Thursday, September 22, 2011

A warning about the WARN Act

By Bob Confer

Entrepreneurship has always had its basis in the understanding and handling of the unknown. No business owner has ever known exactly what his customers want, what the markets hold, or what his competitors are doing. But, they’ve always had a good idea about what might happen and, from the theoretical standpoint, what should happen.

Things are quite different today. Since the dawn of the Great Recession in 2007 and through the economic malaise that followed, the unknown has become, well, even more unknown. Entrepreneurs now, more than ever, are unsure of what the future holds for them due to the tenuous conditions of the financial and housing industries, stubbornly high unemployment and low consumer confidence that have robbed them of old and new customers, uncertainty associated with the fiscal vitality of governments from the EU to the USA, and the lingering financial instability of countless firms both large and small.

The simple yet profound question of strategic planning, “what will tomorrow bring?” goes increasingly unanswered because no one knows anymore. Find a businessman who, in this economy, is confident where his company will be one year - let alone three months - from now and you can count yourself as having encountered a prophet.

That uncertainty, from even the best and brightest, is what makes New York’s Worker Adjustment and Retraining Notification (WARN) Act so dangerous to the economic viability of any business already struggling to survive. WARN requires an employer of 50 or more workers to give them 90-day notice of a closing or mass layoff if it affects 33% of the workforce or 25 or more employees. Failure to do so requires the company to pay the affected workers 60 days of back pay and benefits. The business is also required to pay a penalty of $500 per day of violation to the state (at 90 days that’s $45,000).

The WARN Act is flawed in so many ways.

For starters, no business knows with any certainty what the size of their workforce will be in 3 months. They may think they’ll be doing fine, but their biggest client could go belly-up without notice or Wall Street could collapse again (both of which could happen easily in this day and age), facilitating the need for immediate downsizing as means to keep the company alive. So, how can a business warn its workers if in most cases it can’t even warn itself?

Secondly, the fact that WARN requires payment of back wages is stupefying. The employer had let go personnel as an emergency measure to cut costs and remain able to pay suppliers and meet payroll for the remainder of the workforce. Layoffs are legal and necessary. Employment is, in its simplest terms, an economic transaction that sees the trade of physical and mental efforts for cash and benefits; so, why should individuals be rewarded for work they never accomplished? Because of that, the penalty defeats the purpose of a layoff. And, ironically, the WARN Act actually defeats its own purpose of maintaining a semblance of wage confidence/awareness for workers: In many cases, enforcement would kill the employer, which, as direct result, would see the rest of its workforce lose their jobs.

Last, but certainly not least, the WARN Act makes the assumption that all layoffs are done with evil intent. That shows the unmatched ignorance of the political class. I’ve said it before and I’ll say it again: federal statistics show that 99% of all businesses are small businesses, owned by folks like you, me, and our neighbors. Do you really think any of them enjoy seeing their companies lose business and have to cut back? Do you really think they get their kicks out of terminating peoples’ employment? They don’t, on both counts. Job cuts pain entrepreneurs immensely, creating unbelievable amounts of stress, worry, and health problems, anything but devilish enjoyment. As a matter of fact, they try to prevent or delay closings and layoffs as long as possible.

Like a slap in the face, the WARN Act went into effect 2 years ago, during the darkest depths of the recession when many businesses had no choice but to shrink or die. It’s high time that the WARN Act itself died, especially with a recessionary double dip looming. If there’s anything that is known in this tricky economy, it’s that regulations like these are harmful to every business and worker in the state.

Bob Confer is a Gasport resident and vice president of Confer Plastics Inc. in North Tonawanda. E-mail him at


This column originally ran in the 26 September 2011 Greater Niagara Newspapers

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