Thursday, January 19, 2017

Unintended Consequences: the WARN Notice

Some of you may have, in your lifetime, received what is called a WARN notice from your employer, especially if you are or ever were a professional actor -- or a factory worker.  The WARN notice is named after the congressional action mandating it, the Worker Adjustment and Retraining Notification Act of 1988.

The WARN Act created a mandate that before a company can close a plant or facility of a certain minimum size (small at that), it must provide a notice under the Act to the employees, that they will be laid off in 45 days or more; 45 days is the minimum, or at least it was then.  Of course, the logical execution of the Act is to force employers to pay an additional 45 days' pay to all its employees regardless of tenure, competence or any other factor, ostensibly to give time to retrain them to be something they've never done before.

And, of course, because some feel-good types in Congress dreamed up the idea that somehow employers are responsible to their employees beyond the competitively-determined benefits associated with the market for their labors -- that because the employer's costs were too high to keep the place open, it is somehow their obligation to retrain the employees.

This was, of course, feel-good legislation that presupposed that employers are bad, money-grubbing types who were liable to close a plant on no warning whatsoever simply because they were bad, money-grubbing people, leaving their hard-working employees without any way to feed their poor families.  And throw "single moms" in there, too, the left always does.

At least that was the notion, a notion that didn't take into consideration that there are two sides to all of that.  It didn't recognize that plants only close because they're not making money (or their employees' unions made it impossible to make any money), meaning that they cost too much to operate as currently staffed and with the current market for its output.  It didn't recognize that paying employees for 45 days without production meant that money was coming out of the owners of the company.  For a publicly-traded company, that means that a lot of retirement accounts, often of old widows, take the hit for the extended losses.

I remember when the WARN Act was passed, because it was at the end of the Reagan Administration, when the Democrats had had the House of Representatives for well over 30 years and could still force through some of their agenda, most of which was feel-good bills like this.  What I remember was that I laughed a lot at the bill for its unintended consequences which, even then, I already knew.

You see, I had been a professional actor.

I remember the first time this happened, around 1976 or so, a dozen years before the WARN Act was a gleam in Tip O'Neill's whiskey-addled eye.  I was the lead in a professional Boston production of, I think, The Fantasticks, and we had been in rehearsal for a few weeks before we opened.  The pay was not bad, and I was looking forward to opening night and a full house at the Charles Playhouse in downtown Boston, and getting to sing "Try to Remember", the one song from the show that everyone knew.

I arrived at the theater for opening night, walked into the small collective dressing room and saw a notice on the front door of the room.  "Notice to all employees", it started.  "This is to inform you that this production of The Fantasticks will be closing on March 3rd."  There was some other legal stuff in there, but the gist of it was that the show, which opened on March 3rd, 1976, was going to close at the end of its first night.

Now, you might have guessed that the producer had had a change of heart after investing whatever he had invested in putting on the show.  He wasn't, of course, going to make any money if he didn't produce shows, though, and closing one before it had even opened was not going to help his bottom line.

Nope, the reason for the notice was pretty simple.  The union rules made him post it.  The union rules, which foreshadowed the WARN Act, stated in so many words that you couldn't close a show without providing sufficient notice, and the producer had to post such notice some number of days ahead of the closing.

So sure, if those were the rules, the producers would simply post a closing notice as early as possible to comply with the rules.  Now, they didn't have to close the show; they could ignore their own notice if the show was making money, and still be in perfect compliance with the union rules.  So the notice served no purpose that helped the actors at all.  The union couldn't complain, because no one wanted the shows to close (and eliminate jobs and pay and that sort of thing).

The unintended consequences of the union rules flowed right into the WARN Act without any provision to avoid them.  After 1988, factories all over the place started posting WARN Act notices and renewing them periodically even if they had no plans to close, so that any decision to close a facility could be done without having to pay an extra 45 days' wages.  As far as I know, it is still done, because there's no way to stop it.

I mention this because of the piece I wrote yesterday on the Clinton Global Initiative.  They filed and posted WARN Act notices at the CGI offices in August, on the off-chance that Hillary would possibly lose the election.  Obviously, having not closed it immediately on her decision to run for president and the horrendous conflict of interest that it and the Clinton Foundation represented, they waited until a couple months before the election, never expecting that they actually would close it and lose the cash cow for them it represented.

Government will always do a "ready, fire, aim" thing when it comes to legislating, which is why it is indeed a swamp in sore need of draining, starting tomorrow.  They did the "ready, fire, aim" thing in this case, of course, and there will always be Clintons to take advantage of it -- and employees who get nothing out of the actual intent of the law.

We'll never learn, I fear.

Copyright 2017 by Robert Sutton
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