NOTE

How To COPE Wrm A PLANT CLOSING

Semoon Chang
University of South Alabama

Mobile, Alabama

The reality of business closing is complex. One extreme is the way the Balti-
more Colts closed their operations in Baltimore. They loaded in moving vans all the
Colts' records and equipment and left Baltimore toward Indianapolis in the darkness
of the early morning hours of March 29, 1984. They did not let anyone know in
Baltimore [7]. The other extreme is the December 18, 1991 announcement by the
General Motors of its plan to close six assembly plants and 15 component operations
by 1995, thereby reducing its work force by 74,000 in the process. The 19908 is also
experiencing the closing of many military bases owing to the demise of the Soviet
Union. The closing of plants and military bases is only the beginning of problems
for communities that have to cope with the loss of jobs and revenue. The term, plant
closing, in this paper is used in a loose way to encompass closings of plants, busi-
nesses, and military bases that lead to the layoff of a large number of workers.

Discussed in this paper are approaches through which a community may be able
to ease the adverse impact of a plant closing. These approaches include an active
negotiation with the company in such a way to make the transfer process of displaced
workers less painful, as well as a utilization of the closed plant for other productive
uses. There is no easy or quick way of replacing the closing plant. This paper is
intended to provide information that can assist communities in adapting to the closed
plant.

Successful Company Programs

Many companies that have closed a plant in the past provided their displaced
employees with a variety of assistance. Communities may learn from these success-
ful programs and use them as the basis for negotiation with the firm closing the plant.

Employee assistance programs are of four types: severance pay, extension of health
care benefits, outplacement assistance, and counseling services. Severance pay is a
payment that a company makes to its employees who no longer work for the com-
pany. Companies may continue to pay workers their regular wages for a certain pe-
riod of time beyond termination of their employment. Alternatively, one-time pay-
ment based on a certain formula may be made upon termination of employment.
Extension of health care benefits is probably the most important issue with most dis-
placed workers. A desirable program for displaced workers would be that the exten-
sion of health care benefits covers dependents as well as workers and lasts until dis-
placed workers can make alternative arrangements. Outplacement assistance includes



192 Journal QI Business Strategies VoL 9, No.2
relocation of workers to other locations of the same company, job-search assistance
outside the company, resume preparation, and letters to other companies. A success-
ful outplacement assistance requires an advance notification of plant closing. Coun-
seling services are not as important as the three major types of assistance described
in the above. Studies have found that workers are not interested in counseling be-
cause economic conditions leading to a plant closing tend to cause employees to be-
come reconciled to their fate long before they lose their jobs [2].

In 1986, the Conference Board published a research report in which six cases of
plant closings were investigated in depth. The six cases are Armoco Steelworks (Hous-
ton, Texas), Ford Motor Company (San Jose, California), GTE-Lenkurt (San Carlos,
California), International Harvester, Corporate Headquarters (Chicago, Dlinois), and Levi
Strauss & Company (Denison, Texas) [2]. All these six cases represented successful
programs in which companies went an extra mile to help their displaced workers.

According to the report by the Conference Board, successful plant closing pro-
grams had the following six characteristics [2]. First, a large percentage of displaced
workers was offered a transfer to another location of the same company. Second,
outplacement was provided for those who were not offered or did not accept another
job. Third, the relation between displaced employees and the company was harmoni-
ous. Fourth, workers did not file lawsuits. Fifth, severance benefits were h'beral and
health insurance coverage was extended beyond the plant closing date. Finally, good
community relations were maintained during the closing process.

An Exemplary Case

Wapakoneta is a community of 8,500, located on 1-75 between Toledo and Dayton,
Ohio. Fisher Cheese, located in Wapakoneta, was owned by Amfac, Inc. of San
Francisco. When 367 employees of Fisher Cheese made their way to the November
1986 meetings held at several locations throughout the community, they were wondering
what the future held for the company and for themselves. At these meetings, the
employees were told that Fisher Cheese was bought by Borden as of November 18,
1986. Borden subsequently closed the plant, and all 367 employees lost their jobs.
Plant closing was not announced in advance because of the alleged sensitivity of the
negotiations and vulnerability of food products [10].

Fisher Cheese is a classic example of how a good company handles a plant closing.
What Amfac did as the owner of FISher Cheese for its former employees was praised
highly by many including the then Ohio's U. Governor Paul Leonard, who said, "They
are truly setting a tone of leadership." The company continued to pay for six weeks;
made severance pay of a week for each year's work; continued life and medical
insurance benefits for 3 months; gave an option to extend the insurance up to 18
months; provided career counseling; provided a job placement center with 7 people,
which found jobs for 332 people when it finally closed in May, 1987; donated $30,000
to church-sponsored emergency food services; and contributed $200,000 to the city for
economic development.



Fall 1992 Chang: How to Cope With a Plant Closing

Use of Displaced Physical Resources

193

Displaced resources are of two types; the abandoned plant facility that may be
called displaced physical resources, and the laid-off workers referred to as displaced
human resources. Displaced physical resources are discussed in this section using the
case of the closed Goodyear plant in Windsor, Vermont.

