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BLS Bulletin No. 1462
Dayton & Mont^cmery

Public Li.j;~ry

Co.

APR 1 1 lbbb

The Operation of Severance Pay Plans
and Their Implications for
Labor Mobility

UNITED STATES DEPARTMENT OF LABOR
W. Willard Wirtz, Secretary
Sponosored by
OFFICE OF MANPOWER, AUTOMATION AND TRAINING
Curtis C. Aller, Director
Prepared by
BUREAU OF LABOR STATISTICS
Arthur M. Ross, Commissioner

BLS Bulletin No. 1462

The Operation of Severance Pay Plans
and Their Implications for
Labor Mobility

UNITED STATES DEPARTMENT OF LABOR
W. Willard Wirtz, Secretary

January 1966

Sponsored by
OFFICE OF MANPOWER, AUTOMATION AND TRAINING
Curtis C. Aller, Director
Prepared by
BUREAU OF LABOR STATISTICS
Arthur M. Ross, Commissioner

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, D.C., 20402 — Price 60 cents

P reface

The M anpow er D evelopm en t and T rain in g A ct of
1962 d ir e cte d the S e c re ta ry of L a b or to "e s ta b lis h a p r o
gra m of factu al studies of p r a c tic e s of e m p lo y e rs and
unions w h ich tend to im pede the m o b ility of w o r k e r s or
w hich fa cilita te m o b ility ." Included am ong the studies r e
quested w as one on the op era tion of s e v e ra n ce pay plans.
In re s p o n se to this in te re s t in s e v e ra n ce pay, the
B ureau of L a bor S ta tistics advanced its plans to study
s e v e ra n ce pay p r o v is io n s of c o lle c tiv e bargain in g a g r e e
m en ts, resu ltin g in the secon d of its new s e r ie s of a g r e e
m ent stu dies.
To fu lfill the statutory d ir e c tiv e , the D e
p a rtm en t’ s O ffice of M anpow er, A u tom ation and Train in g
(OM AT) req u ested the B ureau to study the actual op era tion
and e x p e rie n ce s of s e v e ra n ce pay plans.
This study, f i
nanced by OM AT and su m m a rized in the p re s e n t b u lletin ,
a lso p ro v id e d the opportunity to b rin g to light oth er rela ted
a sp ects of la y o ff and plant shutdown p r o c e d u r e s .
The study was con du cted and the bulletin p re p a re d
by J. J osep h L oew en b erg , under the su p e rv isio n of H a rry P.
Cohany, in the B u rea u 's D iv isio n of Industrial and L a bor
R ela tion s, Josep h W. B loch , C h ief, under the ge n e ra l
d ir e ctio n of L. R. L in sen m a y e r, A ssista n t C o m m is s io n e r ,
O ffice of W ages and Industrial R ela tion s.

iii

Contents
Page
S u m m a r y and c o n c lu s io n s ______________________________________________________________

C h a p te r I. I n t r o d u c t io n ________________________________________________________________
T y p e s o f p la n s ________________________________________________________________________
S c o p e o f s t u d y ____________________________________________________
P r i o r s u r v e y o f s e v e r a n c e p a y p r o v i s i o n s ___________________________________
S u r v e y o f s e v e r a n c e p a y e x p e r i e n c e ___________________________________________
N o n s u p e r v is o r y w h i t e - c o l l a r e m p lo y e e s _______________________________________
C a s e s t u d i e s _______________________________________________________________________

5
5
6
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7
8
8

C h a p te r II. U se o f p la n s and b e n e fit s p r o v i d e d -------------------------------------------------------O r ig in o f p l a n s _______________________________________________________________________
E x ten t o f p la n u s a g e _________________________________________________________________
L en g th o f s e r v i c e _________________________________________________________________
R e a s o n s f o r s e p a r a t i o n __________________________________________________________
A m o u n t of b e n e f i t s ___________________________________________________________________
G r o s s p a y m e n t s ___________________________________________________________________
D e d u c tio n s _________________________________________________________________________
O th e r p a y m e n ts at s e p a r a t i o n __________________________________________________
O th e r b e n e fit s f o r the s e p a r a t e d w o r k e r ______________________________________
P la n s f o r n o n s u p e r v is o r y w h i t e - c o l l a r w o r k e r s n ot
in the b a r g a in in g u n i t _____________________________________________________________

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9
10
14
15
15
16
17
18
18

C h a p te r III. P r a c t i c e s and p r o b le m s r e la tin g to s e v e r a n c e
p a y and e m p lo y e e s e p a r a t i o n ________________________________________________________
E li g i b i li t y r e q u ir e m e n t s ____________________________________________________________
E m p lo y m e n t statu s o f the w o r k e r at the tim e o f
p la n im p le m e n t a t io n ____________________________________________________________
R e a s o n f o r s e p a r a t i o n ___________________________________________________________
W a itin g p e r i o d a ft e r s e p a r a t i o n ________________________________________________
E m p lo y e e b e h a v io r _______________________________________________________________
A v a ila b ilit y o f o th e r w o r k ______________________________________________________
E m p l o y e r 's c o n t r o l o v e r s e p a r a t io n s _________________________________________
O th e r p r o b l e m s ___________________________________________________________________
O p tion s to s e v e r a n c e p a y ____________________________________________________________
O th e r than S U B - r e la t e d p la n s __________________________________________________
S U B - r e la t e d p la n s ________________________________________________________________
A d m in is t r a t iv e p r o b l e m s ________________________________________________________
T h e p a y m e n t p r o c e s s ________________________________________________________________
A d m in is t r a t iv e d e la y s ____________________________________________________________
W a itin g p e r i o d s ___________________________________________________________________
M e th o d of p a y m e n t _______________________________________________________________
L i b e r a l i z i n g o r r e d u c in g the s e v e r a n c e p a y o b li g a t io n ____________________
C o m p a n y s e r v i c e s ____________________________________________________________________
R o le o f u n i o n _________________________________________________________________________
S e v e r a n c e p a y and u n e m p lo y m e n t i n s u r a n c e _____________________________________

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24
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25
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27
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28
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29
31
31
32
32
33
34
35
36
39
40

Contents— Continued

Page
_____

1. Mt. Lion E le ctr ic C orp ora tion ___________________________________________
Introduction.
The pens ion -term in ation pay plan _________
Special p erson n el p ro ce d u re s______________
T ra n sfer a greem en t___________________ _____
A dm inistrative issu e s______________________
The ch oices m a d e________ _________________
T ra n sfers________________________________
Term ination p a y _____ __ _______ ___,____ __ . . . . . . . . __ . . . __ _______________
Othe r j o b s _____________________________________—--------------------------------- -

44
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45
47
48
49
50
51
52
52

2. The N avysail C orp ora tion _____________________
Introduction____________________________________
Plant shutdown_________________________________
Job o ffe rs with N a v y s a il______________________
Paym ents available at tim e of plant c lo s in g __
Other b e n e fits____________________________ _____
State unem ploym ent co m p e n sa tio n ------------------Subsequent em ploym ent e x p e rie n c e ______ ———

____________
____________
____________
____________
____________
____________

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54
55
56
57
59

3. M oonwitch Company.
Introduction_________________
The 1958 departm ent shutdown________________
The 1962 plant shutdow n_______________ —____ _
The shutdown a greem en t______________________
Implem enting the shutdown a greem en t________
R esults and r e a c tio n s _________________________

Chapter IV. Severance pay plans in operation— five ca se studies.

____________

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63
64
64
65
66
68

Plant closing allowance_____________-__-__________ -______ . . . ___ _______
Mayer Street Plant partial closin g__. . . _____ ____ _________________ _____
P olicies in effect at time of layoff . . . ___________ _________________ _____ _
Implementing the p olicies_______________________________________________
Layoff s ______________ . . . ____________________ __________ ___—----------- ---- 7 7
Subsequent employment experience----------- --------. . . . . . ____ ______________

74
74
75
76

Employees remaining at the Mayer Street Plant___________ ____________

5. The Closing of a N ew sp a p er..
Background
Severance p a y ___________________________________________________________ —

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82

Othe r ben efits_______________ _______—______ _____ —. . . ---...

-------

Subsequent em ploym ent e x p e rie n c e ---------------------------------------------------------Severance pay expenditure_______________________ ___________________ ____—

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85

Contents— Continued
Page
T a b le s :
1.
2.
3.
4.
5.
6.

R e s p o n d e n ts b y in d u s t r y g r o u p and typ e o f p l a n ____________________________
E xten t o f p la n u s a g e , 1960—62_________________________________________________
W o r k e r s r e c e iv in g p a y m e n ts b y ty p e o f p la n , 1960—62____________________
D is t r ib u t io n o f w o r k e r s r e c e iv in g s e v e r a n c e p a y b y
in d u s tr y , 1960—62______________________________________________________________
E nd o f b e n e fit c o v e r a g e _________________________________________________________
O p tion s to s e v e r a n c e p a y in o th e r than S U B -r e la t e d
p la n s b y ty p e o f p la n ___________________________________________________________

A p p e n d ix : Q u e s t io n n a ir e s _____________________________________________________________
2826 A — C o n v e n tio n a l s e v e r a n c e p a y p la n s ______________________________________
2826 B— S U B -ty p e s e v e r a n c e p a y p l a n s _________________________________________

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IT
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13
20
29

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91

The Operation o f Severance Pay Plans and
Their Implications for Labor Mobility

Summary and Conclusions

To the vast m a jority of w ork ers in the com panies studied— alm ost 98 p e r
cent in 1962r—the severan ce pay plan was but one of sev era l p rotectiv e assurances
o ffered by the colle ctiv e bargaining agreem ent, by com pany p erson n el p o licie s ,
and by the union. F or all cov ered w ork ers, severa n ce pay plans represen t a
fo rm of insurance sim ila r in som e resp ects to life or sick n ess and accident in
surance paid fo r by the em ployer. H opefully, none of these w ill be used. The
availability of severa n ce pay in case of separation is intended to be, and probably
is , reassuring; it m akes w ork ers le ss fea rfu l about the p ossib le effects of a change
in business conditions, technology, and other developm ents beyond their control.
Since fa r m ore w ork ers benefit fro m such assurances than fro m actual severance
paym ents, the support offered by the plans to general m ora le m ay represen t their
m a jor contribution to flex ib ility in n ecessary w ork fo r c e adjustm ents. F or w ork ers
who are separated and e sp e cia lly fo r those who rem ain on the jo b , how ever,
other p ra ctice s— fo r exam ple, sen iority system s and pension plans— contribute
con sid erab ly to reducing the p ressu re fo r restriction s on com pany em ploym ent
and layoff p o licie s .
This study concentrated on the aspects of severa n ce pay plans and their
attendant circu m sta n ces that bear upon manpower and m obility is s u e s .
In
conjunction with the previous analysis of plan p rov ision s, it is hoped that no
significant fa cet of the prob lem s involved in the operation of severan ce pay plans
was overlook ed in this study. What follow s is an attempt to sum m arize the findings
and to d istill fr o m these the im plications of severan ce pay plans fo r labor m obility.

During the p eriod 1960-62, severan ce paym ents, in general, w ere not
im portant expenditure or cost item s to em p loyers, and the number of w ork ers
receiv in g payments was a lso rela tively sm all. About 30 percen t of the plans had
no o cca s io n to make any payments during the 3 -y e a r p eriod. In 1962, the year
of highest u tilization, slightly m ore than 2 percen t of the w ork ers cov ered by
the plans re ce iv e d paym ents. Of these, over 60 percent had few er than 10 years
of s e rv ic e . Involuntary separation due to lack of w ork was by fa r the ch ief reason
fo r separation. R eflecting the number of lo w -s e r v ic e w ork ers among those r e
ceivin g severa n ce pay, average payments ranged fro m $303 in plans in which
w ork ers retained r e c a ll rights to $1,2 79 in plans in which w ork ers lost all
reem ploym ent rights. Individual variations w e re , of co u rse , wide.
Total severan ce payments probably accounted fo r only about on e-fifth
of 1 p ercen t of annual p a yrolls among all plans com bined. A fter deductions,
take-hom e or spendable payments w ere, on the average, about 20 percen t less than
the amounts p rom ised by the plans. Other benefits available on separation (e .g .,
p rorated vacation pay, extended health and insurance cov era g e, vested pension
rights), h ow ever, added to the re so u r ce s of the separated w ork er.

2
On the b a sis of these fig u re s, it would appear that a severan ce pay plan
is a fo r m of lo w -c o s t insurance to m any com pan ies, with a return to be m easured
not only in term s of the equity of displaced w ork ers but of the b o lste re d m orale
of the entire w ork fo r c e . On the other hand, inform ation obtained fr o m the
com panies on the options available to w ork ers facing separation, the types of
com pany s e r v ic e s in use designed to help such w ork ers to other job s or em ploy
m en ts, and other efforts of a like nature, re fle c t a com p lex of influences that
tend to dim inish the relative im portance of severa n ce pay in itse lf. M o reov er,
the slow r is e in the prevalen ce of severa n ce pay plans, in conjunction with the
seem in gly low le v e l of plan u se, m ay signify that other p ra ctice s (for exam ple,
m o re sp e cia lized fo rm s of a ssista n ce, reassignm ent, retraining, ea rly retirem en t,
attrition arrangem ents, and the like) are taking over a grea ter share of the
p ro b le m of displacem ent.
The d ire ct effects of severa n ce pay on la bor m ob ility appeared to be
neutral, that is , the p ra ctice did not significantly im pede m ob ility nor did it, in
actual p ra ctic e , significantly enhance m obility.
Management rep resen ta tives,
w here opinions w ere offered , gen erally b eliev ed that w ork ers facing the p o ssib ility
of separation did not bypass other em ploym ent opportunities elsew h ere so as to
avoid losin g severa n ce pay. On o cca sio n , com panies advanced the severa n ce
payment to encourage e a rly leaving. The reasons why severan ce pay fa iled fu lly
to exploit its potential fo r enhancing m ob ility w ere many, encom passing the atti
tudes of the parties (m anagement, union, and w o rk e rs), the structures and
adm inistration of the plans, and the circu m sta n ces in w hich w ork ers found them
selv es after separation.
The traditional view s of severa n ce pay see it as a d evice to support the
separated w ork er until the next job com es along and as a settlem ent of the em
p lo y e r 's obligation to the displaced w ork er. The p rob lem s of fitting the displaced
w ork er fo r another and different jo b , of recogn izin g that the w ork er m ay have
lo s t not only a job but an occupation, of enhancing his chances fo r reem ploym ent
elsew h ere, appear still to lie outside the sphere of the severa n ce plan. The
p e rsiste n ce of the traditional view s accounts, at least in part, fo r som e of the
p ra ctice s that seem to weaken the m ob ility potential of severan ce pay. E ligibility
requirem ents are often re s tr ic tiv e , lim iting the number of separated w ork ers
to whom severa n ce payments are m ade. In m any ca s e s , the payments are too
sm all to make a contribution to the w o r k e r 's m ob ility, let alone support his fam ily;
in virtu ally all ca s e s , leg a lly requ ired (e .g ., in com e tax withholding) and other
deductions take sizable bites out of available cash. Delays in payment, whether
attributable to plan requirem ents or to slow adm inistrative p roced u res or to
w ork er ch o ice , postpone the availability of the re so u r ce and p erm it the accum u
lation of debt. A lm ost half of the w ork ers receiv in g severa n ce pay in 1962 retained
r e c a ll rights to their jo b s ; although these w ork ers m ay have had little chance
of going back to w ork, an attachment to the em ployer was p re se rv e d , presum ably
tending to d iscou rage leaving the area or even an intensive jo b sea rch .
In 22 States, the receip t of severa n ce pay affects the displaced w o r k e r 's
unem ploym ent com pensation benefits. The rationale fo r such regulations derives
p rin cip ally fr o m the view that severance payments and unem ploym ent com pensation
se rv e the sam e purpose.
With rega rd to the w o rk e rs' use of severa n ce pay, the ca se studies
revea led that the payments w ere used m ainly to pay off past debts and make
installm ent payments (often on purchases that w ould not have been made if the
w ork er had had e a rlie r notice of impending separation); to m eet current living
expen ses; and, if anything was left, fo r savings. Expenditures fo r training or
other m eans of in creasin g their jo b sk ills and opportunities fo r reem ploym ent
w ere insignificant.

3
On the other hand, m ost of the displaced workers had very little guidance
regarding the use of their severance pay. Initially, they may have had the cash
resources and the willingness to take steps aimed at improving their qualifications
for and accessibility to new jobs.
But apparently, without effective counseling
and other form s of job assistance, they did not know how to convert their assets
into effective job mobility. The passage of time often eroded both their resources
and their accessibility.
It is frequently argued that too much is

expected of severance pay:

Severance pay, however, has recently been criticized as not having a very positive
effect in providing the displaced workers with "a new start" since so little of it is used for
the purpose of obtaining retraining, finding better jobs, or, in appropriate cases, establishing
self-employment. The significance of this criticism is that it would be unrealistic to expect
severance pay to accomplish any more than unemployment compensation.1
1 Richard Wilcock and Walter Franke, "Unwanted Workers: Permanent Layoff and
Long-Term Employment" Glencoe, 111. (The Free Press of Glencoe, 1963), p. 124.

Under current operations of severance pay plans,
valid generalizations.

such comments may well be

Even within existing purposes and cost lim its, however, plans have a
potential for enhancing mobility of workers that is currently not being realized.
Employers can strive to present a worker with all alternatives simultaneously
and to pay the severance award, if chosen, promptly upon his separation. Longer
advance notice of separation would enable the worker to prepare better for it.
States can review their unemployment compensation system s for their effects on
severance pay. Tax authorities can reassess current tax policy with respect to
severance pay. Em ployers, unions, and public and private agencies can provide
more guidance and direct assistance to displaced workers receiving severance
pay, particularly in identifying skills and trainable aptitudes and suggesting appro
priate courses of action to capitalize on their assets.
These steps, obviously,
will not solve all problem s.
They w ill, however, increase the opportunities of
separated workers to use their severance pay in more productive ways.
New approaches to severance pay require revisions in traditional attitudes
in the direction of adapting plans more specifically to the reemployment needs of
separated workers. This requires a disposition on the part of em ployers, unions,
and workers toward the provision of, or payments for, retraining opportunities,
and relocation if necessary, which would ..fit the displaced worker for other
employment.

