of Labor to develop and maintain national data

on plant closings and permanent layoffs, and

to publish the data as soon as practicable at the

end of the calendar year.102 The Administration did not begin work on the project untiI Congress specifically appropriated funds for it and

there have been delays in fund availability; a

national report on this subject has not yet been

issued. The project was not originally designed

to collect data on advance notice, but this could

be a valuable addition. States that collect data

for the project contact firms to verify the unemployment insurance data that are used in

estimating plant closings and layoffs; thus,

102 The plant closing ancl permanent layoff data is called for

in Section 462(e) of the JofJ Training Partnership Act of 1982.

adding questions on advance notice probably

would not involve much extra spending.103

103As this report was prepared for publication in August 1986,

the Office of Management and Budget had just approved a request to query some of the firms contacted by the States in the

plant closing data project about advance notice. This one-time

special study was requested by a subcommittee of Secretary

Brock’s Task Force on Economic Adjustment and Worker Dislocation. The survey will cover about 300 to 35o firms in 7 States

that had plant closings or layoffs in the last two quarters of 1985.

The firms will be asked whether they provided workers with

advance notice (either general or specific), and, if so, how much.

They will also be asked whether they notified a union, State or

local government, or the press of major layoffs. Firms will also

be asked if they established a labor-management committee to

help workers adjust to the layoff or closing, and what kinds of

services were provided to the workers by the firm, It is expected

that the special study will be provided to the subcommittee in

late 1986. It is not scheduled for repetition. The costs of the study

will be absorbed by the agencies so that no special funding will

be involved. The Labor Department estimated that these costs

will amount to approximately $62,850; this includes about $30,000

in absorbed costs by the Federal Government, $27,300 by the

States, and $5,55o by private industry (assuming that each of

the firms would need to expend I hour of staff time to answer

the questions).
APPENDIX A: ADVANCE NOTICE LAWS IN OTHER COUNTRIES

Many countries now have legislative requirements for advance notice of plant closings and mass

layoffs. A 1980 International Labour Office (ILO)

report identified at least 38 countries with laws requiring employers to provide some form of advance

notice of work force reductions or collective dismissals of workers.104

Advance notice laws are particularly common in

Western Europe, Most members of the European

Community (EC) have complied with a 1975 directive from the EC governing council that called on

member states to “approximate in law” some common requirements for notice and consultation with

workers when undertaking collective dismissals.los

Many non-EC members in Western Europe also

have adopted advance notice requirements, and in

some cases these go beyond the EC directive.

In North America, advance notice laws are in effect

in several Canadian Provinces, and for employers

under the jurisdiction of the Canadian federal government; Mexico has procedures for government

review of collective dismissals of employees. A

number of African and Asian countries require advance notice or government review of the decision

to dismiss workers,

Besides special provisions that apply to collective

dismissals, many countries also have laws requiring employers to give notice before dismissing individual employees. In some countries, the requirements for individuals also apply in work force

reductions or collective dismissals. Japan, for example, requires employers to provide 30 days’ notice before dismissing workers except in cases of

inevitable cause (such as a natural calamity) or when

the worker is to blame for the dismissal,106 The dis1wInternational Labour Office, Termination of Employment at the Initiative of the Employer, International Labour Conference, 67th sess., 1981,

Report VIII[l] (Geneva: 1980). In the discussion below, OTA has used

ILO’S terms wherever possible to avoid confusion. “Work force reduction” refers to the dismissal or long-term layoff of workers because of

economic, technological or structural changes affecting an enterprise.

The term “collective dismissal” is used to refer to special procedures

governing the dismissal of more than one worker. Some countries also

have special procedures governing the dismissal of individual workers.

‘

m

’’ Council Directive of 17 February 1975 on the Approximation of the

Laws of the Member States Relating to Collective Redundancies, ” Official Journal of the European Communities, 75/129/EC No. L 48/29-30,

Feb. 22, 1975.

1rnTadashi A. Hanami, “Japan,” Workforce Reduction in Undertakings:

Policies and Measures for the Protection of Redundant Workers in Seven

Industrialized Market Economy Countries, Edward Yemin (cd,) (Geneva:

International Labour Office, 1982), p. 181. In addition, Japan has several

laws designed to protect workers in certain depressed industries from

redundancy, or to facilitate their adjustment to new employment. For

a discussion, see Ibid., pp. 168-169, and T.A. Hanami, “Japan, ” International Encyclopedia for Labour Law and Industrial Relations (The Netherlands: Kluwer Law and Taxation Publishers, 1985 supplement).

cussion below focuses on laws specifically related

to collective dismissals.

