This time last year, the Writer’s Guild strike was one of the top news stories, as negotiations over payment for online viewing and the definitions of writers and producers seemed to fluctuate nightly before our eyes. It’s a sign of the times, then, that the Screen Actor’s Guild can call for a strike vote over many of the same issues a year later and hardly even make a dent in the news cycle. Another sign? An open letter from prominent SAG members opposing the move.
In case you hadn’t heard, SAG has scheduled a strike vote to take place January 2, with voter cards to be counted later in the month.
Some Hollywood heavyweights came out against authorizing a strike today. In a letter penned Monday, over 130 Hollywood megastars urged the Screen Actors Guild to vote against striking. George Clooney, Alec Baldwin, Tom Hanks, Matt Damon, among many others, said authorizing a strike would create more economic hardship:
“We support our union and … the issues we’re fighting for, but we do not believe in all good conscience that now is the time to be putting people out of work…”
They called upon the SAG to join in talks when other Hollywood guilds contracts expire in three years. Among chief concerns of the stars is the financial effect a strike would have on the crews and craft services of movie productions. The stars also don’t see the need to use a strike as a bargaining tool. They contend a strike should only be used when negotiations fail.
There are a group of high profile celebrities that support authorizing a strike, including Mel Gibson, Holly Hunter and Martin Sheen.
UPDATE (12/15/08): The House and Senate both passed the Worker, Retiree, and Employer Recovery Act this week, and according to SHRM, the President has reversed course and is expected to sign it. From SHRM’s article:
The House introduced and circulated a similar proposal in November 2008 during the start of the congressional lame-duck session following the presidential elections. The White House voiced initial opposition to the measure because of a controversial proposal to change the tax status of pension plans sponsored and operated by Indian tribal governments.
Bush dropped his objections to the pension relief proposal after House leaders stripped the Indian tribe provision from the final bill.
Our original reporting of the Bush Administration’s opposition is below.
Recently, a number of groups consisting of well-known corporations with collective employees numbering in the millions, and employee benefit think-tanks, have been pleading with Congress to delay the requirements set forth in the Pension Protection Act of 2006 (“PPA”). The requests had received much congressional support, and the relief was seen as a necessary move to keep many businesses afloat and keep workers employed. However, the current administration disagrees and apparently sees funding these future obligations as more important than keeping current jobs.
In an effort to close loopholes through which employers were finding ways to avoid fully funding pension obligations to employees, the PPA generally requires that employer-sponsors of defined benefit plans achieve 92% funding this year on their way to 100% funding in 7 years. If a company does not satisfy the 92% requirement, and fails to stay on track with the 7-year plan, under the PPA, it will be required to have the plan 100% funded immediately (seriously).
Defined benefit plans are funded based on actuarial asumptions that determine the amount required to be contributed today in order to fund future promises. Such assumptions take into account mathematics that are well beyond the scope of us here at CE. But, we do know that an employer bears the risk of market fluctuations under such an arrangement. Therefore, when the economy is slumping and a defined benefit plan’s assets decrease as a result, the employer is on the hook to make up the deficiency. Obviously, requiring employers to fully fund these promises is necessary to ensure employees get promised benefits, but at what cost?
Financial Week published an article yesterday explaining that the administration has made clear its opposition to such a bill. This opposition stems from a concern that relaxing PPA requirements will allow plans that are already underfunded to become even more underfunded, thus increasing the liability of the Pension Benefit Guarantee Corporation (“PBGC”), which is already operating under a $11.2 billion deficit (note, the PBGC does currently have $61.6 billion in assets). However, what the administration seems to have missed is that the PBGC, like a defined benefit plan, is funded with an eye toward the future. It does not require full funding tomorrow in order to pay benefit obligations 30 years from now. Therefore, although desirable, it is not absolutely necessary that it acheive full funding immediately.
There is, however, an immediate need for companies to have cash and for workers to keep their jobs. It is likely that if the PPA requirements are not pushed back, or eased, many companies with such obligations will fail, and those that make it may be required to cut jobs anyway in order to comply with the PPA. In passing the PPA it certainly was not Congress’s intention to require defined benefit plans be fully funded if it meant putting the employees that were accruing the benefits under these plans out of work.
Proponents of the PPA relief are not proposing that the funding requirements go away completely so as to avoid the PPA altogther, but rather are simply asking for a bit of a break in light of the current economic downturn that is making funding these obligations for many companies a near impossiblity.