Chapter I. Introduction

Severance pay has often been advocated as a device to promote labor
m o b ility ,1 since the payments, under the circum stances, may help the displaced
worker find other employment. In its sim plest concept, separated from all related
aspects both before and after the act of payment, severance pay provides the
worker at a critical point in his working life with a financial resource that
supports effective job hunting. The amount may even be large enough to underwrite
relocation or retraining expenses. To the employer, the severance pay obligation
may serve as an inducement to find other jobs for employees facing displacement,
or otherwise to avoid incurring the financial and m orale costs of separation.
Many factors, however, come into play in situations involving worker displacement
which, along with the incidence of severance pay, require study before the
manpower and mobility implications of severance pay plans can be properly
evaluated. This bulletin, supplementing an earlier study of severance plan pro
v is io n s ,2 focuses on the experience and operations of several hundred plans.

Types of Plans 3
In recent years, through collective bargaining, the concept of severance
pay and the availability of unemployment insurance have been merged in a variety
of devices, made even m ore diverse by tax and legal considerations and a certain
blurring of the distinction between severance and layoff. To an increasing degree,
m oreover, workers who are laid off with or without the expectation that the
layoff w ill be permanent are also realizing in cash or in vested rights their
equity in various fringe benefits that they stand to lose, along with wages, in
the loss of jobs.
Traditional severance pay plans provide a money payment, in a lump
sum or in installm ents, to workers whose employment has been terminated.
A complete severance of the employment relationship, and with it the w orker’ s
seniority, is either treated explicitly by the plan or the conditions of the payment
are such that only permanent separation is applicable. These awards are variously
referred to as severance pay, termination pay, dism issal allowance, separation
benefit, and layoff allowance (where layoff implies permanent layoff). Under such
plans, the payment of benefits is not contingent on the workers remaining
unemployed. Severance pay plans generally are unfunded, although in recent
years a number of funded arrangements have been negotiated.
The prim ary purpose of supplemental unemployment benefit (SUB) plans
is to provide weekly allowances to workers on layoff, as a supplement to
unemployment compensation. Usually, the layoff is not considered permanent,
that is, both employer and worker expect the worker to be recalled to the job.
Unlike traditional severance pay plans, SUB benefits are paid only if the worker
is unemployed. SUB plans are typically funded arrangements.
A recent example is the Redundancy Payments Bill placed before the British House of Commons in March 1965,
with the purpose, as described by the Economist (London, England, Apr. 3, 1965), "to promote social justice, and
to encourage the mobility of labor, by compensating wodcers put out of a job by their industry's decline or their
employer's uncompetitiveness."
2 Major Collective Bargaining Agreements; Severance Pay and Layoff Benefit Plans (BLS Bulletin 1425-2, 1965).
3 The following description of the various types of severance pay plans currently in effect is taken from the
agreement study upon which this study is largely based. Ibid.

6
In recent years, SUB plans have been expanded to provide additional
benefits. Some SUB plans have adopted severance pay provisions granting lump
sum allowances to workers whose unemployment has extended for a specified
period or when the employer determines that the w orker’ s layoff is permanent,
whichever is sooner.
Both traditional severance pay provisions and SUB plans are found in
the prim ary metal industries, but severance pay is not part of the SUB plan nor
is the severance allowance paid from SUB funds. The two plans are related only
to the extent that, under certain circum stances, SUB payments may be deducted
from severance allowances.
Extended layoff benefit plans, such as those negotiated in the aerospace
industry, contain some of the major features of SUB plans and traditional
severance pay plans. They resem ble SUB plans in that they are funded, clearly
state that their purpose is to supplement unemployment compensation, and cover
all workers on layoff without removing the w orkers' rights to recall. They
resem ble the traditional severance pay plan in payment of benefits as a lum p-sum
allowance (after the first 4 weeks of layoff), the payment not to be contingent,
after the qualifying p e r i o d
of unemployment, upon the worker remaining
unemployed.
Other variations include plans having features of severance pay and layoff
benefits. These provide for lum p-sum payments, but because they lack either
a clear-cu t statement that the acceptance of benefits severs the employment
relationship or a listing of conditions for payment that could be interpreted only
as permanent separation, they conceivably could provide for either layoff benefits,
or a severance benefit in the event that the laid off worker is never recalled.
Still other plans combine a layoff benefit under one condition and a severance
benefit under another. Some plans provide a benefit only on retirement, either
in lieu of a pension plan or if the worker does not qualify for a pension under
an existing plan. Individual trust account plans, a funded arrangement, establish
an account for each worker from which he may draw under certain specified
conditions, including separation. Pooled multiemployer arrangements, as in the
apparel and m aritime industries, have their own unique features.
Scope of Study
P rior Survey of Severance Pay P rovisions. For its study of plan pro
visions, the Bureau examined 1 ,7 73 major collective bargaining agreements, each
covering 1,000 workers or m ore, or virtually all agreements of this size in the
United States, exclusive of those in railroad4 and airlines industries, and in
government. These agreements applied to approximately 7. 5 million workers or
alm ost half of the total coverage of collective bargaining agreements outside of
the excluded industries. Of these, 4. 1 million workers covered by 1, 023 contracts
were in manufacturing; and the remaining 750 agreem ents, applying to approxi
mately 3. 3 million w orkers, were in nonmanufacturing. For that prior study,
the Bureau tabulated traditional severance pay plans; plans which had no explicit
statement of termination; separation pay provisions in SUB plans; the aerospace
industry's extended layoff benefit plan; combination plans; and other variations
providing payments on separation or layoff, exclusive of provisions incorporated
into pension plans.
The exclusion of die railroad industry from diis study needs special emphasis, since severance pay is an
important type of protection in this industry. However, a comprehensive study of experience in the industry was made
by the staff of the Presidential Railroad Commission. (See ’’The History of and Experience Under Railroad Employee
Protection Plans,” Appendix Vol. Ill, Report of the Presidential Railroad Commission, February 1962, pp. 109—191.)

7
A ll of these plans are hereafter called severance pay plans, disregarding,
for the sake of convenience, legal or tax distinctions among the different types
of plans.

Survey of Severance Pay Experience. Of the 1 ,7 73 major agreements
analyzed for Bulletin 1425-2, 525, covering 3, 051, 000 w ork ers, contained sev e r
ance pay plans. Of these, 58 agreements, covering 208,00 0 w orkers, were
excluded from the present study either for not being germane (e .g . , severance
pay awarded only at retirement or negotiated in principle only) or for not having
the information readily available (multiemployer plans and pooled industry funds).
However, two large pooled industry funds in the apparel and m aritim e industries
were included, as were a number of other association plans.

A m ail questionnaire was sent to each of the 467 plans in the scope of
the present study. Two separate questionnaires were used (see appendix)-— one
for companies whose severance pay plans were in some way related to a supple
mental unemployment benefit plan, and the other for the remaining severance
pay plans. Replies usable in whole or in part were received from 418 plans, or
approximately 90 percent of those requested. These 418 plans covered a total
of 2 ,8 6 8 ,2 4 7 w orkers. Classified according to the essential features of the plans
for purposes of this study, the response comprised the following:

Plans

Woikeis

SUB-related - — ----------- -—Lose recall rights----------------Retain recall rights-------------Combination------—— ---- -—
No information on recall rights

147
72
183
11
5

1,709,879
219,913
778,855
152,350
7,250

Total--------------------------

418

2,868,247

Type of plan

The above distribution of plans differs from that presented in the study
of severance pay provisions largely because of: (1) Differences in classification—
the provisions study made reference to severance pay plans included in SUB and
pooled industry plans. This study is concerned'with severance pay plans affected
by SUB plans even though not part of them, such as plans of the prim ary metals
industry; (2) interpretations by respondents— some respondents chose to answer
the questionnaire in term s of employees permanently and involuntarily terminated,
although parts of their plans provided for payments to employees temporarily laid
off or retiring; (3) classification of plans in the provisions study according to
language; in this study, according to questionnaire replies and interviews; (4) p ro
vision by some plan administrators of revised employment figures, and provision
by others of information for the entire work force covered by a plan, not just
for those covered by the collective bargaining agreement.

More than two-thirds of the worker coverage of responding plans were
accounted for by four industries— transportation equipment, communications,
prim ary m etals, and apparel (table 1).

8
Table 1* Respondents by Industry Group and Type of Plan
Total
Industry group

Plans Workers

SUB-related

Type of plan
Retain recall
rights
_

Lose recall
rights

Plans Workers Plans Workers Plans Workers Plans
Transportation
equipment —-------- —
Communications — —
Primary metals — ——
Apparel -----------------—
Electrical machinery---Machinery, except
electrical - —----------Food------------ -----——
Chemicals—----- -------Fabricated metals------Transportation----------Utilities————-------Ordnance— -------------Rubber-———----------Other1- --------------——

40
72
53
35
33

692,742 22
474,824
455,531 46
426,849 35
211,509 2

596,625
444,940
426,849
10,160

3
8
2
1

5,000
41,600
4,175
1,500

15
61
5
22

91,117
374,124
6,416
108,949

19
29
36
14
8
19
10
5
45

114,995 12
90,908 1
69,864
61,058 14
46,654 3
45,908 45,869
41,625 2
89,911 10

101,200 5
1,200 24
6
61,058 35,090 2
- 10
- 14,800 3
17,957 8

11,945
78,490
12,202

2
4
28
3
8
10
25

1,850
11,218
52,512
7,714
22,682
45,869
.
56,404

2
.

Total —————— 418 2,868,247 147 1,709,879 72 219,913 183

778,855

3,850
22,026
26,825
12,300

No information
on recall rights

Combination

3
.
-

Workers Plans Workers

59,100
-

88,100

2
.

5,150

2,800
.
-

.
.

1
2

1,200
_
3,250

152,350

7,250

Includes textile, furniture, paper, printing, petroleum refining, leather, stone and glass, instruments, mining
and crude petroleum, retail trade except restaurants, services, and miscellaneous nonmanufacturing* 6 industry groups
are not represented among questionnaire respondents: Tobacco, lumber, miscellaneous manufacturing, wholesale trade,
restaurants and hotels, and construction, railroads, airlines, and government were excluded from the scope of the survey.

Nonsupervisory W hite-C ollar E m ployees. Information on the incidence
of severance pay for nonsupervisory w hite-collar employees not in the bargaining
unit was obtained from 371 of the 418 companies or plans responding to the
questionnaires. Over 70 0 ,0 0 0 w hite-collar employees were covered by severance
pay plans in effect in these companies.
Case Studies. A series of five case studies was undertaken to observe
the operation of severance pay plans, to gather data on worker use of and reaction
to severance pay, and to gain insight into the role of severance pay in plant
shutdown situations. Each case study involved interviews with management and
union officials, representatives of public agencies in the community, and a
limited number of separated w orkers. The case studies (ch. IV) describe
partial or complete plant shutdowns that affected workers of various skills and
ages, and reveal aspects of layoff situations and severance pay that are not
susceptible to study by m ass survey techniques.

Chapter II. Use of Plans and Benefits Provided

This chapter deals primarily with the incidence of severance pay— the
frequency of plan use; the number of workers receiving payments, their length
of service prior to separation, and the reasons for their separation; and an
accounting of the benefits paid and received, including gross severance payments
and deductions therefrom, other cash payments accruing to separated workers,
and noncash benefits available upon separation. Consideration of these matters
is preceded by a discussion of the development of plans.
Origin of Plans
The negotiation of severance pay and related plans is largely a postwar
development, although a substantial proportion of companies had form al plans in
effect prior to the incorporation of such provisions in collective bargaining agree
ments. According to Bureau of Labor Statistics studies, the proportion of agree
ments with these plans increased from 4. 7 percent in 1944 to 7. 9 percent in 1949,
to 15.7 percent in 1955—56, and to 2 9 .6 percent in 1 9 6 3 .5 The year of origin
of the 418 negotiated plans covered by this study, and the incidence of prior
experience, is reflected in the following tabulation. (Changes in plan provisions
are not accounted f or. )
Severance pay plans
Prior severance pay
_______ in agreements______________ plans in effect_______
Year originally
negotiated

Plans

Workers

Plans

Workers

1939 or earlier---------------1940-1944.........................
1945-1949 ........................
1950-1954 .........................
1955-1959 .........................
1960-1963 ........................
Data not available------------

5
31
119
50
128
73
12

12,271
216,380
784,491
271,286
1,268,155
273,424
42,240

1
23
39
21
11
8
9

2,413
185,897
247,767
182,067
30,137
15,870
35,040

Total----------------------

418

2,868,247

112

699,191

The spread of plans after 1955 is attributable in large measure to the
introduction of a severance pay feature into the automobile SUB plans, and the
negotiation of SU B-severance pay plans in the women1s apparel industry. Over
three-fourths of the worker coverage added between 1955 and 1963 were accounted
for by SUB plans.
Severance pay plans in the primary metals industry, m ost
of which were negotiated in 1947, prior to the conception of SUB plans, were
later tied to SUB plans in some respects (thus considered as SUB-related plans
for purposes of this study) although not made a part of them.
Slightly m ore than a fourth of the respondent plans (112), covering a
sim ilar proportion of workers, indicated that the company had form al, unilateral
severance pay plans in existence prior to the negotiated arrangements.
One
company, for instance, reported that it "fir s t adopted a termination allowance
plan for salaried employees in 1923, and extended such allowances to hourly

5 See BLS Bulletin 1425-2, op. cit.

em ployees beginning in 1928;" the plan was made part o f the co lle ctiv e bargaining
agreem ent in 1941.
The la rg est num ber o f plans reporting form a l experien ce
b e fo re a co lle ctiv e ly bargained plan cam e into existen ce w ere in the com m u n ica
tions and e le ctric a l m achinery equipment industries. As m ight be expected, the
old er the plan under co lle ctiv e bargaining the m o re likely it was p reced ed by a
unilateral, nonbargained plan.
Without con sid erin g the periods in which a nonnegotiated plan was in
effect, alm ost half of the plans studied w ere in existen ce p rio r to 1954.
Only
about a sixth had not been negotiated by I960, the beginning of the p eriod fo r
which data on plan usage w ere requested.
The negotiation of a severa n ce pay
plan, how ever, is not com m ensurate with im plem entation of the plan.
The
Ladies* Garm ent W orkers' Fund, fo r instance, requ ired 2 y e a rs' of em ployer
contributions follow ing negotiations b e fo re the plan was placed in operation in
1960. In all ca se s, term s of the plan have to be m et by the individual w ork er
o r w ork situation b e fo re severa n ce payments can be m ade.
Extent of Plan Usage
The com panies surveyed w ere asked to rep ort the number o f em ployees
to whom payments had been m ade in each o f the 3 y e a rs— 1960—62. A few r e
spondents w ere not able to furnish the requested inform ation.
In som e ca ses,
recen tly adopted plans had not had sufficient tim e to be put into operation; in
others, the data sought w ere not readily available from company r e c o r d s .
T here was a noticeable in crea se in y e a r -t o -y e a r im plem entation o f plans
between I960 and 1962, both in absolute and relative term s, as shown b elow :
Year
1962............................................
1961.............................................
1960............................................

Number of plans reporting
on usage
401
378
310

Percent of plans with workers
receiving payments
64.5
61.1
52.9

The addition o f new plans partly explains the in crea se in the num ber o f plans
under which payments had been m ade.
A pproxim ately 30 percen t of the respondents reported no experien ce at
all during the 3 -y e a r p eriod . S everal com panies noted that they had never had
o cca s io n to pay severa n ce benefits even though their plans w ere fir s t negotiated
in the late 1940's. Lack of plan im plem entation does not n e ce ssa rily mean that
there w ere no w ork ers separated; either the circu m sta n ces of the separations or
the individual ch a ra cte ristics of the w ork ers may have disqualified them from
severan ce pay eligibility. On the other hand, the lack o f payments under many
plans during the 3-y e a r p eriod probably re fle cts the absence of plant shutdowns
involving la rge num bers of w o rk e rs; su cce ssfu l efforts in finding job s fo r w ork ers
who would otherw ise be separated; in creased use of early retirem en t; o r stable
o r risin g em ploym ent needs.
The utilization of severa n ce pay varied with the type of plan, although
all types showed an in crea se in usage ov er the 3 -y ea r period (table 2).
Plans
that awarded pay to w ork ers who retained re c a ll rights w ere consistently im p le
m ented to a g rea ter extent than those com pensating w ork ers on com plete sep a ra
tion, including SU B -related p la n s .6 The grea ter frequency of tem porary la yoffs,

6
The inclusion of 35 plans involving the International Ladies' Garment Workers' Union, the 35 administered
as 1 plan, overstates the rise in usage of SUB-related plans. Even without the ILGWU plan, however, this category
shows a somewhat higher increase in plan usage than the other two distinct types.

the existen ce o f other plans to alleviate la yoff situations, and s tricte r eligibility
qualifications under plans requiring em ploym ent term ination to be perm anent
probably account fo r the d ifferen ce.

