Takeover Puts Many Workers Out in Cold : Employees: When August International was finally acquired, the 240-member work force was suddenly fired, despite earlier assurances of retention. About two-thirds were then offered jobs by the new owner.
Every Friday for the last few months, nervous employees at August International Corp. expected their financially troubled firm to be sold and their jobs to be saved. At least, that’s what they said top management was telling them.
But when the deal with Employee Benefit Plans Inc. in Minneapolis finally went through late last Friday, August fired its 240-member work force en masse. The new owner then quickly followed with job offers for about two-thirds of the stunned employees.
A week later, 90 former August workers are unemployed, many of them frantically looking for new jobs. And the former August employees are still waiting to be paid for the final two weeks of work, plus overtime, vacation time and severance pay.
“It (the firing) was cold and done with absolutely no consideration for people’s lives,” said Joseph Salemi, director of August’s operations, who is among those not rehired.
The experience of the August employees is an example of how corporate decisions can disrupt the lives of workers. While the deal makers often draw headlines, the wrenching impact of the mergers and acquisitions on employees go mostly unnoticed.
“This is a primary example of what venture capital firms can do to the workers, who are so often the victims in these takeovers,” said George Bregante, August’s former vice president in charge of sales and marketing. He learned of his firing via a facsimile sent to his Santa Barbara office late last Friday.
The anger and bitterness were not there five years ago when entrepreneur Blayne Lequeux formed August International. The firm tried to find a niche helping self-insured employers implement and monitor the health benefits provided to their employees. Building on contracts with larger firms, August reviewed employee use of doctors and hospitals and handled the health-care insurance claims that employees filed.
Lequeux opened offices in Washington and Oregon and, in early 1988, acquired a company in Dallas, where a third of August’s employees worked. His dreams and his efforts required an infusion of new cash, so he turned to four venture capital firms, whose business is to fund young, growing companies.
The new cash--an undisclosed amount--came from Enterprise Partners in Newport Beach, Mayfield Venture Capital in Menlo Park, the San Francisco office of New York’s Bessemer Venture Partners and Venrock Partners, an arm of the Rockefeller Foundation.
In exchange for the cash, the venture firms took a majority interest in August. With the new capital, employees said the company’s revenue grew rapidly to $13 million, on an annualized basis. But things changed quickly.
“There was a tremendous amount of growth, and it was just more than we could handle,” said Linda Ademek, executive secretary to the president. She rejected an offer to work for the new firm.
The chief financial officer left in July, and Lequeux left in September. The four venture firms, already represented on the board of directors, brought in a new president to keep the firm afloat while they searched for a buyer. Meantime, revenue plummeted.
For at least the last three months, employees said, directors had been negotiating with Employee Benefit Plans, one of the larger independent firms doing the same work. Employee Benefit has a well-staffed claims administration operation but needed to beef up its hospital utilization staff.
All along, said Bregante, Salemi and other former and rehired employees, August’s management assured workers that they would have jobs with the new company. Even Lequeux’s replacement, Michael Lewis, would remain, the employees were told.
“In the last week of negotiations, everything went south in a hurry,” said Salemi, who figures to have a tough time finding a job.
Instead of buying the company, Employee Benefit bought its main operating assets--customer contracts, equipment and the “August International” name--and left the liabilities with the old company.
After the shock of the firings last Friday, employees returned to work on Monday to pick up promised paychecks. But on Monday--when some learned about the sale for the first time--no paychecks were ready.
The situation turned so sour that registered nurses who operate the company’s hospital utilization reviews threatened to walk out Tuesday from the new company, August Health Care Services. Assurances of coming pay were made within an hour, company employees said.
On Wednesday morning, an unsigned memorandum from August said all employees would be paid their base salary--not pay for past overtime, vacation or severance--on Thursday. No paychecks came Thursday, but the new company promised to make up the base pay that August didn’t pay to all 240 former employees.
August, which still has some assets, would seem to be able to cover its payroll. Its last two-week payroll was $258,000 and it received nearly $450,000 for the sale of its assets, according to William Brady, general counsel for Employee Benefit.
“We were led to believe that those employees would be taken care of by August International, and they were not,” Brady said. “Now, to the extent August International doesn’t take care of them, we will step up and fill in.”
That help, though, will not include overtime, vacation or severance pay, he said.
A representative of one of the venture capital firms said the failure to pay employees was a “logistical” problem. The official, who would speak only on condition that he not be identified, said overtime pay will take “days or weeks” to calculate, and he wouldn’t comment on the status of vacation or severance pay.
Many of the employees, Bregante said, have filed wage claims with the state Department of Labor. Michelle Eddelstein, who was laid off just before she left work Friday, filed a wage claim and a suit in Small Claims Court for back pay and vacation and severance pay.
Ademek, Bregante, Salemi and others told of former August employees worse off than they were. One woman who had been living in her car finally was able to rent an apartment because of her job with August. Now she needs the paycheck to make good on the rent check she turned in before she was fired--and she has no car to return to if she loses her apartment.
“It’s very easy to see how people wind up homeless, if this is what is happening with all these takeovers,” Salemi said. “The whole concept of the deal is totally inhumane.”