The Mechanics of the Advance Notice Process

A wide range of approaches is apparent in different countries’ programs related to work force reductions. Some require only that employers provide

advance notice to the employees, an employee representative, or a government agency. In other countries, the employer must consult, and in some cases

negotiate, with the employee representative before

making a final decision to dismiss the workers.

Several countries, mostly in the developing world,

require employers to request approval from a government agency before going ahead with the dismissals.

Notice provisions may be tied to other requirements as well. In some countries, for example, employers must consider measures to minimize the dismissals (e.g., by retraining workers for different jobs

within the firm, or relocating workers to different

branches of the firm); some require employers to

give severance pay to dismissed workers.

The discussion that follows is based mainly on

advance notice requirements in several Western

European countries and Canada. In many of these

countries, advance notice is only one part of a package of adjustment services available to displaced

workers and their communities. These adjustment

services, and economic development programs as

well, are an important part of the context in which

notice takes place. This discussion is confined

mostly to advance notice, and its relationship to

prompt delivery of services to workers, but does not

extend to the broader context of economic development or community adjustment programs.

Notice or Consultation With Employees

The ILO study identified at least 19 countries that

required employers to provide advance notice to

employees, either directly or through an employee

representative such as a union.107 Notice requirements differ greatly among countries; they may also

vary according to the purpose of notice, the size

of the company, and the number of workers to be

dismissed.

Consultation provisions are common in many

Western European countries. In France, West Germany, and Ireland, for example, employers must

107 1nternational Labour Office, op. Cit., p. 74.

51
52

provide information and consult with a works council or an employee representative about avoiding

or reducing the number of dismissals, and mitigating the impact of the dismissals. In the United Kingdom, employers must consider the views of the

trade union or other employee representative, and

give reasons if they do not act on these views.

In a few countries, the consultation process may

lead to negotiations between the employer and employee representatives. In Sweden, for example, an

employer cannot dismiss the workers until after the

union is given the opportunity to negotiate. If an

acceptable outcome to the two parties still is not

reached, a labor court must rule before dismissals

can be carried out.

Notice to Government Agencies

ILO reported in 1980 that some 33 countries had

laws requiring employers to notify a government

agency in advance of collective dismissals of workers. In some countries, notice to the government

agency follows or is concurrent with notice to the

employees or the workers’ representative, while in

other countries the employer is required only to

notify the government.

Often, the purpose of notifying the government

agency is not explicitly stated in the law, but several purposes may be deduced. In some cases, the

main purpose is to allow the government time to

plan and mobilize assistance for workers and communities, In others, the advance notice also gives

the government a chance to consult with the employer or employees’ representative about the dismissal decision. In some countries, a government

agency can delay the impending dismissals for a

specified period of time; and in some, the government can deny permission to dismiss the workers.

The purpose of notice may determine what government agency is to be notified. For example, if

negotiation or review of the employer, decision is

authorized, notice is sometimes given to an industrial court or arbitration body. If the aim of the notice is to help provide services to workers, the

agency receiving notice is likely to be an employment office or a labor ministry.

Canada is an example of how advance notice can

be combined with rapid provision of services to

workers affected by plant closings or mass layoffs.

Seven of the twelve Canadian Provinces and territories have notice requirements; certain classes of

workers are also covered by national law. About

three-quarters of Canada’s work force is covered

by advance notice requirements.

When government agencies receive notice of a

closing or mass layoff, a small Federal agency, the

Industrial Adjustment Service (IAS), immediately

steps in with an offer to help the workers find new

jobs. Providing technical and modest financial assistance, the IAS helps to establish labor-management

adjustment committees that work to place workers

in new jobs as quickly as possible. The committee

is headed by an independent chairman, selected

from a list of experienced people. IAS services are

available throughout Canada, and usually begin well

in advance of the layoffs or closings. In Provinces

that do not require notice, employers may volunteer information about impending layoffs or closings, or IAS may learn of them through news accounts or word of mouth.

When is Notice of Coiiective Dismissals Required?