Table 2. Extent of Plan Usage, 1960-62
Total plans reporting
on usage 1

Type of plan and year

Plans with no workers
receiving severance pay

Plans with workers
receiving severance pay

Number

Percent

Number

Percent

Number

Percent

401
378
310

100
100
100

142
137
146

35.5
38.9
47. 1

259
231
164

64.5
61. 1
52.9

145
138
94

100
100
100

61
66
64

42.1
47.8
68.1

84
72
30

57.9
52.2
31.9

67
59
55

100
100
100

29
27
27

43.3
45.8
49. 1

38
32
28

56.7
54.2
50.9

173
171
154

100
100
100

47
40
51

27.2
29.3
33.2

126
121
103

72.8
70.7
66.8

11
7
5

100
100
100

2
1
2

18.2
14.3
40.0

9
6
3

81.8
85.7
60.0

5
3
2

100
100
100

3
3
2

40.0
100.0
100.0

2
0
0

60.0

All plans:
1962.....................................................
1961.................................. - ................
I960— ..............................................
SUB-related:
1962.....................................................
1961................................—................
1960...............................................—Lose recall rights:
1962.....................................................
1961............. .......................... - ..........
1960.....................................................
Retain recall rights:
1962.....................................................
1961.....................................................
1960.....................................................
Combination:
1962.....................................................
1961.....................................................
1960............................................ ........
No information on recall rights:
1962.....................................................
1961......... ...........................................
1960...................................... ..............

1 Excludes plans to which data were either not available or inapplicable.

O ver a third of all plans in which w ork ers lo se r e c a ll rights when a c
cepting severa n ce pay, including S U B -related plans (75 of 212), had no ca se of
sev era n ce payments during the 3 y ea rs, as against on e-fifth of plans in which
w ork ers retain re c a ll rights.
Along with the in creased utilization o f plans has com e an in crea se in
the num ber o f w ork ers receivin g payments upon severan ce o r layoff, as fo llo w s ;
______ Workers receiving payments______
Plans making payments
Year
1962...............................
1961...............................
1960...............................

Plans
259
231
164

Percent of workers under—

Workers

Number

2,302,656
2,108,406
1,400,856

52,838
33,373
16,892

All reporting Plans making
plans *
payments
1.9
1.3
.8

2.3
1.6
1.2

* Excludes plans for which information was either not available or inapplicable.
205-662 0 - 66-2

Over the 3 -y e a r p eriod , a total of 103, 103 w ork ers receiv ed paym ents.
This
is at least 3 .6 percen t o f the w ork ers co v ered by the total 418 respondent plans.
F o r each prin cipal type of plan, the pattern is sim ila r— substantial annual in
c r e a s e s , m o re than 100 percent, in the num ber o f w ork ers receiv in g severa n ce
pay between I960 and 1962 (table 3). The m ost notable change in these 3 y e a rs
o cc u rre d in SU B -related plans, la rgely b ecau se o f the addition of plans in the
apparel and m aritim e industries.
The highest prop ortion of w ork ers receivin g
payments out of w ork ers cov ered by plans that awarded severa n ce pay o c c u r r e d
in plans w here w ork ers retained re c a ll rights.
Next in this sca le w ere plans
in which reem ploym ent rights w ere lost (other than SU B -related plans).
Table 3. Workers Receiving Payments by Type of Plan, 1960-62

Type of plan and year

All plans:
1962......................................
1961.............................. ........
1960------ ------------------SUB-related:
1962......................................
1961......................................
1960......... —— ..................
Lose recall rights:
1962.............................. ........
1961......................................
1960..........................- ..........
Retain recall rights:
1962......................................
1961......................................
1960......................................
Combination:
1962......................................
1961....................- ................
1960......................................
No information on recall
rights:
1962— ............................ —
1961.............................. ........
1960-......... - ........................

Plans implementing payments

Workers receiving payments
Percent

Plans

Workers 1

Number

259
231
164

2,302,656
2,108,406
1,400,856

52,838
33,373
16,892

2.3
1.6
1.2

84
72
30

1,441,043
1,303,596
786,200

22,379
11,435
4,848

1.6
.9
.6

38
32
28

134,477
118,637
99,582

3,884
2,233
1,584

2.9
1.9
1.6

126
121
103

576,036
545,373
455,974

24,865
17,937
9,801

4.3
3.3
2.1

9
6
3

147,900
140,800
59,100

1,660
1,768
659

1.1
1.3
1.1

3,200

1.6

1 Coverage held constant, based on latest coverage figure reported.

A distribution of w ork ers receivin g severa n ce pay in 1960—62, by in
dustry, revea ls variation in the percentages o f w ork ers receivin g payments among
industries in any y ea r, and y e a r -t o -y e a r in the sam e industry (table 4). V a ria
tions in the p rop ortion o f w ork ers receivin g sev era n ce pay in a single y ea r are
only partially explained by d ifferen ces of plans with re sp e ct to re c a ll rights.
Although all plans in the ordnance industry provided fo r retention of re c a ll rights,
the overw helm ing m a jority of w ork ers receivin g severa n ce pay in the food and
transportation industries lo st r e c a ll rights.
These w ere the second and third
ranking industries in percentage of covered w ork ers awarded severa n ce pay in
1962.
The reasons fo r the incidence of w ork ers receivin g severa n ce pay m ust
be sought in eligib ility requirem ents, industry ch a ra cte ristics, and econ om ic
p re s s u r e s . N or do a ll industries follow the ov era ll upward trend in p rop ortion
of co v e re d w ork ers receiv in g severa n ce pay in the 3 y e a rs. The ch em icals and
e le ctric a l m achinery industries, fo r instance, showed a re v e r s e trend, while the
p rim a ry and fa b rica ted m etals industries awarded severa n ce pay to the relatively
few est w ork ers in 1961.

13
Table 4. Distribution of Workers Receiving Severance Pay by Industry, 1960-62
Plans reporting

Plans paying benefits

Workers receiving payments

Industry group and year

All industries, 1962*------------

Percent of
workers
in plans
responding

Percent of
workers in
plans paying
benefits

Number

Workers

Number

Workers

Number

401

2,770,898

259

2,302,656

52,838

1.9

2.3

Selected industries:
Ordnance--------------------------Food-------------------------------A pparel---------------------------Chemicals------------------------Primary m etals-------------------Fabricated metals----------------Machinery, except
e le ctrical-----------------------Electrical machinery------------Transportation equipment------T ransportation--------------------Communications-------------------

10
23
35
33
52
14

45,869
85,108
426,849
63,414
449,531
61,058

7
16
35
27
14
8

41,119
63,358
426,849
54,435
247,916
45,302

4, 604
3,484
9,824
826
4,067
1,616

10.0
4.1
2.3
1.3
.9
2.6

11.2
5.5
2.3
1.5
1.6
3.6

19
27
35
8
71

114,995
179,859
680,743
46,654
473,024

11
20
25
4
54

100,800
162,482
643,292
38,850
376,000

1,358
2,139
15,696
1,596
3,338

1.2
1.2
2.3
3 .4
.7

1.3
1.3
2.4
4. 1
.9

All industries, 1961*------------

378

2,577,254

231

2,108,406

33,373

1.3

1.6

Selected industries:
Ordnance--------------------------Food-------------------------------A pparel---------------------------Chem icals------------------------Primary m etals-------------------Fabricated metals----------------Machinery, except
e le ctrical-----------------------Electrical machinery------------Transportation equipment-------T ransportation--------------------Communications-------------------

8
24
35
31
50
13

42,700
76,918
426,849
58,756
348,431
59,908

6
12
35
29
9
3

38,800
53,568
426,849
55,656
160,816
25,150

2,344
1,893
5,958
2,793
1,272
415

5.5
2 .5
1.4
4.8
.4
.7

6.0
3.5
1.4
5.0
.8
1.7

17
24
31
6
69

112,795
165,694
665,143
11,654
466,924

10
16
23

1,177
2,968
8,215

1.0

3,760

1.8
1.2
.1
.8

1.2
2.0
1.3
.8

98,800
149,172
635,222
1,250
358,500

All industries, I9601------------

310

2,011,910

164

1,400,856

16,892

1.2

8
21

3
10
25
8
3

4,950
39,668

105
1,209

0 .2
1.7

2.1
3.0

31
48
11

42,700
70,118
58,756
340,431
53,608

16
21
29
5
68

110,345
84,594
661,943
11,564
465,494

10
13
16

1.0

Selected industries:
Ordnance--------------------------Food-------------------------------A pparel---------------------------Chem icals------------------------Primary m etals-------------------Fabricated metals----------------Machinery, except
e le ctrical-----------------------Electrical machinery------------Transportation equipment-------Transportation--------------------Communications------------------

1 Totals include industries not shown separately.

51,003
99,316
34,850

2,155
2,160
1,287

3 .7
.6
2 .4

4.2
2.2
3 .7

74,345
62,972
607,675
360,905

1,885
1,730
2,033

1.7
2 .0
.3

2.5
2 .7
.3

3,243

Length of
by their y e a rs of
total, revea ls the
recipien ts o f plan

S e r v ic e . A distribution of severa n ce pay recipien ts in 1962
s e rv ic e at separation, with data fo r about tw o-thirds of the
preponderance of rela tively lo w -s e r v ic e w ork ers among the
benefits, taken as a whole.
Percent of workers receiving
payments, 1962

Years of service
Under 3 years-------------------3 to 9.............. - ............................
10 to 14........... .............................
15 to 19........................................
20 years and over----------------

23. 7
37.8
19. 2
12.8
6. 5

T o tal------ ------------------

100.0

The high p rop ortion o f recipien ts with le s s than 3 yea rs and from 3 to 9 y e a rs
re fle cts the low eligibility requirem ents of many plans, 7 while the low p rop ortion
of w ork ers with 20 y e a rs of s e r v ic e o r m o re undoubtedly re fle cts not only the
p rotection afforded by a high sen iority standing but a lso the availability of r e t ir e
m ent (regu lar o r early) as an alternative to separation.
Plans which granted benefits without lo s s o f r e c a ll rights and SU B -related
plans accounted fo r m ost of the w ork ers receiv in g benefits with le ss than 3 y ea rs,
and fro m 3 to 9 y e a rs of s e r v ic e .
Percent distribution of workers, 1962
_________ Years of service_________
Type of plan
SUB-related.............................
Lose recall rights---------Retain recall rights -------Combination-------------------

Under 3
25.1
5 .7
27.3
14.6

3-9

10—14

15—19

36.2
33.7
37.9
61.0

18.4
31.6
17.7
15.8

12.7
15.6
13.0
6.8

20 and over
7 .5
13.4
4.1
1.8

In the ca se of S U B -related plans, how ever, fiv e -six th s of w ork ers r e
ceivin g pay upon le ss than 3 y e a rs of se rv ic e cam e fr o m two industries, apparel
and m aritim e, which together accounted fo r only about half of the number of
w ork ers receiv in g severa n ce pay fro m S U B -related plans.
Without these two
industries, the length o f s e rv ic e distribution of w ork ers receivin g severan ce
pay from S U B -related plans is sim ila r to that o f other plans in which r e c a ll
rights are lo s t with acceptance o f severa n ce pay. 8
SUB-related plans, excluding apparel and
_______________ maritime industries, 1962_______
Years of service

Percent of workers receiving payments

Under 3 -----------------------------3 - 9 ....................- ............................
1 0 - 1 4 ------------------ ..................
1 5 - 1 9 — ...........................................................
20 and over------------------------------------------

2.8
26.9
30.3
21.4
18.6

7 See ELS Bulletin 1425-2, op. cit.
8 One company with a SUB-related plan reported 1,963 severance payments, which showed 80 percent of the
1,.335 recipients to have 20 years or more of service, with the remainder falling in the 15—19-year category.

R easons fo r Separation. Inform ation available fo r m o re than 90 p ercen t
of the recip ien ts of plan benefits indicated that involuntary separation due to lack
o f w ork was by fa r the m ost im portant rea son fo r separation.
Percent of workers receiving
p ayments

Re ason for sep aration
Involuntary separation due to lack of work (lack
of business, closing or consolidation
of plants,technological change)----------------------------------Retirement or disability without being eligible
for retirement annuity---------------------------------------------Discharge for cause or inability to perform work----------------Voluntary separation-------------------------------------------------Other--------------------------------------------------------------------

95,2
1.0
2. 8
.9
.1

T o tal..............................................................................................

100.0

The low frequ en cy o f voluntary separation re fle c ts the prevailing p ra ctice
o f restrictin g benefits to w ork ers involuntarily sep a ra ted .9 Instances w ere r e
ported, how ever, o f w ork ers volunteering to leave in place o f another em ployee
slated fo r displacem ent, thereby becom ing eligib le fo r separation pay.
Lack of w ork was the p rim a ry
differen t types of plans.

reason fo r

separation in each of the

Reason for separation of woikers receiving severance pay, 1962

Type of plan

Lack of
work

Retirement
or
disability

Cause or
inability
to perform

SU B-related--------------Lose recall rights---------Retain recall rights------Combination--------------No information on
recall rights--------------

99.5
91.3
93.5
84.4

0 .3
2 .0
1.4
.4

1.5
4.2
15.1

100.0

T o tal------------------

95.2

1.0

Voluntary
separation

Other

0 .2
5.2
.7

0 .2

2.8

Amount of Benefits
A ccounting fo r the re so u r ce s that w ork ers ca rry with them upon sep a ra
tion involves con sideration of four item s: (l ) The amount o f m oney they are
entitled to under the term s of the plan (g ro ss paym ents); (2) the amount they
actually re c e iv e after deductions (net paym ents); (3) other ca sh payments due
w ork ers under other p rov ision s o r term s o f em ploym ent (e. g . , p rorated vacation
pay); and (4) noncash benefits (e. g . , vested pension rights and extended health
and insurance plan cov era g e). Although the latter two ca teg ories are not depend
ent upon the existen ce o f a severa n ce pay or related plan, they may provide
separated w ork ers with v e ry im portant a ssets, and thus com e within the scope
of this study.
9 See BLS Bulletin 1425-2, op. cit.

G ross P aym ents.
The 250 plans supplying data on amounts o f g ro ss
payments reported sums totaling approxim ately $ 24. 2 m illion due to the group
o f w ork ers separated in 1962. Since about 2. 3 m illion w ork ers w ere cov ered by
these plans, the severa n ce payments obviously constituted only a v ery sm all
fra ctio n o f total p a yrolls (probably about on e-fifth o f 1 percen t).
The findings
b ea r out a con clu sion d erived fro m Bureau of Labor S tatistics studies of em ployer
expenditures fo r supplem entary wage p r a c t ic e s ,10 nam ely, that severa n ce payments
in gen eral have not been an im portant expenditure o r co st item to em p loy ers.
B ased on rep orts of both the num ber of severed w ork ers and g ro ss
paym ents fo r 1962, an average payment of $ 4 6 7 .5 0 was com puted. Wide v a ria
tions in average payments among the differen t types of plans, attributable not
only to plan p rovision s but to the average s e rv ic e y e a rs o f separated w ork ers,
a re shown in the follow ing tabulation:
Amounts of gross payments, 1962
Number
of plans

Number of
separated
workers

Gross
payments

Average
payment
per worker

All plans reported........................

250

51,806

$24,224,205

$467.59

SUB-related..........................................
Lose recall rights—..........................—
Retain recall rights-------------------Combination---------------------------No information on
recall rights---------------------------

83
35
122
8

22,349
3,059
24,689
1,659

1 11,503,827
3,913,203
7,484,.428
1,269,835

1 515.00
1,279.00
303.00
765.00

52,912

1,058.00

Type of plan

1 These figures account only for the severance payments under SUB plans.

The low er average payment of S U B -related plans, in relation to other
plans w here w ork ers lo s e r e c a ll rights, is in part attributable to the inclusion
o f the apparel and m aritim e industries, w here la rge num bers of lo w -s e r v ic e
w ork ers w ere separated. The average payment fo r these two industries com bined
amounted to $151; excluding these paym ents, the average was $895 fo r SUBrelated plans.
The industries in which w ork ers receivin g severa n ce pay w ere m ost
num erous are ranked below in o rd e r of average paym ents:

Industry
Food------------------------------Machinery, except
electrical—-------------------Fabricated m e tals-------------Primary metals-----------------Electrical machinery-----------Communications---------------Transportation------------------Transportation equipment-----Ordnance------------------------Apparel---------------------------

Number of
plans

Workers receiving
severance pay, 1962

Average payment
per worker

2,662

$1,493.69

11
8
13
19
52
4
25
7
35

1,358
1,616
2,786
2,116
3,316
1,596
15,696
4,604
9,824

1,393. 73
1,180.17
912.87
532.17
516. 73
407.08
319.27
140. 31
109.39

See Employer Expenditures for Selected Supplementary Remuneration Practices for Production Workers in
Manufacturing Industries, 1959 (BLS Bulletin 1308, 1962) and Employer Expenditures for Selected Supplementary
Compensation Practices for Production and Related Woriters, Composition of Payroll Hours, Manufacturing Industries,
1962 (BLS Bulletin 1428, 1965).