Republic Windows & Doors’ former employees may be getting their WARN Act compensation from embattled financier Bank of America and another unlikely source – BofA’s competitor, Chase. But was it really their sit-in strike that brought about the settlement?
Former employees at Republic Windows and Doors captured international attention when they refused to leave the plant where they worked after the company abruptly shut down. Their biggest complaint – at least the one that the media pounced on – was against Bank of America, Republic’s lender, who pulled the company’s line of credit, ostensibly forcing it to close.
After days of sit-in striking and meetings and shout-outs from prominent political figures (including the President-elect himself), Bank of America has agreed to lend the defunct window-maker about $1.4 million to satisfy its legal obligations to its employees. Chase Bank also promised up to $400,000 to Republic – it turns out the BofA competitor owns about 40% of the company.
Some are calling this a win – maybe even a return to de rigeur status – for the sit-down strike, where workers essentially take over a factory floor in protest. But that’s a stretch. First, let’s not forget that the company in question was shut down. So not only was the plant not running (which means it can’t be taken over) but the workers had nothing to lose. If the Republic employees had done the same thing, but demanded that the company reopen and give them their jobs back, the story would have ended very differently. Also, the main target (at least by the end of things) wasn’t even the employer. It was the a bank – a bank that denied a company credit, forcing it to close shop and put people out of work. You couldn’t ask for a better bad guy these days.
All in all, between the bank and the laid off workers and the city politicians and the holidays, you had a perfect storm of factors capable fo turning this sit-in into a media magnet. And anything this media-intensive automatically invokes the law of diminishing returns. It will not work as well for the next group that tries it, and once it’s tried a second time, woe be to the third, fourth or fifth local that tries to get back pay from a bank.
So what is the takeaway from the story? That part’s easy – it’s not that banks or employers will respond to organized protest or meetings with political envoys. It’s that, even in this economy – especially in this economy – they will quickly fall beneath the weight of bad publicity. Bank of America, after days of insisting it owed no duty to the employees of a company it lent to, eventually changed course after the news cycle kept the story moving for 6 full days. And Chase, who arguably didn’t owe anybody anything, got its name in the papers as a last-minute savior.
No, make no mistake – this is more about PR and market share than worker’s rights. Straight-up capitalism at its finest.
Those are the words of Andy Stern, president of the SEIU. He’s referring, of course, to President-elect Barack Obama – a man who owes much of his newly found title to Stern and his compatriots. In a Wall Street Journal profile over the weekend, Stern outlined his hopes for the new administration, and while the list is expected, the order is a little surprising.
“Massive investment” in a stimulus for the economy, the car industry, deficit-ridden states and infrastructure. Then universal health care, an issue on which the SEIU boss helped push the Democratic consensus leftward, and “tax cuts for the middle class” (and hikes for the upper bracketed). At the end of his list, Mr. Stern puts something particularly dear to unions: Quick adoption of the Employee Free Choice Act…
It is hard to imagine that EFCA is third among priorities for the President of the SEIU. But with the economy spiralling downward, passage of the controversial bill – which looked like a complete lock in an Obama administration 6 months ago – is now relegated behind two initiatives that may be more easily accomplished.
Stern is quick to point out that the time is ripe for massive healthcare reform. While they may differ on the details, “Mr. Obama takes office at ‘an unusual Washington moment’ when business, labor and the politicians ‘see common ground’ on the president’s headline initiatives, health care above all.
Stern also addresses the status of the Employee Free Choice Act – the longsuffering bill championed by organized labor as a balancing of power during elections and early negotiations. It is, apparently, the big issue among unions who see president-elect Obama’s theoretical shift to the center as a roadblock to its passage. But Stern is confident, and while the article makes it seem like union-boss puffery, there is good reason to believe him when he says EFCA should be done in the first hundred days:
“You should do it early and I think it should be part of the basic second-tier economic package when we’re dealing with health care, energy and other ways that over the long term begin to solve America’s long-term economic problems.” Just how it will pass — in a single package, or a budget, or who knows — is hard to predict amid all the economic uncertainty, he says.
Why the confidence? Regardless of his center leanings, there is truth to the notion that politicians cannot forget the people who got them where they are. And for Obama, a lot of those people have union cards. Organized labor, and Stern’s SEIU in particular, was an Obama Campaign cash machine, and they know what that money’s worth:
[L]abor put up some $450 million to get Democrats elected. The SEIU accounted for $85 million of that, making Mr. Stern’s union the single biggest contributor to either party in this election cycle. And just in case, the SEIU set aside an additional $10 million fund to get people unelected if need be. “We would like to make sure people appreciate that we take them at their word and when they don’t live up to their word there should be consequences,” he says.