The circumstances that trigger notice vary considerably. The laws in Western Europe often take

into account the number of workers to be dismissed,

the size of the firm, and the time period over which

the dismissals are to occur. For example, in Denmark, the collective notice requirements are triggered when enterprises employing 20 to 99 workers plan to dismiss 10 or more wage earners in a

30-day period. Enterprises employing 100 to 299

workers must provide notice when 10 percent or

more of the work force would be dismissed over

the 30-day period; those firms that employ 300 or

more workers must provide notice when at least

30 dismissals are called for,

This approach is one of two options given to EC

members to comply with the European Council’s

1975 directive on collective redundancies. The other

option would require notice when at least 20 workers would be dismissed over a period of 90 days,

regardless of the number of people normally employed in the establishment.

Length of notice varies, as well, In Canada, the

federal notice provisions (which apply only to a

small proportion of the Canadian work force) require that employers notify the Minister of Labour

16 weeks before dismissing 50 or more employees

who have worked 3 consecutive months or more.

Six of the seven laws—those of Manitoba, Newfoundland, Nova Scotia, Ontario, Quebec, and the

Yukon—require at least 8 weeks’ notice when 50

workers are to be dismissed, and 16 weeks when

dismissals will affect 500 or more workers. Some

are more stringent; Nova Scotia and Quebec, for
53

example, require 8 weeks’ notice when as few as

10 workers are dismissed, and the Yukon requires

4 weeks’ notice when 25 to 49 workers would be

dismissed. New Brunswick’s law, passed in 1982

but not fully proclaimed in effect until December

1985, applies only to group dismissals of workers

covered by collective agreements. It requires employers to provide 4 weeks’ notice before dismissing 25 or more such workers if they comprise at

least 25 percent of the work force.

Several Provinces (Manitoba, New Brunswick,

Nova Scotia and Ontario) allow employers to use

payment in lieu of notice in group dismissals. Some

Provinces also require the employer to keep benefits in effect during this period. (These options and

requirements should not be confused with mandatory severance payments, which employers have to

pay certain workers when making group dismissals

in Ontario and under the federal code,)

Among EC members, employers generally consult with an employees’ representative before officially notifying a government agency, Sometimes,

the period of formal notice to the government may

be quite brief. The 1975 directive of the EC (which

most members have complied with) requires only

30 days’ formal notice to a government agency before dismissals can begin.105 However, this notice

is preceded by open-ended consultation with the

workers’ representatives, and does not obviate any

provisions governing individual rights in dismissals.109 The EC directive also suggests that member

countries empower the government agency to extend the notice period so that the agency can “seek

solutions in the problems raised by the projected

redundancies, ’’no

In Sweden, which is not an EC member, the district labor board must be given 2 months’ notice

when 5 to 25 workers are to be dismissed; 4 months’

notice when 25 to 100 workers are involved, and

6 months’ notice when more than 100 workers are

to be dismissed. The union must be notified at least

1 month before the dismissals; however, since employers must give the union an opportunity to negotiate, notice to the workers is often the first step

in the process.

I%ountries can grant the government authority the power to reduce

or extend the notice period,

109Technically, the directive does not state !hat consultation with workers must begin before notification of the public authority. However, the

notification is to contain, among other things, all relevant information

about consultations with workers’ representatives. This indicates that

the consultation process must precede notice.

1lO’’Counci] Directive of 17 February, 1975,” Op cit., Section 3, article 4.

Consultation and Information Requirements

In countries that require notice but not consultation, the employer may have to provide a written

statement of intent to dismiss a certain number of

workers at a certain time, but beyond that has few

obligations to offer information about the dismissals. Where the law requires consultation, the employer may have to provide much more information.

Under the EC directive, for example, an employer planning collective dismissals is to consult with

the workers’ representative “with a view to reaching an agreement. ” At the very least, the consultations are to address “ways and means” to avoid the

dismissals or reduce the number of workers affected

by them, and ameliorate the consequences of the

dismissals. The employer must supply “all relevant

information, ” and give a written account of the reasons for the proposed dismissals, the number of

workers to be dismissed, the number of workers ordinarily employed at the establishment, and the time

period for the dismissals. The same information

must be provided to the relevant government agency, together with information about the results of

the consultation with the workers’ representatives.

Some EC countries require more information than

the minimum specified in the directive. In England,

for example, the employer must disclose to the

union the methods proposed for selecting employees to be dismissed, and for carrying out the dismissals.111 In France, the information provided to

the government must include (among other things)

the economic, technical, or financial reasons for the

dismissals, and the efforts made to reduce the number of dismissals and encourage the reemployment

of the workers.112

Many Western European countries also require

companies to give works councils—and, in some

cases, government agencies—substantial information about future plans that might affect employment. For example, in West Germany, an employer

must disclose to the works council any proposed

plans for changes in the organization that could lead

to redundancies or otherwise disadvantage the

work force. Also, West German employers must

notify the regional employment agency of foreseeable changes over the next year that might lead to

the dismissal of workers or downgrading of personnel. The opinion of the works council on the change

1llHa]SbUrY’S st8fU&S of England, vol. 45, Continuation volume 1975

(London: Butterworths, 1976), p. 2412.