The amount of m oney paid out by individual plans depends on the number
o f separation s, the term s of the plan, the se rv ic e o f separated w ork ers, and pay
le v e ls .
F ive plans reported total g ross payments in 1962 o f ov er $ 1 m illion
each. F our o f the five plans w ere S U B -related; the other plan a lso term inated
the em ploym ent relationship.
One of the highest average payments fo r a la rge
group o f separated w ork ers was made by a manufacturing com pany w here awards
to m o re than 900 w ork ers averaged alm ost $ 2 ,0 0 0 . An even higher average was
re co rd e d in the payments awarded to over 300 w ork ers in another situation.
D edu ctions.
G ross payments may, in som e ca ses, be quite differen t
fro m net severance pay, the amount of disposable cash available to the separated
w ork er.
The ch ief deductions are incom e tax withholding, the so cia l security
tax, and p rio r SUB paym ents. In individual situations, a w o rk er1s debts to the
company m ay be deducted from severan ce pay.
Data fo r SU B -related plans in the study w ere requested on the g ross
payments due, the deductions m ade becau se of p rio r payments of unemployment
benefits (and the number o f w ork ers involved), and the total net amount (g ro ss
amount le s s all deductions).
Data fo r other types of plans w ere requested on
total g ro ss and net paym ents, the d ifferen ce com p risin g the deductions.
Many
respondents had difficu lty in reporting net paym ents; hence, the data presented
here are suggestive rather than definitive.
Am ong S U B -related plans, supplem entary unem ploym ent benefits paid
after a certain date m ay be deducted from the severan ce pay due. The c r itic a l
date d iffe rs among plans: In the auto industry, it is the beginning of the extended
la y off p eriod which qualifies a w orker fo r severan ce pay; in the steel industry,
it is the date when the w ork er has gained eligibility fo r severa n ce pay; while in
the rubber industry, at least until 1963, it is the period o f the m ost recent
layoff. On the other hand, ILGWU plans provided fo r no deductions since s e v e r
ance pay is made fro m the fund in conjunction with, not in lieu of, SUB paym ents.
D espite the various ways in which SUB payments may reduce severa n ce
pay, the amounts deducted and number o f em ployees affected apparently w ere
rela tively sm all in 1962. Among plans that perm itted deductions fo r p r io r SUB
paym ents, 19 of 41 plans making severan ce payments in 1962 made such dedu c
tions fo r som e w ork ers. Seven other plans w ere unable to provide inform ation
on SUB deductions.
A lm ost half of the w ork ers receivin g severa n ce pay under
the 19 plans reporting had som e amount deducted becau se of p rio r SUB paym ents.
The deductions amounted to about 9 percen t of the total severa n ce pay of these
plans. F o r those who w ere affected, deductions averaged alm ost $200 p er w ork er.
Number of SUB plans reporting deductions-------19
3,676
Workers receiving severance pay in 1962--------Gross severance payments------------------------------$3,824,851
Workers with SUB deductions-----------------------1,725
Amount of deductions--------------------------------- $342,648

Under certa in circu m stan ces, the SUB deductions m ay r is e to high
le v e ls.
One plan reported deductions averaging m ore than $900 w here g ro ss
severa n ce pay averaged about $ 1,400.
B ecause the questionnaire focu sed on
severan ce pay recip ien ts, com panies p ossib ly did not rep ort eligible w ork ers
who receiv ed no severa n ce pay since p rio r supplem entary unem ploym ent benefits
equaled or exceeded severa n ce pay to which they w ere entitled.
N everth eless,
it appears that deductions fo r supplem entary unemployment benefits w ere not
significant in term s of the number of people affected among all w ork ers r e
ceivin g benefits from S U B -related plans. H ow ever, they can prove a significant
deduction fo r the individuals who are so affected.

Another kind of deduction involving SU B -related plans, but not included
in the above, is the "anticipated receip t of State benefits beyond date of plant
closin g . " The severa n ce pay under these plans is computed in the sam e way
that supplem entary unem ploym ent benefits are ord in a rily computed, nam ely, as a
percen tage of a num ber of w eeks1 wages le ss the State unem ploym ent com p en sa
tion due the w ork er fo r those w eeks.
In the ca se of the two plans noting such
deductions, the deductions amounted to 43 percen t of total g ross severa n ce pay.
secu rity ,

The com p osite of all types of deductions (incom e tax withholding, so cia l
debts to the com pany, e tc .) is reflected in the follow ing data:
Number of plans reported--------------------------84
Gross severance payments--------------------------- $5, 776,212
Net severance payments----------------------------- $4,563,979
Deductions:
Amount--------------------------------------------- $1,212,233
As percent of gross payments-----------------21

D eductions as a p ercen t o f g ro ss payments, w here reported, ranged among plans
fro m a high of about 35 p ercen t to a low o f about 3 percent, but m ost plans
fe ll within a few points of the 21 percen t average shown above.
If this figu re
can be taken as a reasonable estim ate of typical deductions, spendable severa n ce
benefits w ill, on the average, represen t about fou r-fifth s o f the amounts due
w ork ers on separation.
Other Payments at Separation. The plans surveyed w ere asked to iden
tify other kinds of m onetary payments available from the company to em ployees
at tim e o f severa n ce.
A certain amount of underreporting is inevitable in a
question o f this type.
The payment m ost com m only reported was prorated vacation pay.
A ll
but 9 plans in which w ork ers lo st r e c a ll rights and 10 plans in w hich w ork ers
retained r e c a ll rights reported that separated em ployees w ere paid fo r accum u
lated vacation tim e.
The amount of accum ulated vacation pay depended on the
tim e between the last vacation and separation, length of vacation to which the
em ployee was entitled, and the individual’ s w ages. Since both the typical vacation
plan and severa n ce pay plan provided benefits graduated by length of se rv ice and
wages, those em ployees receivin g the higher severa n ce payments w ill also re ce iv e
m o re in prorated vacation pay.
W orkers participating in pension plans to which they contribute (not
com m on among colle ctiv e ly bargained plans) are norm ally entitled to the return
of their contributions upon com plete separation.
Three plans reported that the
em p loy er’ s contributions w ere a lso returned to the w ork er.
Tw enty-four c o m
panies with savings o r thrift plans in effect provided fo r payment of em ployer
and em ployee contributions upon separation; eight others returned only the em
p lo y e e ’ s sh are. Among other plans o r p ra ctice s making payments upon separation
w ere savings and vacation plans (8), stock -p u rch a se plans (6), p rofit-sh a rin g
plans (2), and unused sick leave (7).
Under the ILGWU plan, w ork ers w ere
entitled to SUB benefits in addition to sev era n ce pay, without offset.
F inally, to com plete the accounting of the cash re so u rce s of the sepa
rated w ork ers, their pay fo r the last p a y roll p eriod w orked m ust be taken into
con sideration .
Other Benefits fo r the Separated W ork er. The noncash, but nonetheless
valuable, benefits that w ork ers may ca rr y with them upon separation con sist

p rim a rily of vested rights to a pension and extended covera ge under life in su r
ance and hospitalization, su rgical, and m ed ica l plans.
The com panies in the
survey w ere asked to rep ort on the existen ce of pension and health and in su r
ance plans and their p rotection available to w ork ers receivin g severa n ce pay
in 1962.
Of the 415 plans fo r which these data w ere reported, all but 5 had pen
sion plans in e ffect. Of these 410 plans, 253, o r about 3 out of 5, had a vesting
p rov ision .
Such a p ro v isio n guarantees that separated w ork ers m eeting the
s e rv ic e (typically 10 o r 15 yea rs) and age (typically 40 o r 45) requirem ents w ill
re ce iv e a pension fro m the plan when they reach age 65, w herever they are then
em ployed. W orkers who qualify thereby assu re them selves o f an a sset that, in
other than cash -in -h an d term s, m ay be m ore valuable than their severa n ce pay. 11
Data w ere reported fo r only 69 plans on the num ber o f w ork ers sepa
rated in 1962 who w ere vested. Of a total of 15, 938 w ork ers receiv in g payments
under these plans, 5, 251, o r 1 out o f 3, had qualified fo r a vested pension. 12
C onsideration of vested pensions in relation to severa n ce pay ra ises the
question as to whether com panies o ffset one against the other.
In respon se to
an inquiry on p o licy in this regard, 52 o f the 253 com panies with both a severa n ce
pay plan and a vesting p rov ision in their pension plans replied that the amount
o f severa n ce pay was to be deducted from pensions when the latter payments
s t a r t .13 Responding in the negative w ere 193 com panies, and 8 failed to reply.
Thus, fo r 1962, at lea st 1, 530 o f the 5, 251 severed w ork ers who w ere vested
could expect to have their pensions, when and if paid to them, reduced by the
amount of severa n ce pay they had receiv ed . The p rim a ry and fabricated m etals
industries accounted fo r m ore than half o f these w ork ers.
The extension o f life insurance and hospital, su rgica l, and m edica l in
surance cov erage, paid fo r in whole or part by the em ployer, p rovid es the sepa
rated w ork er with types o f insurance that otherw ise would not be available to him
during any p eriod o f unem ploym ent follow ing separation. Such extended covera ge
is often can celed if the w ork er finds other em ploym ent during the p eriod of
extension; hence, in these ca ses, it is a form o f benefit available only if the
separated w ork er rem ains unemployed.
None of the payments o r benefits p r e
viou sly d iscu ssed has this lim itation. M oreover, such extended coverage, w here
it exists, is usually available to all w ork ers upon la yoff; that is, it is not a
benefit contingent upon com plete separation. SU B -related plans w ere not included
in this inquiry b ecau se o f the long period between la yoff and separation. 14
B enefit covera ge fo r life insurance and hospital, su rgical, a n d /o r m ed ica l
insurance typically ends at the sam e tim e or .shortly after em ploym ent term in a
tion, a ccord in g to data presented in table 5.
The '‘oth er" ca tegory of end of
cov era g e includes term ination of covera ge varying with length o f s e r v ic e o f the
separated w ork er. F ew er than 20 percen t o f w ork ers cov ered by these benefits
can expect cov era g e beyond 1 month follow ing la y off o r acceptance of s e v e r
ance pay.
11 For a full treatment of vesting provisions and tiieir worth, see Labor Mobility and Private Pension Plans
(BLS Bulletin 1407, 1964).
12 Several plans offered workers facing separation the option between severance pay and vesting. These are
not included. Also excluded are plans in which workers could retire, with an annuity, upon separation.
13 The reverse of this practice—that is, the conversion of a vested right to a pension into severance pay,
either to supplement severance pay or to provide payment in lieu of severance pay—also exists. An example is found
in the case of Mt. Lion Electric Corporation, described in ch. IV.
14 See Major Collective Bargaining Agreements: Supplemental Unemployment Benefit Plans and WageEmployment Guarantees (BLS Bulletin 1425-3, 1965).

20
Table 5. End of Benefit Coverage1
Life insurance
When coverage ends

Hospital, surgical, and
medical insurance

Plans

Workers

Plans

Workers

All plans reporting-----------

265

1,145,710

266

1,147,018

Plans in companies with
benefits-----------------------------

259

1,135,268

255

1,130,259

311,225

435,344

133,498

152,001

293,631

273,485

168,256

86,902

58,575

55,884

15
21

117,974
52,109

12
4

111,743
14,900

Coverage ends:
At time of layoff-------------With acceptance of
severance pay----------------At end of calendar month
or period for which
premiums were paid-------Up to 31 days after layoff,
termination, or acceptance
of severance pay-----------Over 31 days to 3 months
after layoff-------------------6 months or more after
layoff----------------------- .—
Other----------------------------* Excludes SUB-related plans.

It is advantageous fo r the separated w ork er to be able to continue health
and insurance co v era g e after lo s s o f protection under the com pany's plan, even
at his own expense, if group rates are available.
In answer to the question
MWhen em ployee is no longer co v e re d by the company, m ay he pay fo r continued
co v e ra g e at group r a te ? , " the follow ing resp on ses w ere re c e iv e d :
Plans

Woikers

Life insurance:
With plan in effect-----------------------Workers may continue coverage—----Workers may not continue coverage —
No information on continued coverage

259
33
223
3

1,135,268
200,278
924,890
10,100

Hospital, surgical and/or medical:
With plan in effect-----------------------Workers may continue coverage-----Workers may not continue coverage —
No information on continued coverage

255
75
177
3

1,130,259
397,304
726,055
6,900

Com panies m ay a lso arrange fo r ad hoc extensions o f the opportunity to pay fo r
continued cov e ra g e at the group r a t e .15
15 Examples of ad hoc extensions are provided in two of die case studies: In one, woikers could pay the
group-rate premium of hospital-surgical-medics! insurance for up to 18 months beyond normal expiration; in the other,
insurance was available at half of the group-rate premium to woikers who accepted a special pension because of
plant closing and at the entire group-rate premium to those who received severance pay and signed for preferential
hiring at another plant.

21
To com plete the accounting o f the benefits available to w ork ers r e
ceiving sev era n ce pay in 1962, the 30,459 w orkers receivin g allow ances from
the plans surveyed, exclu sive of S U B -related plans, w ere distributed as follow s
by the p eriod o f extended cov era g e under life insurance and hospital, su rgica l,
and m ed ica l plans.
Percent of woricers receiving
severance pay, 1962
All workers receiving allowances------------------------------Life insurance

100.0

No insurance available--------------------------------------------------Coverage of insurance ends;
At time of layoff-----------------------------------------------------With acceptance of severance pay--------------------------------At end of month in which laid off
or period for which premiums
were paid------------------------------------------------------------30—31 days after termination--------------------------------------At other time---------------------------------------------------------No information on end of coverage-------------------------------

.6
15.9
3. 5
7. 3
57.9
14. 3
.5

All woricers receiving allowances-------------------------------Hospital, surgical, and medical

100.0

1.2
63.1
4.4
16. 3
2.9
11.6
.5

Plans fo r N on supervisory W h ite-C ollar W orkers
Not in the Bargaining Unit
M ost com panies with a co lle ctiv e ly bargained severa n ce pay plan fo r
their organ ized w ork ers a lso had a plan fo r n on su pervisory w h ite -co lla r e m
ployees " not in the bargaining unit.
Some inform ation was obtained from the
com panies surveyed with rega rd to such plans.
In som e ca ses, the questions on n on su pervisory w h ite -co lla r w ork ers
proved not applicable, either because all such w ork ers w ere organized or b e
cause the plan was adm inistered outside o f the company, i. e ., in an a ssociation .
Of the 418 plans surveyed, 3 reported that w h ite -co lla r w ork ers w ere in the
bargaining unit and 44 provided no inform ation.
This section thus relates to
371 com pan ies.
Of the 371 com panies, 298 o r 80 percent reported plans in effect,
cov erin g ov er 700,000 e m p lo y e e s .*17 The incidence o f plans was low est among
com panies with SU B -related plans fo r organized w o rk e rs:

1^ Professional, technical, sales, and clerical employees.
17 Forty-seven companies did not report employee coverage; 251 reported a total of approximately 681,000.

22
Type of plan for
bargaining unit

Plans for white-collar
workers

Number reporting

All plans------------------------------ -------

371

298

SUB-related-------------------------------- ---Others--------------------------------------- ------

no
261

70
228

A lm ost fo u r-fifth s o f the n on su pervisory w h ite -co lla r severa n ce pay plans
w ere s im ila r 18 to the ones fo r em ployees in the bargaining unit, a ccord in g to
respondents.
Plans for white-collar workers
Type of plan for
bargaining unit

Similar

Not similar

No information
3

All white-collar plans-------------

234

SUB-related------------------------------Others--------------------------------------

43
191

27
34

The m ain d ifferen ces between plans fo r the bargaining unit and those fo r
other em ployees appeared to lie in eligibility requirem ents and allow ance s ca le s.
F o r instance, the Auto W orkers (UAW) and E le ctr ic a l W orkers (IUE) negotiated
S U B -related plans with m ore generous allow ances than those granted m ost non
su p erv isory w h ite -co lla r w ork ers under sim ila r circu m sta n ces.
On the other
hand, se v e ra l respondents in the p rim a ry m etals industry indicated that plans
fo r non su pervisory w h ite -co lla r w ork ers paid grea ter benefits fo r long s e rv ic e
and requ ired sh orter s e rv ic e fo r eligibility than their c o lle ctiv e ly bargained
plans. The sam e advantages w ere reported by m ost plans departing fro m nonSU B -related negotiated plans. In som e ca ses w here organized w ork ers receiv ed
severa n ce pay and retained r e c a ll rights, the plan fo r nonsupervisory w h ite -co lla r
w ork ers m ay requ ire com plete term ination b e fo re award o f severa n ce pay.
A
few respondents noted that severa n ce pay fo r n on su pervisory w h ite -co lla r w ork ers
not in the bargaining unit was handled on an individual b a sis.
D espite sim ila ritie s, bargained and nonbar gained plans d iffered in that,
under the fo r m e r, w ork ers a re assured severa n ce pay by a contractual right,
while under the latter, p rov ision s are subject to company p o licy . The meaning
o f the distinction was ch a ra cterized by one respondent as fo llo w s:
The plan /for nonsupetvisoiy white-collar workers/ is an expression of the company's
present policy with respect to separation allowances for salaried employees; it is not a part
of any contract of employment and no employee or other person shall have any legal or
other right to any separation allowance. The company reserves the right to terminate, amend,
or modify the plan, in whole or in part, at any time without notice.

Of 218 plans reporting on exp erien ce in 1962, 103, coverin g about 95, 000
w ork ers, indicated that no w ork ers had been awarded severan ce pay during the
y e a r. The balance, 115 plans coverin g upwards o f 370,000 w ork ers, 19 reported
a total of 5, 779 separated w ork ers receivin g paym ents.
P roportionate to total
cov era g e, this volum e o f separations with payments was about half that o f the
w ork ers in bargaining units.
18 The word "similar" was used in the questionnaire without definition, It should not be interpreted to mean
identical in every detail.
19 Employment coverage for eight plans was not reported.

Chapter III. Practices and Problems Relating to
Severance Pay and Employee Separation
The dismissal* of regular em p loyees, p a rticu la rly lo n g -s e r v ic e w ork ers,
through no fault o f their own is a drastic o ccu rre n ce in con tem porary econ om ic
life .
In this chapter, an attempt is made to throw light on the p ra ctices and
p roblem s involved in em ployee separation and severance pay that appear to have
the m o re significant m an pow er-m obility im plica tion s.
The subjects d iscu ssed
range in scop e and in tim e sequence from the determ ination o f elig ib ility to the
relationship between severan ce pay and unemployment com pensation.
E ligibility Requirem ents
An ea rly sou rce o f difficulty in im plem enting severan ce pay plans
m ay lie in determ ining whether w ork ers separated fro m the com pany qualify
fo r payments under term s o f the plan. If they do not qualify, the com pany may,
of co u rs e , decide to waive qualification re strictio n s, but such a solution may
not be fea sib le when a la rge number o f w ork ers o r a precedent is involved.
Q ualifications fo r severan ce pay va ry w idely among plans. 20 R egardless of the
sim p licity of e ligib ility requirem ents, there are lik ely to be d ifferen ces in in te r
pretation o f p rovision s or difficu lties in applying adm inistrative rules in pa rticu
la r situations. Among other con sequ en ces, these d ifferen ces and their resolution
affect the number of w ork ers receivin g severan ce pay.
Some o f the problem s
and im plications of d ecision s and resolutions o f the d ifficu lties w ill be explored
in this section.
Where re strictio n s on eligibility are found in severan ce pay plans— and
the m a jority o f the plans contain som e re strictio n — they m ay include any or all
o f the follow ing:
1.