Now, read that headline again.
Illinois Governor Rod Blagojevich has ordered state agencies to cut ties with Bank of America. [story continued below video]
The Governor announced the move at a press conference held today at the former headquarters of recently-shuttered Republic Windows and Doors in the Goose Island neighborhood of Chicago. The company’s laid-off employees have been staging a sit-in at the warehouse since last week, protesting both the company’s decision not to pay the workers for their accrued vacation and sick days, as well as Bank of America’s decision to cut Republic’s line of credit.
From the Chicago Tribune:
The move is leverage to convince the North Carolina-based bank to use some of its federal bailout money to resolve the situation at Republic Windows and Doors.
Blagojevich says banks got bailout money and should provide lines of credit to businesses that need it so workers can keep working.
Also – apparently after some investigation by attorney general Lisa Madigan’s office – the state will seek a federal injunction tomorrow to ensure the company follows the 60-day pay provisions set out in the WARN Act, violations of which were the impetus for the sit-in.
We have reported twice in the past week on alleged WARN Act violations, and I expect it will be a pretty common thread while the financial situation keeps prompting layoffs. But this story – again from our home base of Chicago – poses an interesting twist.
Republic Windows & Doors closed up shop this week, apparently prompted by their inability to get short term financing. The workers were notified of the closing three days before the doors closed that they were out of a job, and that they wouldn’t be receiving any future pay or credit for their vacation or sick days – a move that, on its face, violates the WARN Act’s 60-day requirements.
Those three days were apparently long enough for Republic’s employees to decide not to take it sitting down. By sitting down. From the NY Times:
Scores of workers … have refused to leave, deciding to stage a “peaceful occupation” of the plant around the clock this weekend as they demand pay they say is owed them.
The workers, many of whom were sitting on fold-up chairs on the factory floor Saturday afternoon, said they would not leave.
“They’re staying because the fact is that these workers feel they have nothing to lose at this point,” said Leah Fried, an organizer for the United Electrical, Radio and Machine Workers of America Local 1110, who said groups of 30 were occupying the plant in shifts. “Telling them they have three days before they are out on the street, penniless, is outrageous.”
Wow. Protest under the WARN Act. Even stranger is that the company hasn’t been up in arms about the “occupation” either, probably because the employees are pointing their fingers somewhere else:
Workers blamed Bank of America, which they said had served as an important lender to Republic Windows, for cutting off credit to the company and preventing workers from being paid. Some workers carried signs and stickers criticizing the bank: “You got bailed out, we got sold out.”
While I’m sure there will be copycat situations (a story like this, reported widely in the mainstream media, is the sort of thing that makes a law like WARN a household name), the thing that is so outstanding about this demonstration is that, for all intents and purposes, the workers and the company are on the same side.
We have met the enemy, and he is finance, apparently.
According to the Department of Labor, 533,000 jobs were eliminated in the month of November. That’s the highest number of monthly layoffs in 34 years. The bright side is that the workforce started out 50% larger than it was in the mid-80′s, which means the percentage of job losses is not as great.
The employment rate – with the new numbers factored in – ticked up 0.2% to rest at 6.7% nationwide. And According to NPR, that number may be the most misleading of all:
The 6.7 percent unemployment rate actually underestimates the number of people hurt by the declining jobs market, because it doesn’t include people who have given up searching for work or part-timers who would like to work full time, [Economics Professor Sung Won] Sohn said. The report says more than 400,000 people left the labor market this year because they believe no jobs are available, he said.
When those people are included, the effective unemployment rate is really 12.5 percent, Sohn said.
No sector is immune, which was evidenced by the fact that “professional and business services” sector led the job cuts with 101,000. Manufactuing and hospitality cut above 80,000 and 70,000 jobs, respecively. Keep in mind these numbers don’t count the layoff announcements made in the past few days, including AT&T, DuPont and NBC Universal.
In December of 1974 – the middle of the oil embargo – the country lost over 600,000 jobs.
Former Labor Secretary (and current Obama adviser) Robert Reich had a great commentary on the public radio show Marketplace this evening. His premise: bailing out the financial industry is short sighted; the only way to improve America in the long-term is to invest in its human captial. In other words, if you want the jobs, fund the schools.