1l’Jean P&issier, “France,” Workforce Reductions in Undertakings: Policies and Measures for the Protection of Redundant Workers in Seven

Industrialised Market Economy Countries, op. cit., p. 63.
54

is appended to the notice. The purpose of the notice, according to one source, is to facilitate “longrange observation of labour market developments

and to permit all parties concerned to take preparatory steps that would smooth the transition to new

employmerit. ’113

Consultation is not generally required in Canada;

however, in some jurisdictions, employers maybe

required to participate in developing an adjustment

program after formally notifying a government

agency of planned dismissals. This is mandatory

for employers who fall under the jurisdiction of the

federal labor code. Upon giving notice to the government, these employers must establish joint planning committees, comprised of representatives of

management and labor. The committees have the

task of developing an adjustment program to eliminate the need for dismissals or to minimize their

impact on workers and help the workers find new

jobs. In some Provinces (Manitoba, Ontario, and

Quebec), the Provincial labor minister, upon being

given notice, can require employers to cooperate

in adjustment programs.

Government Review of the Decision To

Dismiss Workers

Several countries require employers to seek government authorization for collective (and in some

cases individual) dismissals. The ILO survey identified 15 countries as having explicit requirements

for government authorization of work force reductions (Algeria, Chile, Colombia, France, India, Iraq,

The Netherlands, Panama, Portugal, Peru, Senegal,

Sri Lanka, Spain, the Sudan, and Zaire). In several

other countries (the Congo, Indonesia, Venezuela,

and Mexico), prior authorization from a disputes

board or arbitration body is needed.

As the list suggests, requirements for government

consent are more common among developing countries than among highly industrialized countries.114

However, in France, employers must consult with

an employee representative before giving notice of

a planned dismissal to the Labour Director of the

department. After getting the notice, the Director

has 30 days to review the case (7 days when fewer

than 10 dismissals are involved). If the Director does

1lSWerner Sengenberger, “Federal Republic of Germany, ” Workforce

Reductions in Undertakings: Policies and Measures for the Protection

of Redundant Workers in Seven Industralised Market Economy Countries, op. cit., pp. 91-92.

1lqEdWard yemin (cd.), “Comparative Survey, ” Workforce Reductions

in Undertakings: Policies and Measures for the Protection of Redundant

Workers in Seven Industralised Market Economy Countries, op. cit., pp.

12-13.

not deny the request, the dismissals can proceed.

Appeals, by either the employees or the employer,

can be taken to the Ministry of Labour or an administrative tribunal,

International Organizations: Agreements,

Standards, and Guidelines

European Community (EC)

Several provisions from the February 1975 directive of the Council of the European Community on

advance notice and consultation on collective dismissals have been discussed in the relevant sections

above. To sum up, the EC directive pertains to collective dismissals for reasons not related to the individual worker concerned. It gives two options for

determining the number of dismissals that trigger

notice and consultation requirements, It specifies

a procedure by which employers are to consult with

workers’ representatives when considering collective dismissals, It also specifies that employers are

to provide at least 30 days’ notice to a public authority before undertaking collective dismissals. As

of May 1986, 10 of the 12 member states of the EC

have enacted or revised laws to comply with the

directive.

International Labour Organisation (ILO)

The ILO is a special agency of the United Nations.

In June 1982, delegates to the ILO adopted a convention concerning termination of employment at

the initiative of the employer. The convention contains supplementary provisions on consultation

with workers’ representatives and notification of

the competent public authority in the event of termination of employment for economic, technological, structural or similar reasons. 115

The ILO delegates also adopted a recommendation that, among other things, urged: 1) employer

consultation with workers’ representatives on major changes in undertakaings; 2) consideration of

measures to avert or minimize dismissals (measures

such as internal transfers, training and retraining,

restrictions on overtime and reduction of normal

work hours); 3) establishment of criteria for termination of employment; 4) provision of a certain priority of rehiring to the dismissed workers; and 5)

adoption of measures by a competent authority to

place workers as soon as possible in alternative em1lsInternational Labour Conference Convention 158, “Convention Concerning Termination of Employment at the Initiative of the Employer,”

adopted June 22, 1982.
ployment, with training or retraining where appropriate .