Em ploym ent status o f the w ork er at the tim e o f plan im plem entation.

S pecific rea son fo r separation,

Waiting p eriod after separation.

S pecific

A vailability of other w ork in the -company.

E m p loy er's con trol ov er separation.

exem ption from

relating to w ork situation.

payment

relating to

em ployee

behavior.

These re s trictio n s apply m ainly to plans under which w ork ers lo s e r e c a ll rights
but m ay a lso be included in plans w here such rights are retained.
Other im
portant re strictio n s on w orker eligib ility fo r severance paym ents, such as yea rs
o f continuous se rv ic e or age of w ork er, can be ea sily m easured and are th erefore
not as lik ely to b ecom e subjects of disputes o r com plex interpretation.

See BLS Bulletin 1425-2, op. cit.

Employment Status of the Worker at the Time of Plan Implementation.
Eligibility is usually conditional on the worker* s status with the company. This
should not be confused with active employment; employees already on layoff may
be eligible for severance pay, and in some plans layoff is a condition for e li
gibility.
In case studies where there was no such condition, employees on
layoff at the time the plan was put into effect constituted up to two-thirds of those
receiving severance pay.
Employment status is of particular concern to workers on active duty
when notice is given of circumstances making them eligible for severance pay.
Depending on the length of notice and opportunities for alternative employment,
workers may be torn between a desire to quit so as to be a step ahead of other
workers seeking new employment or to remain to qualify and obtain severance
pay. Some companies recognize the dilemma and make provision for employees
wishing to leave before their scheduled date of separation.
Two of the case
studies illustrate managerial agreement to modify the employment status provi
sion with the condition that operations were not to be jeopardized. In one case,
the company unilaterally permitted employees to leave early if schedules of hours
of worker substitutes could be arranged.
In the other, the company and union
negotiated an agreement at the time of plant shutdown to allow workers to v o l
unteer for layoff if workers with le sse r seniority were qualified to do the work.
In both ca ses, few workers left early, even though there was no chance for
remaining long with the plant.
Most agreements have explicit statements about an employee* s retention
of seniority or status on the company* s employment ro lls.
There may be excep
tions not contemplated, however, such as the employment status of a person on
leave of absence, a person only recently promoted to a position out of the bar
gaining unit, or a striker.
Confusion about employment status can become
critical in determining severance pay eligibility. One of the case studies cites
three grievances involving this issue, which were settled by the parties at half
the value of the claim s.
In the ladies* garment industry, employment status
has been interpreted to mean attachment to the firm , even if the worker is sick,
on leave of absence, or employed elsewhere.
Workers on layoff are not necessarily entitled to severance pay. A plan
cited in the next chapter was applicable to employees separated within 90 days
of complete plant closings; employees laid off prior to the 90-day period did
not qualify.
When in the course of a shutdown employees were laid off in
stages, management extended severance pay eligibility to all workers laid off
more than 90 days before closing.
Reason for Separation.
Administrators of severance pay plans may face
problems when payment is restricted to certain conditions.
The problems involve
determinations as to whether particular situations are covered by the language
of the plan. Since disagreement on interpretation can affect a large number of
workers and a decision can serve as a precedent, the issue has been referred to
arbitration in a number of ca ses. In a plan limiting severance pay to ’’permanent'*
discontinuance of a plant or department, an arbitrator ruled that an indefinite
shutdown of a department which had engaged in m ilitary contract work was not
"perm anent” within the meaning of the clause. 21 In another case, the consolidation
of operations in various geographic locations within a radius of 33 m iles was
interpreted not to be a "fo rc e reduction furlough" since the employer offered jobs
at the new location to those claiming severance pay. 22 In a third case, an
21 Bethlehem Steel and United Steelwodcets of America, 23 LA 618.
22 Teleregister Corporation and American Communications Association, 23 LA 526.

25
arbitrator ruled that employees whose work was reassigned to other employees
and who were given new duties did not qualify for a "technological displacement
allowance" intended to apply in job termination because of changes in plant,
equipment, or process operations. 23 In a fourth case in which severance pay
would be awarded if "employment is terminated either directly or indirectly as
a resu lt" of the em ployer's decision to close part of a plant, an employee laid
off 14 months prior to his department's closing was declared ineligible for sev
erance pay, not because of the length of layoff but because the decision to close
had not been reached at the time of the layoff. 24
Although severance pay was denied in these cases, it is likely that some
of the unions involved prepared to seek remedial action to cover a situation
which it believed to be included in the existing severance pay plan or which had
not been contemplated previously.
This occurred in one of the case studies.
The collective bargaining agreement included provision for a plant closing allow
ance to employees separated because of complete plant abandonment.
When a
partial shutdown permanently removing work from a plant resulted in termination
of a substantial portion of the work force, management refused to grant the
allowance.
Although the union could not persuade management to change its
stand, the next agreement contained a new provision with the same scale of
allowances to cover partial shutdowns and extended layoffs.
Extension of language by administrative interpretation rather than by
arbitration or negotiation has occurred in the ILGWU plan.
The plan provides
for payments to workers separated when "an employer . . . goes out of business
for any reason whatsoever . . . . "
As shutdowns have taken place, it has
become necessary to define eligibility rules to preserve the intent of the plan.
The administrators of the plan have decided that a change of a firm 's name or
nominal owners, seasonal closings, or a minor geographic relocation of a firm
does not constitute going out of business. Since work sharing usage in the indus
try prevents permanent layoffs among regular em ployees, at least in theory, the
plan administrators have focused their attention on employment opportunity.
If
there is complete termination, partial shutdown, or reorganization of the business
so that there are fewer permanent m em bers of the work force, separated em
ployees may apply for severance pay.

Waiting Period After Separation.
At what point a temporary layoff
becomes permanent is resolved in some plans by specifying a period after which
a worker becomes eligible for severance pay. Particularly in SU B-related plans
in which workers qualify for some benefits while on layoff, the length-of-layoff
criterion is prevalent. Workers waiting to establish eligibility in companies with
fluctuating employment opportunities may be faced with a dilemma, as one case
study illu strates. The plan provided for severance pay to be awarded to employees
on layoff for 6 months. Employees at the top of the seniority roster, however,
could be recalled temporarily and laid off again so that they were not able to
accumulate 6 consecutive months of layoff to collect severance pay.
The company may decide to waive the waiting period for severance pay
upon determination that reemployment is unlikely.
Twelve plans requiring ex
tended waiting periods for severance pay permitted some employees to apply for
severance pay in 1962 before completion of the normal waiting period: three
because of plant closings, eight others because separated employees did not qualify
for a pension, and one for a "m iscellan eou s" reason.
Celanese Corporation of America and Textile Workers' Union of America, 22 LA 148.
Hubbard and Company and United Steelworkers of America, 32 LA 1009.

26
Employee Behavior, Frequently, agreements contain a list of conditions
which exempt the employer from paying severance pay. This list may relate to
individual behavior leading to separation, to the availability of other work, or to
em ployer's responsibility for separation.
Severance pay is generally regarded as a reward for loyal service as
well as an aid through possible periods of unemployment. Because of its origins
and usual applications, employers are loathe to award severance pay in instances
they regard as contrary to their best interests.
Three types of employee behav
ior leading to separation usually bar severance pay: Discharge "fo r cause, "
strike activity leading to plant shutdown, and voluntary termination.
The exemption of severance pay in cases of discharge for cause has
produced many arbitration cases in the publishing industry, prim arily because
discharge for cause is one of the few reasons exempting an employer from
granting severance pay. The American Newspaper Guild has long had agreements
with many newspapers calling for severance pay for employees discharged for
reasons other than "g ro ss neglect of duty or gross misconduct. " In a number of
arbitration and court ca ses, actions that were not deemed gross neglect of duty
and misconduct involved: A reporter discharged for habitual tardiness who had
energetically carried out his duties and worked at home, 25 a reporter discharged
for refusing to accept a temporary transfer of duties without reduction in p ay,26
and an employee discharged for arriving to work late after consuming four or
five martinis and subsequently making "somewhat incoherent" remarks at a
business meeting. 27 G ross misconduct or neglect of duty has been upheld in cases
where an employee resigned upon being offered the choice of discharge or resigna
tion after causing a misprint that resulted in widespread repercussions in the
community28* and where an employee was discharged for abuse of sick leave
benefits.
In none of these cases was there a dispute about the em ployer's
right to discharge; the subject for arbitration was whether the discharged person
was entitled to severance pay. In many of these cases, arbitrators have attempted
to distinguish between "s im p le " and "g r o s s " neglect by a variety of criteria,
including intent of the conduct, the discharged person's past record, and effect
of the conduct on the em ployer's business and on the morale of other em ployees.
It would seem that, with the standard eligibility clause in the newspaper industry,
a discharged person would have to inflict serious damage to forfeit severance pay.
Another reason for which employers have attempted to avoid severance
payments by specific or implied exclusion is strike activity of em ployees. E ligi
bility for severance pay of employees separated during a strike depends on the
term s and intent of the plan.
An arbitrator granted severance pay to employees
laid off because of a strike of a union other than their own, since the separation
was beyond the control of the employees and severance pay to nonstrikers is
"an ordinary, incidental cost of business operation. " 30 In another case involving
separated nonstrikers, the arbitrator ruled that closing of operations could not
be considered a normal "layoff or reduction in staff" intended by the parties in
creating their severance pay plan. 31 Two other cases involved one employer.
In the first, an arbitrator disallowed the claim for severance pay of employees
who had observed a picket line of fellow employees represented by another union,
at which time the employer had suspended operations; the violation of the no-strike
26 A.S. Abell Company and American Newspaper Guild, 32 LA 908.
Post Publishing Company and American Newspaper Guild, 22 LA 231.
27 Post Publishing Company and American Newspaper Guild, 24 LA 173.
Publishers Bureau of New Jersey and American Newspaper Guild, 40 LA 77.
2^ Stremich_v. A.S. Abell Company, Maryland People's Court, 1958.
38 Bell Aircraft Corporation and United Automobile Workers of America, 24 LA 324.
Sea-Land Service and Office Employees' International Union, 40 LA 1248.

27
clause voided the employer* s obligation to pay the claimants, 32 When the em
ployer permanently closed his business a few years later, an arbitrator ruled
that employees on strike at time of the closing were eligible for severance pay
since the strike was only one of the reasons leading to the employer* s decision
to close, and the union*s demands during the strike were not excessive or respon
sible for the closing. 33
A problem of a different kind arises when employees otherwise ineligible
attempt to qualify for a benefit plan.
Such instances may arise, for example,
when a firm grants severance pay to all terminated employees except those
terminating voluntarily.
In several instances, a newspaper executive reported,
employees intending to leave of their own volition attempted to behave in such a
way that they would be discharged.
Conversely, the union sometimes charged
management with harrassment to force an employee to quit rather than to dism iss
him.
No recourse to eligibility rules will solve such problem s.
Availability of Other Work.
The desire on the part of management to
retain certain workers as well as the existence of other provisions in the co l
lective bargaining agreement may engender other conditions under which sever
ance pay will not be awarded.
The integration of severance pay with seniority
has at times presented difficulties concerning eligibility for severance pay.
In
some companies, employees otherwise eligible for severance pay must exhaust
their rights to other work in the company to which their seniority status entitles
them before they are awarded severance pay. 34* A decision of the War Labor
Board held that employees in steel companies were not eligible for severance pay
if they were entitled to an equivalent job in the same plant or accepted such a
job with the company in the same general locality. ** Defining substantially
equivalent employment can prove troublesome, depending upon whether pay rates,
hours, working conditions, location of the work, or a combination are the criteria
employed.
Voluntary acceptance of lower rated work might appear to indicate
employee willingness to remain with the employer so as to assure continuity of
employment. Nevertheless, one arbitrator ruled that employees whose seniority
entitled them to lower rated work and who accepted such work has suffered a
break in service according to the term s of the contract and therefore were e li
gible for severance pay. 36 In another case where employees accepted lower rated
jobs in other plants of the employer in the same area after their plant had closed,
the arbitrator granted the employees severance pay since the purpose of the pro
vision requiring employees to exercise seniority rights was to protect against
reduction in job class as well as loss of employment. 37
The problem is more complex when employees have no choice in the
matter of lower paying jobs offered to them. 38 Some plans specify that employees
must accept work with lower pay, up to a given percentage of their present wage
rates.
Other plans remain vague and rely on the seniority provisions of the
agreement to guide administrators and arbitrators. One arbitrator ruled that an
employee who refused an offer of lower paying work was not "laid off11 as required
for severance pay eligibility. 39 The exact opposite view was expressed by an
32 Brooklyn Eagle, Inc., and New York Typographical Union, 26 LA 111.
Brooklyn Eagle, Inc., and American Newspaper Guild, 32 LA 156.
See BLS Bulletin 1425-2, op. cit.
Basic Steel Companies, War Labor Board, 1945.
U. S. Steel Corporation and United Steelworkers of America, 27 LA 438.
Republic Steel Corporation and United Steelworkers of America, 30 LA 392.
See BLS Bulletin 1425-2, op. cit.
R.H. Worral Company and International Association of Machinists, 22 LA 30.
205-662 0 - 6 6 - 3

28
arbitrator in a sim ilar case, largely on grounds that forcing an employee to accept
a lower rated job to which he is entitled by seniority would give such employee
less freedom of choice than employees with le sse r seniority who did not enjoy
such " r i g h t s . " 40 This is the crux of the matter.
The junior employee offered
lower rated work may have the option of choosing the work or severance pay; the
senior employee has the option of accepting the work or "quitting. "
In some
instances, as one case study illustrates, the senior employee may actually prefer
to forfeit severance pay and other benefits and leave. Recognition has been given
this problem in some steel industry plans which now disqualify from severance
pay employees entitled by seniority to a job in the same job class but permit
employees entitled by seniority only to a job in a lower job class to receive both
the job and severance pay.
E m p lo y ees Control Over Separations. Exemptions from the severance
pay obligation may also be conceded to employers in circumstances over which
they have no control. 41 What constitutes separation beyond the control of the
employer has proven to be a problem in some instances.
"A cts of God" gener
ally qualify as being beyond the em ployer's province.
In one case where the
pertinent clause provided exceptions to severance pay when separation was due
to "fir e , flood, utility failure, or other sim ilar circumstances beyond the control
of the company, " an arbitrator ruled that employees laid off because of a strike
by other employees should receive severance pay; the cause of layoff, though
beyond the sole control of the company, was not in the same vein as the listed
exceptions. 42 In another case, a company was excused from severance payments
to employees separated because of supply shortages, but had to pay other em
ployees performing related work who were also separated because their separa
tion was motivated by business reasons and therefore within the company's
control* 43
Other Problem s.
There may be sim ilar difficulties in defining term s
found in other clauses of the agreement which bear directly on severance pay
eligibility.
Does a laid -off employee who accepts a trial on a new job and is found
wanting break his period of "continuous la y o ff"?
If management feels it has
insufficient evidence to press a dism issal for cause and therefore lets an employee
"re sig n , " is the employee to be regarded as leaving voluntarily or involuntarily?
What time not worked since the em ployee's commencement of employment with
the company should be credited for determining benefit (including severance pay)
eligibility?
Questions such as these are indicative of the interrelationships
among conditions of employment.
Options to Severance Pay
When a worker is marked for displacement from his job, other work
with the company or layoff with preferential recall may be available to him.
As the previous section indicated, the availability of other work prior to separa
tion may disqualify the worker from severance pay eligibility, although many
plans contain safeguards protecting the worker from forced acceptance of onerous
or downgrading transfers.
The offer of other work or layoff with preferential
recall may also be made to workers whose eligibility for severance pay is not
in question, either in addition to, or as an alternative to, severance pay. This
section is concerned with the latter, that is , offers which pose a choice between
severance pay and another job with the company or a chance of a job through
preferential recall.
Princeton Worsted Mills and Textile Workers Union of America, 25 LA 587.
See BLS Bulletin 1425-2, op. cit.
Joy Manufacturing Company and Office Employes International Union, 31 LA 341.
Color Corporation of America and various unions, 25 LA 644.

When a worker accepts an available option, he continues to have a job
or a claim to a job, with rights to severance pay in any future separation usually
remaining intact; when he rejects an option, he takes his severance pay but
surrenders the opportunity for other employment in the company.
W orkers1
decisions in this regard are presumably based on available alternatives, the
amount of severance pay involved, and their evaluations of job opportunities
elsewhere. The related mobility issues for which information was sought through
this study are: What kinds of options are available to workers facing separation?
To what extent do workers reject alternatives involving a different job, moving, a
lower rate of pay, or different combinations of such disadvantages?
The first
question is also pertinent to the subsequent discussion of employer efforts on
behalf of workers facing displacement or after displacement. The second question
leads to a broader inquiry regarding worker motivation, e. g. , is the severance
payment, which may be substantial, an incentive to give up an employment op
portunity which otherwise might have been acceptable?

Because the timing of the options and workers* choices differ be
tween SUB-related plans and other types, the two categories are discussed
separately below.

