Sunday, February 17, 2002

In takeover, workers
have few rights

Union employees have
somewhat better safeguards

By Dave Segal

In business, it's all about accountability these days.

The implosion of Enron Corp., now the target of several congressional investigations, has prompted more workers to inquire about their rights and demand greater disclosure from their companies.

The fact of the matter, though, is although employees are guaranteed certain legal protections, they have virtually no rights when it comes to being kept informed about ongoing company negotiations.

Last month, for example, Stockton, Calif.-based PAQ Inc., which operates six Food4Less stores in Northern California, agreed to buy the Times Super Market Ltd. chain in Hawaii from a local group headed by the Teruya family.

Negotiations had been going on for up to a year and Times employees had sensed something was happening with the company. To address those concerns, Times President Wayne Teruya, who was constrained at the time by a confidentiality agreement with PAQ, sent out a written notice that sidestepped the issue.

"We don't comment on rumors," Teruya said. "I (said in the note I) wanted the focus (of the employees) to be on the operation and customer service, not on speculation and discussing rumors.

"If we don't have a deal, we don't have a deal. So what can you say?"

Like so many other business transactions that go on nationwide each day, Teruya didn't have to say anything as long as he fulfilled the federal and state notification laws that require employees be given 60 days notice in the case of a sale, transfer, merger or takeover of the business. In simplest terms, the federal Worker Adjustment and Retraining Notification Act, also known as the WARN Act, requires employers give notice if they have 100 or more employees. Hawaii's Dislocated Workers Act requires the notice if a company has 50 or more employees.

Paul Saito, a labor law attorney with the Honolulu firm of Torkildson Katz Fonseca Jaffe Moore & Hetherington, said he doesn't know of any law that requires employers to keep employees informed during preliminary stages of business transactions.

"In a lot of business dealings, especially when there's going to be a sale of a corporation, or a new owner or new management is coming in, the parties generally don't want to change the business dynamics before the transaction takes place," Saito said. "I think most businesses will be as truthful as they can to employees when the deal is confirmed or concluded. But it wouldn't make sense to publicize every transaction because some of them fall through and aren't concluded."

There are other reasons why confidentiality agreements often govern such negotiations.

"I can tell you stories about sales that fell apart because groups disrupted the transaction," Saito said.

As for the Times deal, a confidentiality agreement was important since the transaction took about a year.

"There were always ups and downs on the transaction and certain roadblocks had to get resolved," Teruya said.

Upon reaching agreement last month, in which the purchase price has not been disclosed, Times fulfilled its legal obligation by giving 60 days notice to the Department of Labor and Industrial Relations of the supermarket chain's pending purchase by Quinn Supers Inc., a division of PAQ. The new company is scheduled to take over in March while the employees will remain on the former employer's payroll until March 31 in order to fulfill the notification law.

"It will be a transparent takeover," said incoming Times President Roger Godfrey, who previously had retired as president of Fleming Cos.' Hawaii division. Godfrey said all of the approximate 900 employees will be retained, although he said Times' 75 administrative staffers have been notified their positions will be reviewed and some of their jobs eventually could be eliminated.

Unlike some takeover situations, though, Godfrey said workers will not have to reapply for their jobs, there will be no pay cuts and the company will honor the union contract with meatcutters. The latter group of workers, who are represented by the Teamsters, are the only union shop in the 13-store chain.

"We've sent out answers to questions to all the employees each week," he said. "We've made a very intense effort to talk to people with Times because they're excellent employees and we want to make them as comfortable as possible.

"There are the legal aspects and there's the aspect how we approach it from a business standpoint, and ours is to protect the employees as best as we can."

Teamsters Local 996 President Mel Kahele, whose unit represents the Times' meatcutters, did not return calls for comment about the Times situation. Still, there's little question that a collective-bargaining agreement gives workers more muscle in dealing with employers.

The union label

Phil Tucker, a consultant for the United Food and Commercial Workers International Union, Local 480, said workers not covered by a collective-bargaining agreement are really on their own as far as their rights are concerned, unless the employer runs afoul of the law.

"There have been employers who make all kinds of commitments and owe employees for benefits and for back pay," he said. "In those cases, employees can file wage claims with the Labor Commission.

"As far as changes of ownership, if it's spelled out in some kind of agreement -- or at least if there's a witness -- that could damage a person who is turning away other opportunities because of false representation, it would have to be litigated.

"Nonunion employees are pretty much at the mercy of their former employer to help them out with a voluntary severance or the old employer makes recommendations to the new employer to hire certain key people."

To tell the truth

A common law provision, called promissory estoppel, protects employees who are given materially false information by their employer and thus pass up a better opportunity elsewhere.

Jim Bickerton, an attorney with Bickerton Saunders & Dang Attorneys At Law in Honolulu, said in such cases misleading employees can become an actionable offense.

"Where management makes a factual statement to employees and the employees rely on it, then the company may have liability," he said. "So the question is did some employees not seek work elsewhere or pass up good job offers because of that statement?"

The onus would be on the employee to go to his employer and explain the situation that he had received another job offer and wanted to know if he should be concerned about certain rumors he had been hearing about the company. If an employer represents a fact as being false, then the employee would later have a cause of action and be entitled to lost wages or expenses he incurred.

Stockholders first

For publicly traded companies, Securities and Exchange Commission rules say a company would be open to legal action if shareholders are misled by information that a reasonable investor would consider important when making a decision to buy or not buy, or to sell or not sell, a particular stock.

"A publicly held company is responsible to its shareholders, not its employees," SEC spokesman John Nester said.

An amended worker retention bill, House Bill 1966, before the state Legislature would boost employee protection in the case of divestiture, sale, acquisition or merger of a business.

It requires successor employers of an establishment that consists of more than 100 workers to retain at least 50 percent of the nonsupervisory employees.

The bill, introduced by Rep. Roy Takumi (D, Pearl City), was passed Friday unanimously with one reservation by the Labor Committee, 5-0, and given unanimous approval by the Economic Development & Business Concerns Committee, 9-0. It will proceed to the Finance Committee next week.

While union employees usually fare better than their nonunion counterparts in business takeovers, union workers are still susceptible to losing some of their collective strength. The National Labor Relations Act requires a new employer to deal with a union only if it hires more than 50 percent of the existing union workers and maintains the same type of business.

"If a new employer hires 50 percent or less, it doesn't have to deal with the union, and that's what some new employers do," said attorney David Rosenfeld of Van Bourg, Weinberg, Roger & Rosenfeld, the largest law firm in the country with offices in Honolulu, Oakland, Sacramento and Los Angeles.

Paul Loo, Oahu division chair of the food and commercial workers union, points out that union contracts still are much better to have than no contract at all.

"Where a union has an advantage is that it's very specific what the remedies are, and there's a clause in the collective-bargaining agreement that spells out compensation for time of service and spells out notification requirements (that usually range from 30 to 90 days)," said Loo, whose unit represents Sack 'n Save, Foodland, Star and Safeway.

"The real protection for employees is that a contract has a strong successorship clause that basically requires any new owner to recognize the union and recognize the contract," said Eric Gill, who's been involved in his share of labor disputes as the head of the Hotel Employees & Restaurant Employees, Local 5. "In that type of transaction between employees, it's basically transparent and there's little disruption."

While he's obviously partial, Gill has no doubt about the best type of workplace situation for an employee.

"The bottom line is you're better off with a union," he said. "Union protection is not bulletproof, but there's little protection of nonunion workers (when there's a change of ownership)."

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