Organisation for Economic Cooperation and

Development (OECD)

In 1976, OECD issued voluntary guidelines for

multinational enterprises operating in the territories of member countries. A voluntary guideline on

advance notice was included. It recommends that

enterprises,

1leInternationa] Labour Conference Recommendation 166, “Recommendation Concerning Termination of Employment at the Initiative of the

Employer,” adopted June 22, 1982.

55

. within the framework of law regulations and prevailing Iabour relations and employment practices,

in each of the countries in which they operate, should:

in considering changes in their operations which

would have major effects upon their employees, in

particular in the case of the closure of an entity involving collective lay-offs or dismissals, provide reasonable notice of such changes to representatives

of their employees, and where appropriate to the relevant government authorities, and co-operate with

the employee representatives and appropriate governmental authorities so as to mitigate to the maximum extent practicable adverse effects. 117

117The OECD Gujdeljnes for Multinational Enterprises (Paris: Organisation for Economic Co-operation and Development, 1986], pp. 15-16.
APPENDIX B: STATE AND LOCAL ADVANCE NOTICE PROGRAMS

Advance notice legislation has been proposed in

more than 20 States over the years. Three States and

a few local governments require advance notice in

certain circumstances, and a few other State legislatures have enacted voluntary notice laws of one

form or another. Besides notice provisions, several

State legislatures have authorized other kinds of programs related to plant closings: some States require

continuation of health insurance coverage for workers after layoffs or closings; although this is usually

offered at the employees’ expense, one State requires the employer to pay for the continued coverage. Several States offer technical and financial

assistance to aid employees in buying plants that

are closing. Some States also provide assistance to

troubled firms to help them stay in business, and

thus avoid shutting down or laying off people. Finally, a number of State legislatures have authorized special studies or commissions on plant closing issues.

The current status of State advance notice laws

and two well-known examples of local ordinances

are discussed briefly below.

Maine

Since the early 1970s, a Maine law has required

employers to provide advance notice, as well as

severance pay, when certain plants are closed or

relocated.118 The notice and severance pay requirements apply only to “covered establishments, ” defined as “any industrial or commercial facility or

part thereof which employs or has employed 100

or more people in the last 12 months. ”

Any person proposing to close or relocate a covered establishment is to provide notice 60 days

before the relocation to the Director of the State Bureau of Labor, A firm that intends to move operations outside of Maine must also provide 60 days’

notice to the employees and the municipality. Failure to do so could result in a judgment of $500

against the firm; penalties are not specified for failure to notify the State. The law exempts firms from

any fine if the relocation is required due to a natural calamity or if unforeseen circumstances prevented the firm from providing notice.

111126 Maine Revised statutes Annotated 625.B. The Maine law on n~-

tice of plant closings was initially passed in 1971; it was amended in 1973,

1975, and 1981. Initially, companies were required to provide severance

pay only when they failed to provide notice. However, this was changed

in 1973; severance pay is now required whether or not notice is provided.

The requirement for mandatory severance pay

also applies only to establishments that employed

100 or more workers in the prior 12 months. When

closing or relocating such establishments, firms are

to pay the equivalent of 1 week’s wage for each year

an employee has worked at the establishment.

Severance pay is not required for employees who

have worked less than 3 years at the firm; nor is

it required when the firm relocates the facility

within 100 miles of the current site, or when the

employee accepts a job offered at the new location.

Also, companies are not liable for severance pay

when the closing or relocation is due to a “physical

calamity ’’–defined to include adjudicated bankruptcy as well as fires, floods, or other natural disasters. Finally, an employer does not have to adhere to the State severance pay requirements when

it has an “express contract” with the employees providing for severance pay.

In enforcing the severance pay provisions, the

State can examine the books and records of the employer. It can supervise the payment of unpaid

severance, and it can bring court action to recover

the unpaid amounts. Most companies apparently

have complied with the severance pay requirements;lle

however, several enforcement actions have been

taken. Three companies have challenged the law

on constitutional grounds, or on grounds that it

preempts the Federal Employee Retirement Income

Security Act (ERISA) and the National Labor Relations Act. In June 1986, Maine’s Supreme Judicial

Court upheld the State statute in one of these

cases.

