Suit Tests Reach of Plant-Closing Law : Labor: Bankruptcy is no excuse for shutting a factory without notice, laid-off employees of one Southern California firm say. They are suing an allied company for severance pay.

Until recently, what happened at Benchmark Technologies wouldn’t have caused a stir. The City of Industry computer circuitry plant shut down last summer with no advance notice or severance pay for its 165 workers.

Americans are used to being left in this sort of lurch. In past years, the blue-collar worker has received an average of only seven days’ notice of a lay-off. The average for a white-collar worker was twice as much time.

Since February, however, that pattern has changed dramatically. The federal plant-closing notification law--subject of a furious philosophical debate last year between organized labor and business leaders--has forced hundreds of companies to give 60 days’ lay-off notice to workers.

Since the Worker Adjustment and Retraining Notification Act took effect in February, no-notice incidents such as Benchmark’s have been drawing lawsuits instead of yawns.

The law requires employers of 100 or more people to provide at least 60 days’ written notice--or pay damages equal to 60 days’ wages and benefits--if they close a plant or discontinue an operating unit with 50 or more workers.

More than 300 California companies have given the required notice to 28,000 workers, according to state employment officials. In many other industrial states, 100 or more such notices have been issued. The totals may be misleading, however, because some companies are giving “rolling” notices simply to protect themselves in case they decide to lay off workers more suddenly, said Greg LeRoy, research director of the Midwest Center for Labor Research, a private group that monitors plant closings and other labor issues.

The impact of the new law was evident last month when the Los Angeles Herald Examiner closed without notice. The newspaper gave its employees 60 days’ pay to avoid civil liability.

Throughout the country, compliance with the law has been very high, if grudging, according to employment specialists.

Only about half a dozen lawsuits have been filed on behalf of workers laid off without notification, according to a congressional staff member who has kept tabs on the situation.

Labor leaders and other worker advocates continue to insist that the law is weak because it carries no criminal penalty and does not apply to smaller companies.

Even its critics acknowledge, however, that the law is creating an important financial bridge for people who are laid off. The advance notice gives them more time to ponder difficult choices about questions such as retraining and gives state employment officials more time to identify and help such workers.

Labor researcher LeRoy said that the high rate of compliance with the plant-closing law has been a “myth-shattering” experience.

“Prior to the law taking effect, we had some very vicious myths about what plant-closing notice meant. Manufacturers said there would be sabotage (by workers once they were notified), mass resignation, drops in productivity,” he said.

The week before the law was effective, Mark A. de Bernardo, director of labor law for the U.S. Chamber of Commerce, predicted that it would be “very hard for the business community to comply with.” On Friday, de Bernardo acknowledged that corporations “have adjusted” to the law and that it “is not very restrictive.”

While virtually all the United States’ major trading partners have had advance-notice laws for years, the notion ran counter to the Reagan Administration’s support of maximum flexibility for business. President Reagan vetoed a notification bill in 1987, and last year let a similar bill become law without his signature--organized labor’s biggest legislative victory in years.

Research organizations such as LeRoy’s contend that without sufficient notification--which LeRoy said would be three to six months, not 60 days--the hundreds of millions of dollars the federal government allocates to retraining laid-off workers does not reach those who need such aid because they tend to scatter a week or two after layoffs are announced.

The federal law also requires companies to notify state employment officials of pending layoffs. A companion law passed last year established the Economic Dislocation and Worker Adjustment Assistance program, which requires states to send in rapid-response teams to offer counseling to workers put on notice. The program encourages state employment officials to be on the premises of a plant within 48 hours of a closure notice.

“It’s an advantage,” said Robert Hotchkiss, deputy director of the California Employment Development Department’s training branch. “The point of the (notification) law is to create that outreach.”

(The Associated Press reported Friday that while Congress authorized $500 million for the dislocated-worker program, the federal Office of Management and Budget has told the Labor Department that “significantly less” money will be included in President Bush’s fiscal 1991 budget.)

