Monday, December 8, 2008

Laid-Off Republic Windows and Doors Workers: Pawns in Political Football

The sad story concerning laid-off workers for Republic Windows and Doors has generated a lot of political attention and commentary. Last week, the employees began a "sit-in" at the company to protest its failure to provide them with adequate notice of a shutdown as required by federal and state law. Alternatively, the employer could avoid a violation by paying them wages and benefits for the statutory notice period. Since the sit-in began, politicos ranging from Jesse Jackson to Governor Rod Blagojevich have flocked to the scene to make statements in front of an unsurprisingly flocking news media.

Even President-Elect Obama (who is from Chicago) offered a statement today. He made the unassailable claim that "if they have earned these benefits and their pay, then these companies need to follow through on those commitments." Interestingly, most of the liberal websites have construed Obama's message as bold support for workers. But it is actually just an unimpeachable statement of the law. People should get money to which they are entitled from the source that owes them the money. Notice, he did not say that the company's creditors -- in this instance, Bank of America -- should pay its wages. Other politicians, however, have made this very claim.

Bank of America: Poster Child for Evil
Although federal and state laws require employers (not their creditors) to provide advanced notice to employees of an impending shutdown or mass layoff, Republic Windows and Doors failed to do so. Despite the fact that the employer potentially engaged in illegal conduct, most of the media coverage has focused on Bank of America, which apparently is the largest creditor of the company.

Bank of America has canceled the company's line of credit due to its lagging sales. Union leaders, workers and local politicians, however, blame Bank of America for the plight of the workers. Today, the Governor of Illinois threatened to ban state agencies from conducting business with Bank of America if it does not restore the company's line of credit. The City of Chicago is considering a similar provision. It is unclear whether the governor has the authority to impose this sweeping sanction upon Bank of America, but media commentary has not examined that issue.

Because the country is in the middle of a steep recession, it is probably true that Republic Windows and Doors cannot service its debt with Bank of America. Furthermore, because the company sells products for home construction and renovation, its business outlook is probably even worse than most others. The fact that the company cannot pay its workers without a line of credit demonstrates that it lacks sufficient cash reserves. And its decision to close the plant suggests a state of economic distress; the company is basically insolvent. On purely economic and business grounds, Bank of America probably made a sound decision. Given these factors, Bank of America's decision to deny additional credit probably would not have generated any attention in an average year. Because the country is in a recession and unemployment is soaring, the situation in Chicago has captured public attention.

Republic Windows and Doors: Guilty But Innocently Portrayed
Republic Windows and Doors likely made a good deal of profits over the last four or five years while the "housing boom" was in full effect. Now that the situation has turned around dramatically, the company has decided to let go of its workers (at least at this one facility). The company knows that it has potentially violated the law (unless it can avail itself of an exception to the notice requirements). But the company can minimize bad press if it allows the workers -- who blame Bank of America -- to occupy its premises unimpeded. This does not alter the reality that the company is probably the only culpable party from a legal perspective. Despite this fact, the governor has threatened to penalize Bank of America, not Republic Windows and Doors.

As much as I want a remedy for the workers, this one makes me feel uneasy. In the 1990s, conservative states threatened to sever ties with liberal corporations because they adopted policies prohibiting anti-gay discrimination. Also, if Bank of America loses all business with the state, it could cost local workers their jobs as well. My greatest discomfort stems from the fact that one person believes he can stop Bank of America from doing business with the state. A decision of this magnitude should probably receive public deliberation, rather than an edict from one person. Other liberals have admitted feeling uncomfortable, but praise the decision anyway.

Essentially, the politicians and other supporters of the employees are attempting to shift liability for unpaid salary and benefits to the insolvent company's creditors. This far ranging legal question deserves more sensitive analysis than the current situation has generated. Because many companies shut down or lay off a large number of workers due to insolvency, workers will often remain unpaid or only partially paid, despite the existence of federal and state law that establish their right to notice. Typically, bankruptcy courts deal with these issues. But now, the issue provides photo opportunities for politicians. CBS News, for example, reports that Jesse Jackson delivered 300 turkeys to the employees. With additional political appearances, the situation could turn into a Terry Schiavo/Elian Gonzalez moment.

The sit-in brings to light deficiencies and misunderstanding surrounding the bailout. In a previous blog entry, I lauded the protesters for bringing some of these problems to light in their protests, but that was in advance of Monday's political circus. Most of the politicians involved in the situation, as well as the liberal commentary concerning it, have all argued that Bank of America refuses to follow the will of Congress by withholding money from a distressed debtor. Bank of America received or is slated to receive $25 billion as part of the "Capital Purchase Program." Under this plan, the government infuses funds into banks in exchange for shares of senior preferred stock. Technically Bank of America has received only a portion of the funds. It reportedly received $15 billion in November, and will get an additional $10 billion to complete its acqusition of Merrill Lynch.

Once the economy improves, the government itself could profit from investing in the banks. This plan is not a mere "handout" as many people have portrayed it. Although it provides a remedy for horrific banking and consumer decisions over the last five years, it is probably a necessary measure to keep money flowing in the sluggish economy.

The bailout legislation, however, does not alter lending parameters. Most of the details of the legislation focuses on executive salaries and government ownership of stakes participating companies -- not on subsequent lending decisions by the banks. It is unclear whether extending additional credit to Republic Windows and Doors even makes sense, given the sharp decline in home building and renovation. Ultimately, this is a problem for bankruptcy law, but it is now clouded by political rhetoric that exploits public frustration with the economy and the bailouts. But if Bank of America is correct from a legal and economic perspective, the political discourse coming out of Chicago stands on a complicated ground.