120

The law does not explicitly provide the State government with the power to enforce the 60-day notice provision. Aside from a possible judgment of

$500 for failing to provide notice to a municipality

or the employees when moving an establishment

outside the State, no other penalties are specified

in the law. The State does not maintain separate

statistics on compliance with the notice requirements of the law. However, some compliance information can be obtained from the State’s Bureau

of Labor Standards’ recordkeeping on severance

1l’+According t. paul Love joy, the Deputy Director of the Bureau of Labor Standards, companies paid a total of $4,576,945 to 3,580 workers from

the beginning of the program in 1971 through 1985. Most of these payments ($4,289,943 in severance to 3,380 dismissed workers) occurred between 1980 and 1985. Another 580 workers could receive a total of up

to $1,746,499 if pending court cases are decided in their favor.

1zO’’Ccurt: Severance Pay Must be Granted,” Kennebec Journal, June

3, 1986.

56
57

pay. In the 1982-85 period, according to the Bureau,

23 plant closings or relocations in Maine were large

enough to be subject to the severance pay requirements of the law. Of these, 13 firms (or about 56

percent) provided at least 60 days’ notice, Ten provided less notice than the law required, or no notice. 121

Wisconsin

Wisconsin requires firms employing 100 or more

people in the State to provide 60 days’ advance notice before mergers, liquidations, dispositions, or

relocations that would result in a cessation of business operations affecting 10 or more employees.

Firms that fail to provide this notice or that do not

provide certain other information required by the

law can be fined up to $5o for each employee affected by the cessation of business operations. Notice is to be given to several parties: the State Department of Industry, Labor and Human Resources,

and, due to an amendment to the law in 1984, to

any affected employee, the union (if any), the m u -

nicipality, and county governments.

One purpose of the notice law is to assure tha t

companies provide all wages and benefits due t o

employees when closing down or relocating, In fact,

the Wisconsin law was enacted in 1976, shortly after a company failed to provide final wages due to

employees after shutting down its operations without notice and moving out of the State,

Besides giving notice, firms also are to provide

information that may be required by the Industry,

Labor and Human Relations Department about their

payrolls, and the wages and other renumeration

owed to affected employees. The Department also

can require the employer to provide a plan for making final payments to employees when ceasing operations. The law establishes a procedure for dealing

with disagreements between employers and employees about wage claims, and the State is authorized

to investigate and attempt to adjust controversies

about wage claims. The State can sue the employer

on behalf of the employee when it deems that a wage

claim is valid, and can take a lien on the employer’s

property within the State.

The notice law is also intended to give the State

the opportunity to prepare an economic adjustment

program. Under the law, the Department of Industry, Labor and Human Resources must promptly

lzlof the firms that did not provide notice, one went bankrupt and presumably would not be required to provide notice; three are involved in

legal proceedings about the law.

inform two other State agencies (the Department

of Development and the Council for Economic Adjustment) when it receives notice of an impending

cessation of business activities. The eight-member

Council on Economic Adjustment, comprised of key

State officials for economic development, labor, employment and training, and vocational, technical,

and adult education, advises the Department of Development in carrying out its activities,

As noted, the penalty for not complying with the

notice requirement is minimal—$50 per employee.

Legislation to increase the penalty to $50 per employee for each day that notice is not provided (or

$3,000 per employee if a company failed to provide

any notice at all) was considered in the 1985-86 session of the legislature, but was not acted on before

the session ended.

Since March 1984, when notice to employees and

local governments was first required, the State has

investigated several complaints that employers did

not provide the requisite notice; as of July 1986, enforcement action had been recommended in three

cases.

From 1976 through 1985, about 250 companies

provided notice of partial or total closings in Wisconsin, but no hard figures are available on the degree of compliance with the law. Estimates prepared for the 1976-83 period (before employee and

community notice was required) were that between

25 and 33 percent of the firms in Wisconsin complied with the notice requirements of the law.