Other than SUB-Related Plans. Of 271 plans represented by responses
to an inquiry as to general practice, 151 were indicated as having one or more
options available to workers (table 6). Including multiple options, 85 companies
offered workers another job with the company at the same or higher rate of pay
in the same area, and 116 companies offered another job with the company at
a lower rate of pay.
Transfer to another plant of the company in a different
geographic area (an option obviously possible only in multiplant companies) was
offered by 95 companies. Exclusive of plans under which workers retained recall
rights, 31 companies offered layoff with preferential recall rights as an alter
native to severance pay.
Ten companies reported other options.

Table 6. Options to Severance Pay in Other Than SUB-Related Plans by Type of Plan

Plan options

All plans
Num Work
ers
ber
cover
of
ed
plans

72 219,913

183

778,855

152,350

7,250

88,380

387,781

1,200

6,050

674,957

131,533

391,074

151,150

1,200

334,576

55,281

217,995

61,300

116
31
95
10

535,749
153,387
444,063
68,100

31 103,406
27 94,137
23 76,910
6 41,950

74
68
4

279,993
304,453
26,150

10
3
4
-

151,150
58,050
62,700
-

1
1
-

271

1.158.368

Plans with no options-------------------- - 120

483,411

Plans with 1 option or more-----------Another job in the same area with
at least same rate of pay---------Another job in the same area at
a lower rate of pay----------------Layoff with preferential recall----Another job in a different area----Other------------------------------------

151

Total number of plans--------------

Lose recall
Other
Retain recall Combination
rights
Num Work Num Work Num Work Num Work
ers
ber
ers
ber
ers
ers
ber
ber
cover
cover
of
of
cover
of
cover
of
plans
ed
plans
ed
ed
ed
plans
plans

1,200
1,200
-

NOTE: Plans and workers covered in each option are nonadditive since some plans reported more than 1 option.

30
The affirmative responses to this inquiry should not be construed to mean
that every worker facing separation in these companies had an option set before
him. Options are not guarantees. Company policy may not be operative in the
event of a la rg e-sca le layoff or under other circumstances which rule out any
possibility of a job offer or a job prom ise.
To a further inquiry regarding experience in 1962 in worker acceptance
or rejection of options, only 32 companies were able to supply data. Their plans
covered a total of 159,766 w orkers, and made severance payments to 3 ,3 3 5
employees in 1962.
The responses did not account for all separated workers;
hence, it must be assumed either that options were not offered to a large pro
portion of workers receiving severance pay or that records were incomplete.
This limitation plus the low rate of response suggest caution in generalizing on
the basis of the figures presented below.
The companies were not asked for the number of employees who had
accepted the option of another job with the company in the same plant or area,
since the process of placing workers in other jobs involves the seniority and
"bumping" procedures in effect and may stretch back too long in time to account
adequately for what happened.
They were, however, requested to report the
number who had rejected such options for severance pay, and the number who
had accepted and rejected other options.
Only 74 workers rejected another job in the same plant or area with at
least the same rate of pay, but 421 workers rejected another job with a lower
rate of pay.
Only 23 workers accepted the latter option with no appreciable
difference in rate of acceptance noted between plans where workers retain or
lose recall rights when awarded severance pay. Among plans in which workers
lose recall rights upon receiving severance pay, 167 workers accepted an option
of layoff with preferential recall rights, while 284 workers rejected this option.
Transfer to another plant in a different area at the same rate of pay or higher
was accepted by 299 workers and rejected by 353.
Transfer to a lower rated
job elsewhere was accepted by 2 and rejected by 20 w orkers. Perhaps the chief
conclusion to be drawn from these data is that a substantial proportion of workers
tend to reject jobs involving disadvantages such as moving, a lower rate of pay,
or layoff in place of severance pay. What they would have done in the absence
of severance pay is, of course, not determinable.
The acceptance rate of options may be the result of several, sometimes
conflicting factors.
One company with an elaborate program of inter plant job
offers and relocation allowances explained the ineffectiveness of the program
as follows;
Employees /eligible for/ severance pay are normally long-service employees, and
they are extremely reluctant to start at another company location at the bottom of the sen
iority roster and on a lower rated job with the possibility of working on the second or third shift.

Two of the case studies suggest, m oreover, that options may be accepted tem
porarily to gain eligibility for a specific benefit rather than to ensure further
employment.
With regard to options to transfer to another location, companies were
asked whether it paid part or all of the moving expense of employees accepting
transfer. Eighteen of 45 companies replying did pay moving expenses.
Thirteen
companies with this practice reported their experience in 1962 as follows:
Workers accepted
option to transfer
Moving expenses paid
in whole or part---------Moving expenses not paid-

252
41

Workers rejected
option to transfer
314
58

These tentative data indicate that while the payment of moving expenses has a
strong influence on workers' decisions to transfer, in many cases it does not
counteract other reasons, against transferring.
SUB-Related Plans.
as follows:

Companies with SUB-related plans reported options
Plans

Workers

Total number of plans------

147

1,709,879

Plans with no options--------------

707,498

Plans with 1 option or more----Another job in same area
at lower rate of pay--------Another job in different area
Other -----------------------------

1,002,381

41
32
25

462,201
422,551
297,950

Option

In the "o th e r" category, respondents m ost frequently indicated other jobs in the
same area at the same or higher rate of pay, and layoff with recall.
Other
SU B-related plans are known to offer an option of layoff in addition, after workers
have satisfied minimum waiting-period requirements. 44 The incidence of layoff
as an option underscores the fact that other possibilities are likely to have been
exhausted before the employee qualifies for severance pay.
A lso, among
SU B-related plans, extended layoff may provide some workers with more money
in supplementary unemployment benefits than they would receive from severance
pay provisions without affecting their seniority rights.
Six SUB-related plans
which awarded severance pay to 1,1 18 workers in 1962 reported on options that
had been rejected:
Option

Number rejected

Another job in same plant or area
at lower pay----------------------------------------------------------------------------Another job in different area with
at least the same rate of pay-------------------------------------------------------Other----------------------------------------------------------------------------------------------

45
104
15

Administrative Problem s.
The arbitration cases cited in the previous
section illustrate some of the problems in distinguishing between offers that are
alternatives to, or preclusions of, severance pay. Agreement by the parties as
to what constitutes an option may not remove all difficulties, however.
In one
situation brought to arbitration, employees had the option of severance pay or
layoff with retention of seniority.
The company did not announce its decisions
regarding severance pay eligibility until after employees had been laid off. The
arbitrator ruled that the layoff had not been presented as an option at the time of
separation and that therefore employees could claim severance pay within a
period following the company's announcement of its decision. 45
According to some procedures, options may be offered only to those
making form al application.
In one case study, for instance, only 60 of 500
eligible workers indicated an interest to transfer to another location and could
be offered the option; about 40 accepted the option.
Employees who become dissatisfied with an option they have accepted
create another kind of problem. Without a specific procedure to cover such an
eventuality, employees may have no choice but to quit, a prospect that may
44 See BLS Bulletin 1425-2, op. cit.
45 U. S. Steel Corporation and United Steelworkers, 37 LA 302.

affect their original decision regarding the option.
Companies may avoid the
problem by giving employees moving to another community a period of time during
which to renounce the option without penalty. L ess liberal treatment is usually
afforded to employees becoming dissatisfied with options in the same plant
or area.
The Payment Process
Plan regulations and administrative machinery determine the timing of
receipt of severance pay by the displaced worker and thus affect its expenditure.
This section explores the payment process, including procedures for preparing
severance payments, waiting periods, and the manner in which the payments
are made.
Administrative D elays.
This study brought to light some of the variety
of approaches taken with respect to employee application for severance pay.
Sometimes the procedure is automatic, that is , the company determines the
amount of severance pay due each worker and sends that amount. The procedure
is m ore complex in other ca ses, especially when the worker is faced with a
choice between severance pay and other options. Then the company or the union
may wish to explain the choices and the implications of various decisions. Such
explanations have been given by letter, through newspaper stories, and in group
meetings. Some companies have found it advisable to follow up explanations with
individual discussions with workers, particularly at the time each one is ready
to signify his choice.
These last-m inute sessions were designed not so much to
influence a w orker's decision as to make sure that all questions had been an
swered and that the worker fully understood what rights and benefits would be
gained and lost by the choice.
When a worker is faced with a choice, the company may want to have
his decision in writing to signify that the decision is binding. Form ally signed
applications for severance pay, however, may be required even when there is
no choice for the eligible worker.
Where severance pay is financed through a
trust fund arrangement, signed applications may be necessary to authorize the
payments.
Applications may also be designed to permit laid-off workers to
indicate by m ail their understanding of the conditions under which severance pay
is awarded. A principal reason for severance pay applications requiring signa
tures is the recognition by specific statement that the severance payment ends all
rights and claim s the signer may have with the company.
In a multiemployer severance pay fund, such as that of the ILGWU,
applications serve still another purpose.
The fund administrators may not know
of the w orker's claim for severance pay until he has submitted an application
which triggers a validating investigation. After the fund has determined that an
employer has gone out of business, affected workers have 30 days in which to
apply for benefits if they have not done so already. Fund administrators estimate
it takes 4 to 5 months after an employer shuts down to establish severance pay
eligibility and to calculate the payments due applicants.
Once applications have been received and/or eligibility has been estab
lished, the employer must calculate the amount of severance pay due the separated
worker and prepare the payment. In some firm s this is a simple matter, but in
multiplant firm s, funded plans, and multiemployer plans the process may take
several weeks. Various echelons or parts of the corporate organization as well
as the trustees of the fund may be required to check eligibility and amounts due
before the payment can be made.
One of the case studies traces the path of
severance pay authorizations: from plant to the local union, back to the plant,
to corporate headquarters, to the plant and corporate headquarters again, and
finally to the bank which keeps and disburses the fund; the entire procedure took
up to 8 weeks. The addition of central data processing for payroll and personnel
recordkeeping has provided a channel for severance pay authorizations in other

companies. In general, the more steps that are added, the greater is the pos
sibility of extending the delay between application and actual payment. In some
companies, however, the applications are begun sufficiently before actual separa
tion to permit payment close to day of separation; in the cases studied, this pro
cedure was not the norm.
Administrative action of another sort may delay severance payments
following separation from employment. Where severance payments are conditional
on a particular set of circum stances, determination of whether the circumstances
have been fulfilled may take tim e. Determination can take the form not only of
checking, as in the case of the ILGWU fund, but also waiting for a given action
to occur.
Thus, one plan which required complete plant shutdown to establish
severance pay eligibility waited many months after a major layoff before an
nouncing the closing of the plant.
Workers had received other benefits in the
interim but could not collect their severance pay until after the plant closing
announc ement.
Sometimes the delay is not due to internal administrative procedures but
to external problem s. In one case, a severance pay fund was liquidated as quickly
as the securities in which the fund was invested could be prudently sold.
The
rate of benefit applications outpaced the rate of security disposal, thereby causing
a backlog of applications for 2 months.
Waiting Periods.
Another reason for delay of severance payment fo l
lowing layoff is that it is a requirement of the plan.
Under some plans, the
waiting period amounts to another eligibility requirement. 46 Perhaps the extreme
practices are found in SUB-related plans; the auto industry plans, for example,
require a year of layoff before a worker can apply for severance pay; rubber
industry plans require a longer period.
Respondents having non-SUB-related plans were asked, nIs there a
waiting period between the time employment is severed and the time the employee
receives severance p a y ? "
nIf 'y e s ,' how long is the waiting p e r io d ?" A dif
ferent approach was necessary in the case of SUB-related plans; this method is
discussed separately.
Alm ost a fourth of the 271 plans that were not SUB-related indicated the
existence of a waiting period. Whether a waiting period was required by the plan
or occurred through the administrative procedures established for payment, was
not determined. 47 The practice was more frequent among plans in which workers
retained recall rights, as shown below.
SUB-related plans
Type of plan

Lose recall rights...... ............ ...... .........Retain recall
rights.....................
Combination-----------------------------------No information
on recall rights------------------------------

No waiting period

Waiting period

No information

Plans

Workers

Plans

Workers

Plans

Woikers

189,513

22,400

8,000

127
9

556,748
147,900

53
2

216,658
4,350

5,449

1,300

2,000

3,950

Most of the plans which maintained the recall rights of workers made
payment within a month after layoff. Longer periods, up to 12 months or m ore,
were required in 12 plans of this type, and in 6 plans in which recall rights
were lost.
46 See BLS Bulletin 142S-2, op. cit.
The question did not make a distinction between these two causes.
administrative delays into account.

Presumably, some companies took

34
Length o f waiting period between termination o f employment and payment o f severance pay

More than 1 but
3 to less
1 month or less_____ less than 3 months_____ than 6 months
Plans
Lose recall
rights-....................
Retain recall
rights-----------------Combination— --- —
No information
on recall
rights------------------

Workers

Plans

Workers

1,200

41
-

185,815
-

24,525

2,000

Plans

12 months
and more

Depends on
circumstances

Workers Plans Workers Plans Workers

5,800

12,050

3,350

1
1

1,250
3,250

2
-

5,068
-

1,200

“

Companies with SU B-related plans were asked if the plan provided for
a waiting period before laid -off em ployees, who presumably are eligible for
regular SUB payments, became eligible for severance pay.
Of those who r e
sponded in the affirmative, several additional questions were asked, designed to
bring out experience in 1962 relating to waiting periods and possible relaxation
of waiting requirements.
Of 146 plans responding to this inquiry, 43, with approximately 45 percent
of total worker coverage, indicated that a waiting period was required. 48 In
response to the question "Did the company in 1962 permit some employees to apply
for severance pay before completion of the normal waiting p e r io d ?"
12 com
panies replied in the affirmative, of which 6 mentioned disability or retire
ment without a pension as the only reasons.
One way of evaluating the importance to workers of an eligibility waiting
period is to see how quickly they respond to the offer of severance pay once they
become eligible.
SU B-related plans were asked to supply information on the
number of employees becoming eligible for severance pay in 1962 and the number
of these applying for severance pay as soon as eligible.
Of the 43 plans with
waiting periods, 15 plans had no separations and 16 others were unable to supply
the information.
The remaining 12 plans reported that 1,043 workers became
eligible for severance pay during 1962, but only 360 of these applied for severance
pay during the year.
Other workers eligible from prior years applied, too,
raising the total number receiving severance pay from these companies.
It
would seem , on the basis of these returns, that all workers do not seek to obtain
severance pay the moment they become eligible, even if they have had to wait
to establish eligibility. On the other hand, one company supplying supplementary
information for 1963 reported that 1, 300 to 1 ,3 3 5 workers applied for severance
pay as soon as eligible; sim ilarly, one-half of the companies reporting on the
number of workers becoming eligible and applying for severance pay as soon as
eligible indicated that all workers applied immediately on becoming eligible.
Method of Payment.
Another time factor is introduced by the method
of payment, that is , whether taken as a lump sum or in installm ents.
In the
form er instance, the worker receives all of his severance payment at once; in
the latter, his weekly pay is usually continued until his balance is exhausted,
e. g . , 20 payments over a 20-w eek period.
In SU B-related plans, it was presumed that severance payments would
normally be made in a lump sum. Other types of plans were queried as to their
procedures, with the following results.
48

Information on length of waiting period is provided in BLS Bulletin 1425-2, op. cit.

Method of payment of severance pay
Lump sum only

Regular installments
only

Optional or other

No information

Plans

Workers

Plans

Workers

Plans

Workers

Plans

201

901,960

38,702

209,556

8,150

149,007

18,506

49,400

3,000

148

696,753

20,196

60,806

1,100

Combination------------

55,000

97,350

No information
on rights---------------

1,200

2,000

4,050

Type of
plan

All plans other
than SUBrelated plans - —---Lose recall
rights-------------------Retain recall
rights--------------------—

Workers

Among the plans designated as "optional and other" were those which
gave the option to the workers, or to the employer, or varied the method of
payment according to certain circum stances. *9 Some of the plans indicating
payment in installments added that sm all amounts, e. g . , le ss than 4 weeks’ pay,
would be paid off in a lump sum. A few plans indicated that the method of pay
ment affected the status of recall rights, i. e . , workers electing lum p-sum
payments surrendered recall rights or preferential hiring rights they would main
tain if receiving severance pay in installm ents.
Waiting periods and installment payments raise a subsidiary issue. T ra
ditionally, severance pay plans have not made payments contingent in whole or
part on the worker remaining unemployed.
That is, the separated worker was
entitled to his full severance pay even if he found a job immediately upon dis
m issa l. A direct question to plans other than SUB-related elicited the information
that only 15 plans, covering close to 23 ,0 0 0 workers, did take the status of the
worker after separation into account.
Nine of the plans covering half of the
workers, were plans under which workers retained recall rights. Seven of the
15 plans had a waiting period of over 1 month between separation and payment
of severance pay; 2 of the 7 always paid severance pay in installm ents.
An
additional five plans reported that employment status following separation became
a determinant for eligibility only if the separated worker elected an option for
weekly benefits. It is possible that some respondents who stated that unemploy
ment was a condition of eligibility confused employment with the company and
employment with others. Even so, the number remains sm all, leaving the
traditional nature of severance pay plans intact.

Liberalizing or Reducing the Severance Pay Obligation. Most SUB-related
severance pay plans are funded; the exceptions occur chiefly in the primary and
fabricated metals industries. Where severance pay is awarded from a SUB fund,
severance payments can be— and, in some cases, have been— reduced if the fund
f a l l s below a minimum level.
Of 81 funded SUB-related plans reporting,
42 indicated that severance payments are subject to reductions depending on the
level of the fund, and 20 of the 42 reported that in the past, payments had been
reduced.
Some of these plans also reported that severance payments may be
deferred if fund levels so require.
49 See ELS Bulletin 1425-2, op. cit.