On May 3, 1987, the Goodyear Tire and Rubber Company plant closed its SO-
year-old Windsor plant and laid off 350 people. For a town of only about 4,100
people, the closing of the Goodyear plant left Windsor with a "gaping hole" [8]. As
is often the case with the closing of a major plant, Goodyear donated the old plant
and the site to the town. Windsor developed the surrounding area into an industrial
park, taking advantage of its proximity to an interstate highway and wages that were
slightly lower than those in nearby Boston. In less than two years, a trucking com-
pany and a marble company had settled into the industrial park, while several small
employers moved into the old Goodyear plant.

The long-term impact of a plant closing varies with the community. If a
community is a company town and the company closes its doors, the impact would
be devastating. In most cases, however, the long-term impact of plant closing has
not been found to be disastrous. Detailed case studies on the long-term impact of
plant closing on the community are limited mostly to the closing of military bases,
although conclusions are similar in limited studies of nonmilitary plant closing [8].

Many old military bases are transformed into industrial parks and the long-term
impact of the base closing has been encouraging. Gazzano reached this conclusion
after the review of base closings in Quonset Point (Rhode Island), Chippewa County
(Michigan), Selma (Alabama), Fort Holabard in Baltimore, and the Boston Naval Annex
[5]. A study by MacKinnon reached a more positive conclusion by stating that after
a brief lull, local economies bounced back with renewed vigor and there was no long
term adverse impact on local economies [9]. MacKinnon's study is based on the 19608'
closings of Air Force bases in Bangor (Maine), UncoIn (Nebraska), Reno (Nevada),
Roswell (New Mexico), Harrisburg (pennsylvania), Greenville (South Carolina), and
Amarillo (Texas).

Use of Displaced H1IIJWI Resources

Although there are exceptions, many displaced workers eventually find jobs but
at a lower wage. Sixteen months after the closing of the Goodyear plant, the
unemployment rate in Windsor returned to the pre-closing level. Numerous adjustments
had to be made by the former Goodyear employees, however. Mr. Gary Buealmont,
who was 30 years old, spent 10 months looking for a job before becoming a computer
consultant Sherman Carter, who was Goodyear's plant manager, started a construction
company with his SOD. Bruce Curtis, who had been at the plant for 35 years, later
managed the Windsor Country Qub at a considerable salary reduction. Joe Dart, who
had worked at the plant for 18 years, became a teacher.



194 Journal of Business Strategies Vol. 9, No.2

The community experiencing a plant closing may seek financial assistance from
the Job Training Partnership Act in order to help displaced workers find jobs. Title ill
of the Job Training Partnership Act specifically addresses the issue of assisting dis-
placed workers from plant closing or mass layoff. Section 302-(a) authorized each state
to establish procedures to identify eligtble individuals who have been terminated or have
received a notice of termination as a result of any permanent closure of a plant or
facility. In many local areas, the identification process and the actual assistance are
handled through the Private Industry Council (pIC) and the state employment agency.

The types of assistance authorized under this Act are spelled out in Section 303.
Financial assistance provided to states under this Act may be used to assist eligible
individuals to obtain unsubsidized employment through training and related employment
services, which include but are not limited to: (1) job search assistance, including job
clubs; (2) job development; (3) training in job skills for which demand exceeds supply;
(4) supportive services, including commuting assistance and financial and personal
counseling; (5) pre-layoff assistance; (6) relocation assistance; and (7) programs
conducted in cooperation with employers or labor organizations to provide early
intervention in the event of closures of plants or facilities.

Plant Closing Notification Act

Although direct assistance is not likely, communities need to be aware of the
Worker Adjustment and Retraining Notification Act of 1988, popularly known as the
Plant Oosing Notification Act According to the Act, an employer cannot order a
plant closing or mass layoff until the end of a 6O-day period after the employer serves
written notice of such an order. The law applies to businesses that employ 100 or
more workers excluding part-time workers. Before the passage of the Act, the
percentage of no advance notice was high, ranging from 47 percent to 64 percent,
depending on the period of study. The period of advance notice, when provided, was
also short, averaging between 18 days if specific dates of lay-off were given, to 46
days if the notice was given without specifying the exact date of termination [3].

The legislative process, which required a compromise between businesses that
opposed the law and labor unions that favored it, led to many exceptions thus
weakening the law considerably. For example, an employer can close operations before
the conclusion of the 6O-day period under two circumstances. The first is that the
employer was actively seeking capital or business, which, if obtained, would have
enabled the employer to avoid or postpone the shutdown. In this case the employer
should have believed "reasonably and in good faith" that giving the required advance
notice would have precluded the employer from obtaining the needed capital or
business. The second is that the closing or mass layoff is caused by business
circumstances that were not reasonably foreseeable as of the time the notice would
have been required.

