Dot-Coms May Need Crash Course
In Labor Law Amid Broad Layoffs
By STEPHANIE MILES
Dot-coms may face another labor headache.
Already, the struggling industry is facing stepped-up unionization
at companies such as retail giant Amazon.com Inc. and lesser known
Collaborative Media Inc., which runs etown.com. Soon, however, dot-coms
run smack into a second problem: a ten-year-old plant-closing law that
applies not only to steelworkers but java programmers as well.
Until recently, few New Economy workers had heard of the Worker
and Retraining Notification, or WARN, Act. Then, earlier this month,
Connecticut's attorney general sued Walker Digital Inc.
(www.walkerdigital.com) for allegedly failing to comply with WARN.
While few, if any, other suits have been filed against New Economy
companies under WARN, there are signs of more conflicts ahead. Former
employees of one failing Web publisher hired attorneys in mid-December to
investigate if they were owed back wages under WARN, but haven't filed
suit. An Internet software and services company cautioned investors last
month of potential WARN claims. Several dot-com executives say they have
sought advice from their lawyers on how to avoid exposure to the law when
Concern about WARN is "becoming more common as more companies are going
the tank, that is for sure," says Donald Savelson, a labor attorney and
partner with Proskauer & Rose LLP in New York City. He says he fields
questions from his clients about the law "on a daily basis."
WARN doesn't limit the type of workers covered, and it contains no salary
cap or explicit wording about who is or isn't covered. That means that
high-tech is as entitled as textile factories to protection under the
Specifically, WARN requires a company with 100 or more employees to give
days notice before it can implement mass layoffs or plant shutdowns. If a
company doesn't give sufficient notice, employees are entitled to 60 days
back pay and compensation for benefits. Companies may have to pay state
The WARN Act includes exceptions for companies that can prove that their
business was materially affected by unforeseen circumstances, such as a
labor strike at a contractor. Other exceptions allow a company to provide
shorter notice if it was actively seeking new funding or in cases of
These exceptions provide some wiggle room for employers. Robert
a professor at Vanderbilt University Law School in Nashville, Tenn., says
that WARN was a "compromise" law, and its many exceptions and loopholes
make it difficult to enforce. Moreover, he says, the law hasn't been
frequently litigated in any industry. Potential awards are relatively
small, and in cases where the employer had filed for bankruptcy
there may be little money left to collect.
For many established companies, the 60-day notice required by WARN is
of standard operating procedure. Within the past few months, for
WARN notices were filed by American Electric Power Co. when it shut two
coal mines, and Montgomery Ward filed when it set plans to close its
stores. Fairpoint Communications Inc. wasn't able to provide 60-days'
notice when it shut down facilities in two cities. The company was able
comply with WARN by giving affected employees 60 days' back pay and
contacting local agencies to ensure that job-placement services were
"We were in the fortunate situation to have in-house counsel that
recognized that it was a potential issue," says Tim Henry, vice president
of finance for Fairpoint. "If done properly, WARN protects both the
employee and the company."
But until recently, few high-tech employers or employees were even aware
the law, or that it applies to all employees -- not just blue-collar
workers. The fog may be lifting, though. Spurred on by the persistent
turmoil in the beleaguered Internet sector, workers who were experts on
stock options and real-estate appreciation are now getting up to speed on
the finer points of layoffs and labor laws.
In its suit against Walker Digital, filed on behalf of the state
of labor, the Connecticut attorney general's office alleged that the
company violated the WARN Act in November when it laid off 80% of its
staff, or about 100 employees. Walker Digital, which developed the
name-your-own-price model at the heart of Priceline.com Inc.'s offerings,
says that it has complied with all applicable laws.
Web-site publisher Urban Box Office Networks may also face a suit
WARN violations. The Maurice & Jane Sugar Law Center for Economic and
Social Justice, known as the Guild Law Center, has been retained by about
30 former UBO employees to investigate whether UBO violated the law.
UBO, which operates a network of hip-hop and urban-culture sites, laid
the majority of its 320 employees in November after it failed to secure
additional financing. It later filed for Chapter 11 protection from
creditors in U.S. Bankruptcy Court for the Southern District of New York.
"Looking at what happened with [UBO] when they shut their doors, it's our
belief that they did violate" the WARN law, says Mark Fancher, a senior
attorney with the Guild Law Center.
UBO's attorneys didn't return repeated calls for comment. Rumors of UBO
employees' actions first surfaced on DotComScoop.com.
New Economy companies are also boning up on the law. A spokeswoman for
Kozmo.com Inc. (www.kozmo.com), which has made several rounds of layoffs
and closed two locations over the past six months, says the company was
made aware of the WARN law by its attorneys before it let any workers go.
She adds that Kozmo believes its actions were exempt from the WARN act.
declined to say whether the company provided any early notice or
pay to laid-off employees.
Other companies have taken WARN into account when planning layoffs. One
California digital-media firm that recently laid off one-third of its
employees made sure it wasn't exposed under the act before cutting jobs,
Potential WARN costs are creeping into financial statements issued by
companies. For instance, Internet software and services company Intraware
Corp. said in December that it was cutting 180 job cuts in an effort to
reach profitability sooner. In the "forward looking statements" portion
the release, it listed several possible events that could derail its
projections, including "an unanticipated increase in costs resulting from
claims filed by terminated employees." The company removed the WARN item
subsequent releases. "With the passage of five weeks' time, it was no
longer a risk," says investor relations manager Pierre Hirsch.
Those that aren't familiar with the statute, plan to be. "I've never been
told by my lawyers about it, I've never heard about it, and none of my
other friends have ever heard about it," says Bill Cockayne, who
Scout Electromedia, a wireless device firm in New York City that abruptly
ceased operations in October, laying off 80 employees.
"It's the first thing on my 'ask my lawyer' list," says Mr. Cockayne, who
is now a director at Eastman Kodak Co.'s venture group.
There is some precedent for high-technology suits. The Guild center, for
instance, is representing 5,100 former employees of computer supplier
Inacom Corp., which is currently in bankruptcy proceedings. The Guild
center has filed a class-action lawsuit in New York on behalf of the
employees, asking for 60 days' pay and benefits.
Labor experts say that while the law was designed to protect blue-collar
workers, there's no indication that lawmakers intended to exclude other
types of employees.
"Congress has long since demonstrated that it knows how to exempt
white-collar employees if it wants to," says Prof. Covington. "If they
wanted to do that, they would have done so."
Write to Stephanie Miles at firstname.lastname@example.org