From the commentary:
Education is largely funded by state and local governments whose revenues are plummeting. As consumers cut back, state sales and income taxes are shrinking; three quarters of the states are already facing budget crises. On average, state revenues account for half of public school budgets, and most of the funding of public colleges and universities. On top of this, home values are dropping, which means local property taxes are also taking a hit. Local property taxes account for 40 percent of local school budgets.
The result: Schools are being closed, teachers laid off, after-school programs cut, so-called “noncritical” subjects like history eliminated, and tuitions hiked at state colleges.
It’s absurd. We’re bailing out every major bank to get financial capital flowing again. But we’re squeezing the main sources of our nation’s human capital. Yet America’s future competitiveness and the standard of living of our people depend largely our peoples’ skills, and our capacities to communicate and solve problems and innovate – not on our ability to borrow money.
In the end, Reich wonders if the reason the crisis in human captial gets put on the back burner is because there’s no imposing, Ben Burnanke-like figure warning us of the dire consequences of inaction.
So what are those consequences? With education costs rising in the U.S., more students are dropping out of high school and less are finishing college. Since most European countries have government-funded higher education, this means the next generation of skilled workers will probably be based overseas. All this is ocurring at a time when the U.S.’s labor markets that aren’t tied to collegiate degrees are falling apart or going overseas anyway. So, within a generation, the bulk of the U.S. workforce could either underprepared or skilled in the wrong fields.
But look on the bright side – maybe our kids can get it right the next time around, when they repeat all the mistakes we didn’t teach them in history class.
One of the many misconceptions “corrected” by the financial crisis is that law firms are recession-proof. That notion was buried last month when Thelen, an interneational legal presence, voted to dissolve.
While this is tragic on many levels, the biggest is of course the thousands of employees who found themselves out of work as a result. Good news, then, when reports started coming in that other firms, including Reed Smith, Winston & Strawn and Duane Morris started snatching up chunks of the former firm. Nixon Peabody brought over partners in every practice group, tripling the size of its Silicone Valley office. They plan on hiring staff and associates too. That’s got to be a good thing. Right?
Some of the former Thelen attorneys have filed class-action suits alleging that Thelen violated the WARN Act when they closed offices without the proper 60-day notice.
The ABA Journal is reporting that the attorney who filed one of the suits is now saying the firms hiring these large collections of former Thelen offices may be liable as well. His theory is this:
To the extent that the company is dissolved, the individual partners of Thelen may be responsible, and any law firm that’s taken on a large group of Thelen partners could potentially be considered a successor company, which is liable under labor laws to make good on Thelen’s obligations to its employees.
Interesting. It may be worthwhile to think about the strategy of suing the hiring firms, though. In an economy where over 1 million people have lost their jobs in the past year, it may be a tough sell to force the firms willing to hire to pay for Thelen’s sins.
Although we generally prefer to report news, and not a lack thereof, it is worth mentioning that the IRS has still not published the income inclusion regulations under section 409A of the Internal Revenue Code. The word on the employee benefits street is that these regulations have been complete since July, and they have been expected since that time, but have yet to get the green light from the powers that be at the IRS. Undoubtedly, our current economic crisis has complicated matters, and the IRS likely is hesitant to provide such guidance when Treasury is in such a state of disarray. But, this guidance certainly would be appreciated as soon as possible in light of the pending effective date of the new rules.
Section 409A, which was a part of the American Jobs Creation Act of 2004, sets forth requirements limiting, among other things, elections, distributions, and accelerations of compensation that has been deferred under non-qualified deferred compensation arrangements. In other words, these rules generally do not apply to your 401(k) plans, but rather they apply to executive compensation arrangements under which an individual is deferring current income into future tax years. After a couple of extensions resulting from the sheer scope of the rules and their complicated and onerous nature, the effective date of 409A has been pushed to January 1, 2009, and nobody is anticipating any further extensions.
Benefits practitioners will continue to be perched on the edge of their seats, anxiously awaiting this next round of regulations regulations, which will be found under 1.409A-4. The new regulations will provide rules regarding the calculation of income inclusion for amounts subject to 409A. The IRS has provided guidance regarding withholding from amounts includible in income under 409A in the form of Notices, but that guidance does not provide any help in determining how to withhold penalties resulting from noncompliance with 409A. Until now, the IRS has only required good faith compliance with 409A, but as of January 1, 2009, all deferred compensation arrangements subject to 409A must be in compliance, or those deferred amounts will be included in current income and subject to a 20% excise tax. Hopefully, benefits practitioners will have some guidance as to withholding such amounts by that time.
We will be sure to provide an update and explanation as soon as the regulations are published.