A study conducted by two University of Nebraska professors this year produced an estimate that workers who receive notice of a lay-off find new jobs almost twice as easily as those who don’t.

That study also estimated that American workers laid off between 1979 and 1984 would have been guaranteed an extra 4.2 million weeks of employment if a notification law had been in effect.

Both sides of the business-labor dispute agree that the law has several gray areas, and that without favorable court interpretation, its value may be limited The Benchmark Technologies case is an example.

An employees’ lawsuit raises a question that figures to come up frequently because of the way so many ostensibly independent companies are connected: When one firm goes under and lays off workers without notice, should a surviving business ally be responsible for paying off its work force?

Three days after it closed its doors last August, Benchmark sought protection from creditors--including former employees--by filing a petition under Chapter 11 of the federal bankruptcy law. The company paid its workers no severance wages or accrued vacation after closing.

Three months later, the employees filed suit in federal court against a Camarillo aerospace parts manufacturer, Vard Newport Inc. The suit contends that while Benchmark on paper was an independent company, it was in fact an “alter ego” of Vard, which continues to operate with 300 employees. The suit alleges that Vard and Benchmark were controlled by the same four individuals and that the four are liable for Benchmark’s failure to give the required notice of layoff or, in its absence, 60 days’ pay.

Steven J. Kaplan, a labor law attorney who represents the Benchmark employees, said the suit represents a significant test of the value of the notification law.

“If a company closes down but it has relatives still standing, should those relatives be off the hook? The relatives are the ones that made the decisions, they’re still making money,” Kaplan said.

An attorney for Vard would not comment on the lawsuit or explain why Benchmark did not warn its workers of its closing.

Companies that fail to give the required notice usually claim that they meet one of two exceptions in the new law. An employer does not have to give notice when unforeseeable “business circumstances” force a plant-closing. The law also exempts “faltering” companies that keep layoff or closure plans secret because they fear that disclosure would squelch arrangements for new capital.

A congressional staff member familiar with the plant-closing law said it does not address the liability of related companies beyond the obvious responsibility a corporation would have if one of its divisions shut down entirely.

A complex range of other laws governs the question of “where creditors can go to satisfy obligations any time a company shuts down,” he said, and the congressional authors of the notification law did not feel that that legislation could supersede those laws.

It will be up to the courts to decide which of those older laws applies to questions of responsibility raised by plant-closing notification lawsuits, the staff member said.

The goal of employees in a case such as the Benchmark lawsuit, he speculated, will be to “pierce the corporate veil.” The workers will try to present evidence that Benchmark was connected through ownership agreements to healthy, going ventures. The intent is to counter the argument that “business circumstances” prevented Benchmark from giving either notice or severance pay.

In an effort to illustrate how closely Benchmark was tied to Vard, the employees’ lawsuit includes a deposition from Benchmark’s president, Harvey Dorren, also a plaintiff in the suit.

Dorren said that the four individuals named as defendants in the lawsuit owned all of the stock in both companies. Dorren also said that although he was president of Benchmark, he didn’t know the company was closing until the day the plant was shut down. It was Vard’s president who informed him of the closure, according to his deposition.

A related aspect of the lawsuit was settled in the employees’ favor this week. The suit had also claimed that the defendants were liable under a federal benefits-protection law. That law says that when a worker quits or is laid off, the company must give him or her the opportunity to purchase the medical insurance coverage that he or she had been receiving at the same group rate the company pays.

No such opportunity was offered to the Benchmark employees, and many were forced to buy their own insurance at higher rates, Kaplan said. Some could not afford private coverage, or were turned down because of medical problems, he added.

Three weeks ago a federal court judge issued an injunction requiring the defendants to offer continued medical coverage at group rates. Vard attorney William Finestone said that the company would comply.

The employees’ demand for damages for the time they did not receive group-rate coverage, as well as their demand for 60 days’ severance pay, will be considered when the case comes to trial. That is likely to take at least a year.