Massachusetts

The Commonwealth of Massachusetts adopted a

corporate standard for notice as part of a package

of programs dealing with mature industries that

passed the State legislature in July 1984. The notice provision is part of a “social compact,” in which

employers who receive financial assistance from

certain quasi-public State agencies must “agree to

accept” certain “voluntary standards of corporate

behavior.” Specifically, the companies must agree

to make “a good faith effort” to provide employees

with the “maximum practicable combination” of

advance notice and maintenance of income and

health insurance benefits. The law, while stating

that no minimum standard is prescribed, nonetheless specifies that the State “expects” firms to

provide “at least gO days’ notice or equivalent benefits. ” The law also calls on companies to help reemploy the workers.
58

Companies are required to accept the voluntary

standard only if they receive financial assistance

from one of five “quasi-public” State agencies (the

Massachusetts Industrial Finance Agency, the Community Development Finance Corp., the Massachusetts Technology Development Corp., the Government Land Bank, and the Massachusetts Product

Development Corp.). These agencies provide assistance (such as industrial revenue bonds and loan

guarantees) to aid new and established businesses

in the State. The specific form of the agreement is

to be devised by the individual agency. Typically,

before getting financing, the company must sign an

agreement that it will give employees advance notice of layoffs or closings, provide severance pay,

and maintain health insurance benefits where

possible.

The voluntary standard for corporate behavior is

part of a comprehensive package of technical and

financial assistance for troubled industries and adjustment assistance for displaced workers. Other

components of the Massachusetts program include:

 Consulting and financial services for troubled

firms.

 Reemployment assistance programs: this program provides reemployment services (such as

counseling, placement and training) to workers affected by plant closings or partial closings. Services can be provided at the plant site

or at other locations,

 Reemployment assistance benefits: workers

who do not receive advance notice or severance pay from employers may receive supplemental unemployment insurance benefits under

some circumstances. The maximum duration

of the benefits is 13 weeks, reduced by the number of weeks of advance notice and severance

pay given by the employer, The maximum amount

of benefits per week is $97. Workers receiving

this benefit must participate in a reemployment

assistance program, if one is available.

 Health insurance: the law requires that new or

renewed group health insurance policies provide for 90 days of continued coverage after a

plant closing or partial closing. The employer

and the displaced worker are to continue to pay

their shares of the premium for the 90-day

period. In addition, the State has established

a health insurance benefit fund to help eligible

displaced workers purchase health insurance.

These funds are available only to workers who

are eligible for reemployment assistance benefits, and then only if they lost group insurance

plans due to the bankruptcy of their employer,

or if they were insured under an individual (not

a company policy) when they lost their job.

The concept of a social compact to deal with the

issues of worker dislocation had its genesis in the

Governor’s Commission on the Future of Mature

Industries in Massachusetts. In its final report, issued in June 1984, the Commission urged all Massachusetts businesses (not just the ones receiving

State financial assistance) to adopt the standards

of corporate behavior that were subsequently stated

in the law. Although these standards would be voluntary, the Commission noted: “. . . they constitute a good-faith pledge of actual behavior by the

companies that adopt this compact. "122

The State, labor organizations, and a number of

business groups are promoting adoption of the

voluntary social compact. The Massachusetts High

Technology Council issued a statement of guiding

principles for work force reductions, calling for the

earliest practical notice to employees, local government, and the State.123 The Associated Industries

of Massachusetts recommended that its 2,700 member companies members “adopt the voluntary guidelines as a matter of corporate policy” if they have

not already done SO.124 About 40 local chambers of

commerce also have endorsed the social compact

concept.

Maryland

In May 1985, the Maryland legislature passed a

law establishing a quick response program to help

both employees and employers in mitigating the effects of reductions in business operations. The law

calls on the State Secretary of Employment and

Training to develop, in cooperation with the Governor’s Employment and Training Council, voluntary

guidelines for employers who are reducing operations. The guidelines must cover three topics:

1.

2.

appropriate length of notice. The law states that

“whenever possible and appropriate, at least

90 days’ notice shall be given.” Compliance

with the guideline is voluntary;

appropriate continuation of benefits, including

health, severance and pension benefits, when

operations are reduced; and

l~2The Governor’s Commission on the Future of Mature Industries, Final Report, June 1984, p. 64.

l~s Massachusetts High Technology Council, Inc., “Guiding Principles

Defining Appropriate Responsible Action for Any Work Force Reduction, ” mimeo, n.d.

1Z4’’AIM Urges Corporate Adoption,” I,egis]ative Bu]]etin, VO]. 26, No.

9, May 22, 1986.
59

3. specific mechanisms employers can use to ask

for assistance under the quick response program.

In June 1986, the Secretary of Employment and

Training sent a letter and a copy of the voluntary

guidelines to 95,000 Maryland employers.