Another example of exceptions relates to temporary layoffs made to be perma-
nent Suppose that a business lays off employees by announcing that the layoff would



Fall 1992 Chang: How to Cope With a Plant Closing 195

last less than 6 months but extends it beyond 6 months. In this case, the employer
would not violate the Notification Act if the extension beyond 6 months is caused by
unforeseen business circumstances, including changes in price or cost that were not
reasonably foreseeable at the time of the initial layoff. This exception is potentially a
powerful excuse for an employer to bend the 6-month layoff rule. Consider that
businesses often reduce, or are forced to reduce, the number of employees long before
plant closing becomes the reality ([8], [2]). When Goodyear plant in Windsor, Ver-
mont, closed its operations on May 3, 1987, its work force was down to 350 from its
peak 800. When International Harvester plant in Louisville, Kentucky, was closed on
August 3, 1984, its work force was reduced to 727 from its peak 6,500. When Amoco
Steelworks in Houston closed its doors on January 27, 1984, the number of employ-
ees was 1,100 down from its peak 4,500. It can easily be claimed that the gradual
decrease in the number of employees at these plants was caused by business circum-
stances that were not reasonably foreseeable.

The central issue in the Congressional discussion of the Notification Act was
whether advantages of such requirement outweigh disadvantages. Major economic
advantages of the bill, supporters claimed, were (1) shortening the duration of
unemployment after layoff or plant closing, and (2) saving of the unemployment benefit
payments. Major disadvantages, opponents of the bill claimed, were (1) the posstbility
of shirking behavior by employees between notification and termination, and (2) the
exit of highly qualified workers prior to the closing or layoff date. Empirical findings
are virtually unanimous in that advance notice significantly reduces the duration of
unemployment of those notified workers ([4], [1], [11]). These studies also conclude
that the shirking behavior of notified workers is not significant, although the loss of
productivity owing to the early exit of qualified workers can be significant.

Summary

Communities may cope with a plant closing or mass layoff (1) by negotiating with
the company for maximum assistance to displaced workers and the community itself,
and (2) by developing plans to utilize displaced physical and human resources. In
negotiating with the company, community leaders should pursue, at least, the following
four types of employee assistance; severance pay, extension of health care benefits,
outplacement assistance, and counseling services. Communities may seek financial
assistance for displaced workers through the Job Training Partnership Act. Title ill
of the Job Training Partnership Act specifica1ly addresses the issue of assisting displaced
workers from a plant closing or mass layoff.

The displaced plant site usually has locational advantages such as a proximity to
good transportation infrastructure. The site therefore may be a candidate for
development as an industrial park. Although the short-term impact of a plant closing
can be devastating, its long-term impact has been found to be encouraging. Accord-
ing to the Worker Adjustment and Retraining Notification Act of 1988, an employer
with 100 or more full-time workers has to provide a 6O-day advance notice before



196 Journal of Business Strategies Vol. 9, No.2

closing a plant. Studies indicate that advance notice significantly reduces the dura-
tion of unemployment of those notified workers, and that the loss of productivity owing
to the early exit of qualified workers can be significant.

References

1. Addison, John T. and Portugal, Pedro. "The Effect of Advance Notification of Plant
Oasings on Unemployment," Industrial Labor Relations Review. Vol. 41 (October 1987),
pp. 3-16.

2. Berenbeim, Ronald E. Company Pr0JU81Ds to Ease the Impact of Shutdowns, New York:
The Conference Board (1986).

3. Brown, Sharon P. "How Often Do Workers Receive Advance Notice of Layoffs?"
Monthly Labor Review. Vol. 110 (June 1987), pp. 13-17.

4. Folbre, Nancy R., Leighton, Julia 1..., and Roderick, Melissa R. ''Plant Oosings and Their
Regulation in Maine, 1971-1982," Industrial Labor Relations Review. Vol. 37 (January
1984), pp. 185-96.

5. Gazzano, Louis A "Old Military Bases Never Die: They Become Industrial Parks,"
Barron's. November 3, (1986), p. 57.

6. General Accounting Office, Plant Oosinas: Information on Advance Notice and Assis-
tance to Displaced Workers. GAO-HRD87-86BR, April 17 (1987).

7. Harris, David. The Leaaue: The Rise and Decline of the NFL Toronto, Canada: Ban-
tam Books, (1986).

8. Johnson, Sally. "Town Survives Without a Company," The New York TImes, Septem-
ber 18 (Sunday), (1988), p. 52.

9. MacKinnon, David A. "Military Base Oosures: Long Range Economic Effects and the
ImpHcations for Industrial Development," AIOC Journal Vol. 13 (July 1978), pp. 7-41.

10. Matte, Harry. "Cheese Plant Closing Opens New Doors," Persopnel Administrator, Vol.
33 (January 1988), pp. 52-56.

11. Mishe~ Lawrence R. "Advance Notice of Plant Closings: Benefits Outweigh the Costs,"
Ql311egae- VoL 31 (July/August 1988), pp. 58-61.

12 United Stales Code Congressional and Administrative News, 97th Congress-second Ses-
sion, VoL I, "Job Training Partnership Act." PubHc Law 97-300 (S. 2(36), October 13,
1982, %STAT. (1982), pp. 1322-1399.

13. U.S. Department of Labor, Bureau of Labor Statistics, PmJ'nent MJp La. and Plant
Clgsjnp (1987), Washington, D.C.: U.S. Government Printing Office, July 1988.


	How to Cope with a Plant Closing