Immediate Assistance for Families: Lost in the Shuffle
As I read the proliferating and increasingly politicized coverage, I wonder primarily about the welfare of the families. While the governor has threatened to ban Bank of America from conducting business with the state (despite the bank not violating any laws), has he mobilized state and local authorities to expedite unemployment, health care, and other social services for workers who need immediate assistance? Have local officials done the same? Does Illinois have business assistance programs which could help this company and others avoid insolvency? At a minimum, the laid-off workers need assistance finding and adjusting to new employment (if such exists). Perhaps Illinois should implement and mobilize its own assistance programs rather than pretending that the bailout legislation was designed to settle every liquidity issue in the entire nation. This situation seems to scream for some type of social safety net. But apparently, local politicians do not wish to commit the state to providing relief.

Will this situation lead Obama to lobby for more direct assistance to consumers? He has signed on to the banking bailout and will probably support the automaker assistance package. His economic advisors include Secretary of Treasure designate Tim Geithner and Robert Rubin who held that position during the Clinton-era. Together with Paulson, they worked tenaciously to construct the largest bailout package to date for Citigroup, where Rubin currently serves as a Director. Senator Dodd, who chairs the Senate Banking Committee, argued that executives in the auto industry could lose their jobs in exchange for their companies receiving assistance, but he did not make the same demand of banks. Nevertheless, automakers will soon receive their assistance package. Where exactly is the plan for working people? Although the bailouts seek to keep money flowing through the economy in order to fuel economic activity that, in the long run, will help consumers, direct assistance can help them as well -- and perhaps more immediately.

Engaging in Political Discourse Without Miseducating the Public
Liberals are understandably moved by the workers' protest. I am as well. But unless they hold conservative and liberal politicians accountable for remedying or at least providing some relief for this situation, then neither group will have the incentive to deliver true reform. I admire the workers' protest and empathize with their plight. Beyond that, I am purely disturbed by the political theatrics this situation has invited.

Attacking Bank of America for a solitary business decision will not solve the broader problems faced by the workers, who will lose their jobs anyway and collect their unpaid wages either because Bank of America bows to political pressure or because the company goes into bankruptcy and the workers receive some portion of the money owed to them. Leading the public to believe that banks must lend to any person or business seeking money simply because they receive federal assistance does not advance public discourse. Sloppy lending practices created the current economic situation; continuing this practice will not cure it.

Related Readings on Dissenting Justice:

* What Did Obama Really Say About the Chicago Sit-In? Depends on What the Meaning of "If" Is

* Dodd's Discriminatory Bailout: "Regime Change" for Main Street, But Not for Wall Street?

* Factory Closes in Chicago; Workers Invoke Bailout During Protest

* Paulson, Geithner and Rubin: How the Big Three "Hooked Up" Citigroup

* Was GOP's Opposition to Bailout a Clever Ploy? Concessions for House Republicans Could Increase Budget Deficit, Make Plan More Expensive


* Bringing Back Welfare As We Knew It: My Indignant Take on the Wall Street Bail-Out


FLRN said...

Professor give Jessie a call and see if we can get a turkey leg delivered while I sit down and ponder this because like you I think political reasoning - (not sure those two words go together) - has definitely gone out the window or has it been tossed out the door? Yes Bank of American has been loan sharking here but as I have said before this fiscal silliness is allowed, and every American with a passel of plastic cards should understand this risky but the legal practice of the making a simple business decision and living on the margin. So what if we bailed them out and they have used the money as a buffer to hang in the game? Law makers did not stipulate how they should celebrate their financial federal windfall. Did anyone expect them to become Eagle scouts simply because we refreshed the coffers? I did not hear law makers churning out new laws to govern banking activities last month as they gave away billions of tax payer dollars bailing out the banking giants of Wall Street. Wasn't it supposed to be banking as usual? I wonder who is next in line to pontificate in front of the protestors. I do feel awful for the workers and their families - the solution is ugly in any direction - My vote lets retrain them as lawmakers and reformers. Yes we need to pump the prime but a bit more direction is required to make corporate American step up to the plate. The real wrong here is current habits of acting without thinking and looking around I can see too much of that going on.

thomas said...

I don't think that everyone understands what has happened to the employees. I worked for company that was closed down by PNC Bank.

Let me state what has happened to the employees.

1. About a 1 day notice was given in regard to the WARN Act.
2. PNC who had been funding the operations decided that they would only fund business/travel expenses that I made in good faith to them and the company would only be re-imbursed at 20%.
3. Earned vacation pay was just recently paid at 50%.
4. Employees were not allowed to access their 401K's for about 3 weeks.
5. PNC has tried to seize the money in the employees flex savings accounts.
6. Before the closings PNC made sure that consultants that they hired were paid before suppliers were. And DIRECTED THE COMPANY TO DO SO.
7. They allowed checks bounced to medical providers that were sent before the closing.
8. They have left people with serious medical condition without insurance and they can't get private insurance because of pre-existing status.

Should I continue. I only ask that the employees be taken care of these proceedings. Whether it be PNC Bank or Bank of America, they knew when they were going to pull the plug but didn't alert the employees. That's not good faith!

The Banks should make employees whole and then shut down the places.

Darren Lenard Hutchinson said...

Thomas, I understand what happen - at least what reportedly happened. But the WARN Act creates absolutely no liability for a company's creditors. Instead, the employer is solely responsible for providing notice. That requires the company to anticipate when it is losing credit. Apparently, BOA was working with the company to wind things down. The company claims it was acting in good faith - but I posted an article today which strongly suggests otherwise. The company ran out of money because it couldn't pay workers in Chicago while starting up in Iowa!

Darren Lenard Hutchinson said...

Thomas, Part II: A lot of the things you mention are probably contractual provisions that the bank could exercise if some precipitating event (such as declining revenue, etc) occurs. You never mentioned the type of business, but I assume times were difficult for the compay.

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