36
One multiemployer plan reported that individual employers covered by
the plan sometimes awarded extra severance pay. Outside of this instance, only
seven of the plans studied (three in which workers lose recall rights and four in
which workers retain recall rights) answered in the affirmative the inquiry as to
liberalization of stipulated plan benefits. Reasons such as hardship and "com p as
sionate" payments were cited.
The case studies illustrate types of liberalization
of the severance pay obligation at the time of implementation, including distribu
tion of excess funds, waiver of requirement of active employment within 90 days
of plant closing, and increase of minimum awards to represented employees to
levels commensurate to those granted nonrepresented employees.
Company Services
The survey of companies presented an opportunity to find out the extent
to which assistance other than severance pay is available to workers facing sepa
ration and after separation.
Although such services need not be restricted to
separated workers receiving severance pay, they can affect the significance of
severance pay for recipients by providing directions to other employment.
The extent of company services for separated workers is likely to be
understated in a survey of this type.
Company efforts may begin long before
worker separation is certain.
Furthermore, many practices may be informal,
e. g. , those engaged in by supervisors on their own initiative.
Despite these
limitations, the replies indicate the general nature and extent of current practices.
The questionnaire asked "What company services have been available to
employees before and after s e v e ra n c e ?" Specific inquiry was made concerning
four types of services:
Training for other jobs with the company, testing and
guidance, company-sponsored employment referral, and training for jobs outside
of the company. Respondents could also indicate other pertinent services.
The
results were as follows:

Workers with severance
pay, 1962
52,838

Total-----------------------------------------

418

Workers
2,868,247

No services--------------------------------------1 or more services-----------------------------Selected services:

165
247

725,496
2,133,795

11,301
41,537

Training for jobs with company---------Before-------------------------------------After--------------------------------------Before and after-------------------------Testing or guidance-----------------------Before-------------------------------------After--------------------------------------Before and after--------------- ;---------Company-sponsored
employment referral--------------------Before-------------------------------------After--------------------------------------Before and after-------------------------Training for jobs outside of company —
Before-------------------------------------After---------------------------------- ---Before and after-------------------------Other------------------------------------------

156
137
2
17
114
90

1,220,054
1,082,446
13,250
124,358
761,181
492,583

24,612
21,663
672
2,277
16,187
11,171

268,598

5,016

157
53
146
58
18
5
7
6
5

1,261,911
384,647
504,729
372,535
151,689
19,415
35,174
97,100
20,650

35,350
12,302
10,184
12,864
4,061
2,030
984
1,047
295

No information on services--------------------

8,956

Plans

* Includes 35 plans associated with ILGWU fund, which offers union-sponsored employ
ment referral after employment termination.

Services classified as "oth er11 include financial assistance for educational
purposes and aid in enrolling laid -off employees in retraining program s, such as
those authorized by the Manpower Development and Training Act.

The overwhelming majority of workers who received severance pay
in 1962 had recourse to one or more services from their em ployers.
Except
for SU B-related plans, most companies with services offered more than one type.
About three-eighths of other-than-SU B-related plans provided three or more types
of services.

Companies are naturally interested in programs from which they are
likely to benefit.
It is not surprising, therefore, that services which encourage
retention of workers— and, incidentally, save the expense of severance pay— should
be offered principally only before severance.
This is apparent in the case of
training for jobs with the company.

Type of plan
SUB-related__________________ Lose recall rights

Training for jobs
with the company:
Before severance---After severance----Before and after
severance----------

Plans

Workers

Workers
with sev
erance pay,
1962

527,960

4,839

Plans

Workers

23
2

86,750
13,250

Retain recall rights
Training for jobs
with the company:
Before severance---After severance----Before and after
severance ---------

90
-

406,736

Workers
with sev
erance pay.
1962

1,326
672

Combination

14,913

35,558

1,229

3
-

61,000
_

88,800

585
_

1.048

Many companies have regular training programs to upgrade worker skills and
to prepare workers to accommodate to technological changes. Some companies
provide special programs to rescue workers whose skills are obsolete and who
would otherwise be slated for termination.
In-company training programs also
permit displaced workers to offer additional experience and vocational skills when
seeking other employment.

Substantially less common than the previous service, testing and guidance
was available to one-fourth of workers covered by severance pay plans.

38
Type of plan
SUB-related

Testing and guidance:
Before severance—
After severance----Before and after
severance —------

Plans

Workers

149,521

Lose recall rights

Workers
with sev
erance pay,
1962

150,640

Plans

615
-

14
-

72,400
-

1,002
-

2,218

15,850

674

Combination

Retain recall rights
Testing and guidance:
Before severance—
After severance----Before and after
severance---------

Woikers

Workers
with sev
erance pay j
1962

67
-

269,312
-

9,494
-

3
-

7,350
-

60
-

13,308

1,076

88,800

1,048

Despite the lower incidence, twice as many separated workers had this available
“before and after11 separation as training for a job with the company. The dif
ference is accounted for largely by SUB-related plans. Testing and guidance can
prove helpful in channeling the worker* s efforts toward subsequent employment.
The m ost prevalent service is company-sponsored employment referral.
Type of plan
SUB-related

Comp any-sponsored
employment referral:
Before severance-—
After severance----Before and after
severance---------

Lose recall rights

Plans

Woikers

Workers
with sev
erance pay,
1962

16
41

258,410
485,402

4,093
10,102

12
-

11,950

1,044

160,540

2,951

23,300

846

Plans

Workers

Retain recall rights
Company-sponsored
employment referral:
Before severance—
After severance----Before and after
severance---------

Workers
with sev
erance pay,
1962

Combination_____

25
5

114,287
19,327

7,165
82

99,895

8,019

88,800

1,048

This alone of the three major services is clearly provided to help employees
after final separation. If company-sponsored employment referral is not a matter
of company policy, it may be invoked on an ad hoc basis.
In all of the case
studies in which a large number of workers could not be offered other employ
ment with the company, the company gave consideration to finding other employ
ment possibilities.
Where no system was established, it was due to lack of
other employers in the area who could use the available skills.
Typical sources

39
in locating other employment opportunities were personal contacts, professional
societies, and industrial associations.
Thus, in several of the case studies,
personnel directors called on their counterparts in other companies as well as
local organizations to uncover suitable openings for workers affected by plant
shutdowns. L a rg e -sca le form al efforts have not been uncommon in recent years
and have included newspaper advertisements, mailing of brochures and resum es,
and "job-hunting task fo rces. "
The effectiveness of all these efforts remains
largely unmeasured.
Where there is success, the separated worker probably
gets what he wants most— another job.
Company-sponsored training for jobs with other companies is uncommon.
Where available, it can lead separated workers to employment opportunities
elsewhere.
Type of plan
SUB-related_________ ________ Lose recall rights

Training for jobs
outside of company:
Before severance--After severance——
Before and after
severance---------

Woikers
with sev
erance pay,
1962

Plans

Woikers

1
1

8,865
3,300

10,000

Plans

Woikers

1
3

1,650
16,750

3
3

8,900
15,124

1,915
81

113
903

Retain recall rights
Training for jobs
outside of company:
Before severance--After severance----Before and after
severance - —-----

Workers
with sev
erance pay,
1962

_
Combination

87,100

1,047

Highly publicized experiments in retraining displaced workers were underwritten
by the Armour Automation Fund Committee. 50
Role of Union
Throughout this chapter, the role of the union was inferred rather than
explicitly stated. In these plans, which are all under collective bargaining, the
union represents and advises the workers involved in layoff and separation situa
tions, and is also responsible for requesting, and bargaining over, modification
in plan provisions.
Unions may also affect the extent of plan implementation.
The case studies uncovered some special instances of union participation which
m erit mention.
The union may provide various kinds of services to workers at time of
separation, which parallel or supplement the services offered by em ployers.
When workers are faced with decisions, union officers may sit with management
officials to advise workers who are ready to make a commitment. In one case,
the union was assigned the responsibility of informing workers already separated
50 See Monthly Labor Review, August 1961, pp. 851-857 and January 1964, pp. 53-57.

40
of a newly negotiated severance pay plan.
In efforts to locate employment op
portunities for displaced m em bers, union locals have established worker com
mittees to visit other employers in the area,
A more extensive effort in one
situation was the establishment of a union committee at an office of the State
employment com m ission, to offer special assistance to displaced workers. More
elaborate and usually more successful employment assistance is provided by
unions with permanent, continuing facilities.
Other union services include
arranging meetings for workers to hear about tax implications of severance pay,
training opportunities, public assistance program s, and sim ilar topics.
Severance Pay and Unemployment Insurance
The relationship between severance pay and unemployment compensation
depends upon State statute or interpretation. As of January 1964, seven States
did not permit payment of unemployment compensation for the week in which
severance pay was awarded; 15 other States reduced the weekly benefit by the
weekly prorated amount of the severance payment, as follows:
No benefit is paid for week of receipt of severance pay:
Alabama
Arizona51
Arkansas
Connecticut

Montana
North Carolina
West Virginia

Weekly benefit is reduced by weekly prorated amount of the severance
payment:
California
Indiana
Maine
Maryland
Minnesota
M ississippi
M issouri
Nebraska

New Hampshire
Ohio
Oregon
Pennsylvania 52
Utah
Virginia
W isconsin 53

There have been reports that at least one other State, Oklahoma, has
ruled that unemployment compensation was not payable while severance pay was
being prorated. 54
In a few States, however, severance pay is specifically
mentioned in the statute as not disqualifying the recipient for unemployment com
pensation; for example, Michigan and Rhode Island. 55 In other States, sim ilar
conclusions have been reached by administrative agencies and courts. 56
The Ohio regulation regarding severance pay and unemployment compen
sation may illustrate the manner in which total benefits are reduced by prorating
severance payments.
1 Individual not ineligible for unemployment benefits if severance payment has no direct relationship to regular
wagess |md is not allocated to any specific period.
Excludes severance payments up to $100 per week made to employees, permanently separated, upon their
relinquishment of all accrued rights and benefits from services with separating employer.
Reduction as wages only when the severance payment definitely allocated by the close of such week, payable
to the employee for that week at the full applicable wage rate, and the employee had had due notice of such allocation.
Edwin Young, "The Armour Experience: A Case Study in Plant Shutdown," in Adjusting to Technological
Change (New York, Harper & Row, 1963), p. 149.
H Michigan Employment Security Act, Sec. 48; Rhode Island Employment Security Act, Sec. 28-44-59.
For example: Colorado, Industrial Commission v. Serokman, 1957; Georgia, Meankins v. Commissioner, 1959;
Illinois, Kroger v. Blumenthal, 1958; South Carolina, Southern Bell Telephone 8 Telegraph Company v. South Carolina
Employment Security Commission, 1962.
Source: U. S. Department of Labor, Bureau of Employment Security, "Comparison of State Unemployment
Insurance Laws as of January 1, 1964," BES No. U-141.

41
Severance pay will be deducted from any claims for benefits filed with respect to
the period covered by severance pay. The Bureau will allocate severance pay on basis of
•claimant's normal weekly wage to the first calendar week following separation and to each
succeeding week until the total severance pay has been allocated. Normal weekly wage is
full workweek without overtime.

Of the 15 States listed as reducing benefits by weekly prorated amount
of severance pay, only one State, Pennsylvania, distinguishes between various
types of severance pay plans. It restricts disqualification largely to employees
who retain recall rights.
Interpretations on eligibility for unemployment compensation must also
be rendered in situations that deviate from simple separation. Should the offer
of employment options to severance pay be considered as ’’suitable w o rk ?” If
so, what happens if the worker accepts an option and subsequently voluntarily
terminates ? Tfye manner in which severance pay is accepted may also be critical.
A 1958 decision of the Pennsylvania Supreme Court ruled that a worker who
voluntarily elects to receive severance pay when forfeiting seniority rights in a
technological displacement is disqualified from eligibility for unemployment
compensation. 57
The disparity of treatment of severance pay with respect to unemployment
compensation among the States may be largely explained by divergent views of
severance pay. Those favoring prorating of severance pay to offset unemployment
compensation regard severance pay as compensation for wages lost after separa
tion. In this view, severance pay and unemployment compensation are redundant.
The employer is financially penalized if he is forced to pay twice (severance pay
and unemployment compensation contributions) for benefits covering the same
purpose.
Those who favor leaving unemployment compensation unaffected by
receipt of severance pay relate severance pay to the worker’ s past service to
the employer.
Hence, severance pay is considered as an accrued benefit, or
deferred wages, not related to the worker’ s employment status after separation.
Both views have legal precedent.
The Social Security Act and the Federal
Unemployment Tax Act exempted severance payments from the definition of
’’w ages” subject to tax between 1939 and 1950.
Prior to 1939 and after the
effective date of the amendments, severance payments have been included in the
definition of "w a g es” for contribution purposes.
Although it is not possible to determine how many workers eligible for
severance pay are affected by State rulings on unemployment compensation, a
rough indication of the significance of State practices is possible. Of 525 major
agreements with severance pay plans, 353 were limited to a single State and
covered one-third of the total number of workers with severance pay provisions
in their collective bargaining agreements. More than half of the workers covered
under these 353 plans may be affected by State unemployment compensation
statutes or interpretations on severance payments, although the type of plan or
the precise wording of th e statute might eliminate some from application.

Herbster v. Unemployment Compensation Board of Review and American Viscose Corporation, 42 LRRM 132.

Chapter IV. Severance Pay Plans in Operation— Five Case Studies

To reveal the operation and effects of severance pay plans that lie beyond
the scope of agreement analysis and a mail questionnaire, five case studies were
undertaken. Each study focused on a partial or complete plant shutdown in which
severance pay was awarded. To place the severance pay plan in perspective, the
entire shutdown procedure was studied, including timing of separations, other
work opportunities offered by the company, and services provided to separated
workers.
The studies were conducted by reviewing company and union records and
interviewing company, union, and community officials, representatives of State
employment services, and to a limited extent, displaced workers who received
severance pay.
An attempt was made to find five diversified situations for study. Since
the plant shutdown had to be recent, the choice was greatly limited. Thus, these
situations are not necessarily representative. In order to assure as complete a
reporting as possible, the names of the cooperating companies, unions, and the
communities have been disguised, with only one unavoidable’exception— the identity
of the union in the fifth case.

205-662 0-66-4

Mt. Lion Electric Corporation

Introduction
The Coleville plant of the Mt. Lion Electric Corporation, manufacturers
of electrical equipment, was closed in July 1963. Its production was shifted to
the company's main manufacturing facilities and headquarters about 500 m iles
away. Approximately 300 workers were employed at the plant at the time of the
shutdown and an additional 800 workers with seniority were on layoff status.
The plant had been opened by another company in 1932 and was acquired
by Mt. Lion 6 years later. Many of the employees affected by the plant closing
had worked there continuously since the days of the predecessor company. Peak
employment occurred in 1953, when more than 2, 000 workers were employed.
A steady decline followed: By 1958, employment had dropped to 600; by 1962,
to le ss than 300. In addition to the long-term decline, seasonality created
temporary variations in employment; some employees could expect only 4 to
8 months of work a year.
The work force contained a large number of women employed on wiring
and assem bly work. In the fall of 1962, 75 percent of the work force was fem ale,
m ostly sem iskilled.
The range of skills among the men was more evenly d is
tributed: 40 percent skilled, 25 percent sem iskilled, and 35 percent unskilled.
Because of the usually long list of laid-off employees with recall rights, there
had been no hiring in recent years. Consequently, the average age of employees
working in the summer of 1962 was 45; the minimum seniority, with one exception,
was 13 years.
Employees of the Coleville plant, organized since 1938, were represented
by a national union affiliated with the A F L —CIO.
Both management and union
characterized their relationship as "e x c e lle n t."
The only strike occurred in
1954.
There had been three arbitration awards between 1951 and 1962.
Coleville had a population
ments, the largest of which were
employed 9, 000 workers.
Home
dwelling units. The unemployment
was in category C (3.0—5.9 percent)
to under 3 percent by spring 1963.

of 32,000. One hundred industrial establish
plants of major manufacturing corporations,
owners occupied 65 percent of the city's
rate, which had been quite high in late 1961,
during the latter half of 1962, and had fallen

Despite the continued decline in production, employees were not d is
heartened at the start of collective bargaining negotiations in 1962. Since the
previous agreement had been signed, the Mt. Lion E lectric Corporation had been
purchased by a large diversified manufacturing corporation, which allowed Mt.
Lion to operate as an autonomous subsidiary.
The prevailing feeling among
employees was, "T h e y would not have bought us just to close the plant."
M oreover, many employees believed the company actually planned to increase
production and employment at Coleville in the immediate future.
A 2 -year agreement was reached in May 1962. Included in the agreement
were several provisions that the union regarded as concessions to encourage
expansion of Coleville operations:
(1)
Om ission of a 5-cent per hour wage increase granted employees
of the main manufacturing facilities in the same bargaining round. However,
the parties did negotiate a wage increase for the second year of the agreement,
to be effective in May 1963.