Besides the voluntary guidelines, the Maryland

quick response program includes onsite registration for unemployment insurance when 25 or more

workers are laid off at one time, provision of labor

market and retraining information, job placement

services, and job search workshops,

Michigan

In 1979, the Michigan legislature adopted a voluntary notice provision. It calls on the State labor department to encourage business establishments considering closing or relocating to give notice “as early

as possible” to the department, the employees, the

employee representatives, and the community in

which the facility is located. The voluntary notice

provision is part of an act to encourage the formation of employee-owned corporations. Technically,

the 1979 law lapsed in July 1984; the State legislature reauthorized and expanded the employee

ownership law in a package of legislation passed

at the end of 1985.125

Very few employers have officially notified the

State labor department of plant closings or relocations in the 7 years since the voluntary notice provision was adopted. One State official familiar with

the program since its inception recalled that only

one firm had formally notified the Department of

Labor by letter of an impending closing. This is perhaps not surprising since the notice program is entirely voluntary and little effort has been made to

publicize it.

Connecticut

Connecticut does not have a notice requirement.

However, it does require certain employers to continue to pay for health insurance benefits for employees affected by plant closings or relocations at

establishments that employed 100 or more people

at any time in the 12 months before the closing or

relocation. Originally, employers were required to

pay for the continuation of benefits for a 90-day

period; in 1985, the legislature extended the period

to 120 days. The requirement to pay ends when a

worker becomes eligible for other group coverage.

After the employer-provided coverage ends, the

IZsPUb]lC Law 152, ]aws of 1985.

workers are entitled to 39 additional weeks of continued coverage at their own expense. The requirements of the law can be superseded when a collective bargaining agreement requires employers to

pay for continued health benefits after closings or

relocations.

Philadelphia

The city council of Philadelphia, in June 1982,

adopted an ordinance requiring firms to provide

60 days’ notice when closing down or relocating

to a site outside of Philadelphia that is not within

reasonable commuting distance.126 The notice requirements cover closings and relocations of facilities at which at least 50 people were employed in

the prior 12 months.

Notice is to be given to the Director of the Philadelphia Commerce Department, the employees, and

any union or employee organization that represents

the employees. Enforcement of the ordinance is

through courts of “appropriate” jurisdiction. Firms

that do not provide written notice as required by

law can be enjoined by a court from carrying out

the closing or relocation until notice is given. If the

firm has already carried out the closing or relocation, the court can award damages of up to 60 days’

wages to each employee, depending on the number of days of notice that was not provided.

A key purpose of the ordinance is to try to find

alternatives to the closure or departure of the firm.

After notice is given, the city Commerce Department will explore the options with the employer.

If the firm plans to relocate, the Department will

investigate the possibility of finding another site

within the city. For firms that plan to shut down,

the city will investigate the possibility of a worker

buyout, and also will help the firm find alternative

financing or find buyers for the company. Depending on the circumstances, the city may be able to

provide various kinds of economic development

assistance, retraining assistance, and tax incentives

to firms that stay.

From the fall of 1982 until the end of April 1986,

about 65 firms provided letters of notification to the

city. About 45 firms specified the number of employees affected; 4,268 full-time employees were involved. Fifty-two firms gave a reason for either closing or relocating; of these, 20 planned to relocate

1~eBil] No. 11 la, amending Title 9 of the Philadelphia Code, was passed

on June 17, 1982, and took effect 120 days later. The ordinance was initially disapproved by the Mayor; however, the council repassed the ordinance, and it went into effect without the Mayor’s approval.
60

to an existing or proposed establishment outside of

Philadelphia; 18 gave economic or financial reasons

for closing or relocating; and others cited reasons

such as termination of a lease or getting out of a

line of business.

Vacaville, California

In 1984, the city council of Vacaville adopted an

ordinance that requires companies that get certain

kinds of local development assistance from the city

to provide advance notice if they later close down

a facility. The notice requirement applies to California employers who relocate to a special redevelopment area in Vacaville, and who receive at least

$1,000 of local financial aid (other than governmental or tax exempt financing for public improvements). Such companies “must provide at least three

months advance notice or sooner if known or reasonably foreseeable, of plans to reduce, relocate or

cease operations which will effect 35 or more jobs

of the company’s full time permanent staff at the

Vacaville location.” These companies must “make

reasonable efforts” to provide 1 year’s advance notice. Upon applying for financial aid, the company

must agree in writing to abide by the terms of the

notice requirement. The ordinance will expire on

January 1, 1987, unless extended by the council;

however, companies receiving assistance while the

ordinance is in effect will continue to be bound to

its terms.

U.S. GOVERNMENT PRINTING OFFICE : 1986 0 - 62-642 : QL 3

62-642 (68)