45
(2) Flexible assignment of overtime if certain skills were required.
Previously the union had insisted that overtime work be offered and assigned
strictly according to plant seniority.
(3) Retention of accumulated seniority by those leaving the bargaining
unit. Employees promoted out of the unit form erly lost all their seniority, thus
becoming ineligible to return because of the preferential recall rights of laid-off
bargaining unit employees.
Any optimistic expectation about the future was quickly shattered after
Labor Day. When the local union president arrived at work on September 7, 1962,
he noticed the plant manager dressed in a black suit and asked, "W hose funeral
are you going t o ? "
The reply: "O u r s .” Shortly afterwards, m em bers of the
union plant committee were called to the plant manager's office and were read
the text of a telegram sent from headquarters that morning.
The telegram
announced the closing of the Coleville plant early in 1963 because of "insufficient
economic justification to maintain separate manufacturing fa cilitie s."
Apart from the 256 employees1in the bargaining unit then working in the
plant, approximately 800 workers were on layoff.
Among the latter group,
seniority ranged from 3 to 13 years and length of layoff from 6 months to
3 years. It was estimated that from 150 to 200 of those on layoff, m ostly men,
were working elsewhere at regular full-tim e jobs.
About 300 workers on layoff,
as well as all working m em bers of the bargaining unit, were eligible for benefits
from the pens ion-termination pay plan.
The Pension-Term ination Pay Plan
As in several other plants of Mt. Lion, a funded benefit plan was estab
lished at the Coleville plant as the result of collective bargaining in 1949. The
plan, effective January 1, 1950, provided benefits for eligible employees at
retirement, death, or termination of employment for any other reason.
There
had been no pension or termination pay plan for hourly paid employees before
1950.
The prime motive for creating the plan was to provide pensions for r e
tiring employees. Fem ale employees at the main plant, unsure of the length of
their working careers, were concerned that they might not share in negotiated
pension benefits.
The union thereupon successfully included termination pay
provisions in the plan.
The Coleville negotiations, which followed the company
pattern, included identical provisions.
Employees could qualify for three kinds of pensions: a normal full
pension available to employees at age 65 with at least 10 years of service upon
retirement; an early pension, actuarially reduced in amount, to employees age
55 with at least 15 years of service; and a deferred pension (vesting) to be paid
at age 65 to those leaving the company with a minimum age of 50 and 10 years
of service. Employees qualifying for early or deferred pensions could elect
termination pay in lieu of a pension.
Termination pay, in the form of a lump sum, was available to employees
with 3 years of service who were terminated for any reason other than re tire
ment. Acceptance of termination pay ended all employment rights of the employee.
The amount of pay was the product of the number of hours actually worked after
the effective date of the plan and a given cents-per-hour figure, according to the
following scale:
Hours woriced during
1950-55------------------------------------1956 ---------------------------------------1957 ---------------------------------------1958-63-------------------------------------205-662 0 - 6 6 - 5

Basis of pay per hour
$0.05
.07
.09
. 10

46
Interest was computed on accumulated termination pay at the rate of 2.5 percent
compounded annually. Although termination pay was based on hours worked since
1950, prior service could affect the amount of termination pay accrued, since
seniority determined preferential right to overtime work and protection against
layoff.
The plan provided that no part of termination pay due to an individual
could be sold or assigned, with one exception negotiated in I960.
Up to that
time, laid-off employees had no access to accrued funds in the plan without
terminating their employment and relinquishing their seniority.
After I960,
employees who had exhausted their State unemployment compensation could apply
for a loan of up to 50 percent of termination pay due as of December 31 of the
previous year. If an employee had obtained a loan and subsequently terminated
his employment for any reason, his termination pay was reduced by the out
standing amount of the loan.
The pension-termination pay plan was funded by employer contributions.
The fund covering Coleville workers was kept in a bank in another city.
There had been two major grievances early in the history of the plan.
The first arose from overfunding as the result of increased social security
payments and consequent lower pension payments which were integrated with
social security.
The union contended the company had reduced its contribution
beyond a perm issible amount. Although the union won the grievance when it
went to arbitration, the problem was eliminated at the next negotiation with a
provision for pension payments independent of the level of social security pay
ments. The second grievance was settled before arbitration. The company had
been withholding interest from accrued amounts in the fund when an employee
was on layoff.
The union was successful in its protest that interest should be
included regardless of an employee’ s work status.
One problem that periodically plagued the plan's administration was a
delay in receipt of termination pay after application. The issue had been serious
enough to be raised in contract negotiations.
The routing of application form s
between company and union offices in Coleville, company headquarters, and the
bank took time. Frequently 6 to 8 weeks passed between the date an employee
filed for severance pay and his receipt of the payment. It was found possible to
reduce the time for processing the paperwork to 2 weeks.
Despite liberal rules for termination pay qualification, local management
and union officials agreed that few employees had left the company principally
to obtain termination pay. Approximately 50 to 60 workers had applied for
termination pay from 1959 to 1961; several hundred others qualified but preferred
to remain on the seniority rolls on layoff status. In part, this may have been
due to the late accumulation of significant amounts of accrued pay, and then only
by more senior personnel. The more cogent reason seemed to be that retention
of seniority outweighed any immediate monetary gain.
A choice between termination pay and layoff or between a pension and
termination pay could be influenced by eligibility for group insurance.
The
company provided, on a noncontributory b asis, life insurance and hospitalsurgical-m edical (Blue C ross—Blue Shield) insurance to employees. It also
provided for and paid two-thirds of the cost of Blue C ross—Blue Shield insurance
for dependents. When an employee went on layoff, the company paid for 13 weeks
of continued life insurance coverage and 2 months of Blue C ross—Blue Shield
protection.
Continued coverage of the latter insurance could be maintained at
the group rate for 10 months if the employee paid the full premium to the

company. In the 1962 collective
provide Blue C ross—Blue Shield
effective date of the agreement
employees for the entire period

bargaining negotiations, the company agreed to
insurance to employees who retired after the
and to extend the group-rate option to laid-off
of layoff.

Special Personnel Procedures
Following announcement of plant shutdown, local management promptly
proceeded to effect an orderly shutdown. A tentative layoff schedule of employees
still working at the plant was posted at the end of October. Although actual
layoffs differed somewhat from the schedule because of unexpected production
increases, the schedule fixed the order of layoff and permitted employees to
anticipate their approximate length of employment and amount of wages. A
comparison of scheduled and actual layoffs is shown below.
Scheduled
Approximate
date

Actual

Men

Women

Men

Women

8
2
4

39
12
12

October 11—26------------November 9 --------------November 16-------------November 23-------------December 7 --------------December 14-------------December 28-------------January 4-------------------January 11---January 14-21
January 28-----------------February 1----------------- February 6-----------------February 15----------------Until closing---------------

Total......................

9
5
12
6

11
19
18
33
19

25
12

11
9
30

28
30
25

193

Lists of benefit eligibility were also compiled. A ll 256 employees work
ing at the plant at the time of the shutdown announcement plus 297 on layoff,
a total of 553, qualified for benefits under the pension-termination pay plan.
Over half of those on layoff had borrowed against their accrued termination pay.
The distribution of benefit eligibility follows:
Regular pension----- ____
6
Early pension —
____ 45
Deferred pension— *____70
Termination p a y ™ .____432
Both local union and company officials made separate efforts to develop
job leads in the area.
The union drive consisted of delegations from the plant
committee visiting plants in the area.
The delegations were received cordially
but produced few jobs. More successful was the work of the Mt. Lion personnel
manager who had developed many informal relationships with colleagues and em
ployers in the area and utilized the resources of the county personnel association.
The personnel manager circulated work resum es of w hite-collar employees and
job descriptions of production employees.
He telephoned associates to notify
them of available skills. Some employers interviewed prospective applicants on
Mt. Lion p rem ises; others preferred that applicants come to them. In either

48
case, interviews could take place on company time.
The presence of another
plant of the parent company in Coleville led the personnel managers of both
plants to arrange preferential hiring rights for qualified employees displaced by
the shutdown. The State employment service also registered employees on
company time, although interviews were scheduled for after-working hours at
the serv ice's offices.
The company encouraged employees to leave ahead of their scheduled
layoff date if they had an offer of regular employment elsewhere. If the other
job proved temporary or unsatisfactory, the employee could return and work
until the time he would have been terminated with others of comparable seniority.
Only 1 or 2 of the 12 employees who left early took advantage of the company's
offer to return.
The company prepared letters for November distribution to employees
who were on layoff at the time of the shutdown but had not applied for benefits
from the pension-termination pay plan.
The letters outlined the nature and
amount of benefits available, the optidns among benefits from which the employee
could choose, and a procedure by which the employee could apply for benefits
by mail.
Besides receiving benefits from the pension-termination pay plan and
pay for accrued vacation, employees working as of the shutdown announcement
and subsequently terminated were given 2 months of Blue C ross—Blue Shield
coverage by the company. When all insurance programs ended on April 1, 1963,
employees were paid an amount equivalent to their group insurance premium.
The union kept in close touch with company actions. When the president
of the union local was laid off in Decem ber, his place was filled by the vice
president of the local. Frequent union membership meetings were scheduled to
hear special speakers discuss company benefits, public assistance program s,
tax implications of termination pay, and training opportunities in adult academic
and vocational courses in the schools of the community. Publicity for these
meetings was given not only through local newspaper and radio media but also
through those of neighboring metropolitan areas so that as many employees as
possible would hear of the meetings. At each meeting union officers would also
report progress of union attempts to gain special benefits for employees affected
by the closing.
One union attempt to gain special benefits was to file a petition with the
U.S. Tariff Com m ission under the Trade Expansion Act of 1962 on behalf of 256
Coleville employees working since the effective date of the act. The union argued
that the workers were being displaced by increased imports which had resulted
from tariff concessions.
In May 1963, the com m ission gave the petition an
unfavorable decision.
There could be no appeal.
Transfer Agreement
The main union objective was to obtain for Coleville employees transfer
rights to the main plant about 500 m iles away. Several impediments existed:
An existing layoff situation at the main plant, a long-standing rivalry between
the locals, and an adverse precedent in Coleville itself. F rom 1942 to 1954,
there had been a second Mt. Lion plant in Coleville, staffed with Negroes and
organized by the same union. When that plant closed, its employees were given
preferential hiring rights at the main Coleville plant; the hired workers retained
their benefit credits but started as new employees in term s of seniority. Mt.
Lion was now prepared to offer Coleville employees the same term s for employ
ment at the main plant. However, court decisions in the Glidden and other cases

49
encouraged the union to demand m ore. These decisions held that seniority was
not necessarily related to a particular agreement or site; transfer of seniority
must therefore be extended to the company's current employees at a new location
to which work is moved.
In answer to a union civil suit asking for transfer with full seniority,
the company agreed to negotiate the matter if the two locals consented. With
the intercession of union headquarters, an agreement regarding transfers was
reached by the two locals and agreed to by the company in December 1962. The
agreement provided that all Coleville employees on the seniority rolls "with a
hiring date prior to December 31, 1953, would be eligible to transfer" with their
seniority to the main plant. Transfer was conditional upon recall of main plant
employees with the same seniority, and all transfer rights would end on
August 1, 1963.
There would be two opportunities for employees to indicate their interest
by signing transfer lists— March 1 and June 1, 1963. The two dates were designed
to give employees a chance to consider the offer and to stretch out transfers
over a longer period. There was no guarantee that transferring employees would
receive offers identical with prior jobs. M oreover, laid-off workers would r e
ceive no moving or travel allowances nor special benefits while awaiting transfer.
Those who did transfer were assured of an exemption from a physical examination,
an identical job classification without a further qualifying examination, transfer
of seniority, a comparable wage scale, and elimination of the waiting period
for benefit eligibility.
The agreement on transfer opportunity was reported in the local news
paper accompanied by an announcement that eligible people could indicate an
interest in transfer by signing up at union meetings or the plant. The agreement
was also explained in detail at union meetings.
Union leaders urged qualified
people to sign transfer lists even if they were doubtful about actually going;
signing the lists was no commitment, but ensured maintenance of all rights.
Neither union nor management urged workers actually to make the
transfer. Privately, leaders of both groups doubted whether many of the workers
would be satisfied with transfers.
The financial cost and emotional ordeal of
moving, the differences in the size and age of the communities, and the repu
tation of the main plant local union were considered major obstacles. The only
workers who were urged to accept transfer were those hired before 1953 who
needed relatively few hours to qualify for termination pay or full pension.
Administrative Issues
Both union and management agreed that on the whole the processing of
personnel affected by the shutdown was accomplished smoothly. Normal policies
and special procedures described above were implemented without difficulty.
There were no form al grievances; questions were resolved by conferences and
checking of records.
The only problems reported were confusion about the
transfer agreement, rumors about the benefit fund's solvency, delay in liquidation
of the fund, and a dispute over uncommitted money remaining in the benefit fund.
A rumor of insufficient funding of the pension-termination pay plan spread
through the plant and community before completion of the transfer agreement.
Because the pension-termination pay plan provided for a priority of payment in
event of the fund's liquidation, there was a minor rush by some laid-off employees
to collect their termination pay before those still working could apply for their

50
benefits.
In fact, the plan was overfunded, but union and management attempts
to reassure employees were only partially successful. The union was particularly
concerned because participants in the run on the fund were jeopardizing their
inclusion in other benefits the union hoped to obtain.
The time between application for and payment of benefits once again
became extended. The delay was in part due to the administrative work involved
in processing a large number of applications. A more significant reason was
the necessity of achieving liquidity of the benefit fund. As soon as the plant
shutdown was announced, the bank trustees of the fund drew up a schedule for
disposing of securities in which the fund's money was invested.
The rate of
benefit applications outpaced the rate of disposal so that payments were held up
for a number of weeks.
Three workers who left at different tim es reported
receiving their termination pay 7 to 8 weeks after applying for it. Management
was concerned about the payment delay and bothered by inquiries from employees.
The delay did not create as much of a problem as disposition of money
left in the fund after negotiated commitments had been met.
Two reasons ac
counted for excess money in the benefits fund; generous funding and employee
choices among options. As of the day of the plant shutdown announcement, total
assets of the fund were $ 1, 592, 000 and total liabilities $ 1, 047, 000. Employees
eligible for early or deferred pensions had the alternative of receiving termination
pay based on actual hours worked since the effective date of the plan. The amount
invested in an individual's pension annuity was more than the amount he would
receive in termination pay. The union estimated that acceptance of termination
pay by all those eligible for a deferred pension would have reduced payments
from the fund by $ 300, 000. Prior to the shutdown, the union had usually urged
eligible employees to accept a pension. Now the union remained silent and,
indeed, some union leaders were themselves faced with the choice. A large
number of people elected termination pay in preference to a deferred pension.
The m ost common reasons given for the choice w ere: (1) Being able to use a
substantial sum at once, and (2) not knowing who would be responsible for
benefit funds or to whom later application for pensions should be directed.
The problem of excess money in the fund was not resolved until February
1964. The company had been arguing that money remaining after negotiated
obligations had been met reverted to the company.
The union's contention had
been that all money in the fund was due workers displaced by the shutdown and
should be apportioned among them. The agreement provided that:
1. Employees with 3 years or more of service were entitled to the full
value of their pension benefits.
Thus, those who had elected termination pay
would receive the difference between pension benefits and termination pay already
awarded.
2. Employees with le ss than 3 years of service who were on the payroll
when the shutdown was announced would also receive the difference, if any, be
tween their pension benefits and termination pay previously awarded.

of the

3. Employees with le ss than 3 years of service on layoff at the time
shutdown announcement were entitled to severance pay.

The Choices Made
Of the 553 eligible for some kind of benefit from the pension-termination
pay plan, all but 24 had made a decision by December 1963. A summary of
employee benefit eligibility and decision is presented as follows:

51
Number accepting, December 1963
Number
eligible *

Benefit

Pension

Termination
Transfer
pay

Not applied

Regular retirement------- ------Early pension-------------- -----Deferred pension--------- -----Termination--------------- ------

6
45
70
432

6
27
1
-

13
60
398

4
4
16

1
5
18

Total------------------ ------

553

471

1 As of September 1962.

The overwhelming majority of the eligible employees (78 percent) quali
fied only for termination pay with an option to transfer. An even larger number
actually received termination pay. Fully 86 percent of employees eligible for a
deferred pension and 29 percent of those eligible for an early pension chose
termination pay in lieu of a pension. Only 1 of the 70 qualified for a deferred
pension accepted it.
Transfers.
Approximately 60 of 500 eligible workers had indicated a
desire to transfer by signing the transfer lists. The company had expected that
only 20 would actually make the move when the offer was made and the time for
transfer had arrived. Thirty Coleville employees transferred to the main plant:
24 who qualified for benefits and 6 others. Most of the latter group worked the
limited number of hours necessary for them to gain eligibility for termination
pay. Among the 24, those eligible for early pension benefits transferred to build
up their social security benefits as much as their pensions.
Twenty-two of the
transferees were women, m ostly unmarried or widowed. It was considered likely
that more men would have transferred if the employment situation in Coleville
had been more difficult. The distribution of transferring employees by sex, age,
and seniority is as follows:
Age

Women

Men

60 years and over------------------- ----50-59 years------------------------40—49 years------------------------- ----30—39 years------------------------- -----

3
7
5

3
4
1

Total................................. -----

Seniority
2 years and less-------------------- ----3-9 years---------------------------- ----10—14 years------------------------- ----15—19 years------------------------20—24 years------------------------- ----25 years and over------------------- -----

6
6
3
6
1

1
3
4

Total---------------------------- -----

The employees who transferred were, on the whole, reported as satisfied
with the opportunity to continue employment with Mt. Lion. The reception by the
local union was different from expectations; it was friendly and helpful both on
and off the job. Several employees who had transferred with the intention of
returning to Coleville after a few months enjoyed the new location to the extent
of remaining there. Among those who returned to Coleville, the reason given
was difficulty in adjusting to urban living rather than dislike of either plant
or job.

82
Termination Pay. A total of $ 6 8 6 , 568 was awarded in termination pay
between September 1962 and June 1964. Individual gross termination pay ranged
from $216 to $2,366, depending on the number of hours worked after the effective
date of the plan. W orkers at the lower end of the benefit scale could receive
much le ss in net pay since they were more likely both to have been laid off and
to have borrowed up to one-half of their future termination pay. The maximum
paid to men was $ 2 , 366, to women $ 2 , 050, the difference due largely to more
overtime opportunities for men. M ost of those working at the time of the shut
down announcement who were eligible for termination pay received more than
$ 1, 500. A distribution of termination pay awarded between September 1962 and
June 1964 follows:
Termination pay

Number of
employees

$200“$299-------------------------$300-$399-------------------------$400-$499------------------------$500-$599------------------------$600-$699------------------------$70O-$799------------------------$800-$899------------------------$900-$999------------------------$1,000-$1,099------------------$1,100-$1,199------------------$1, 200-$1,299------------------$1,30O-$l, 399-------------------

2
2
24

26
26
30
20
11
18
16
26

Termination pay

Number of
employees

$1,400-$1,499.....................
$1,500~$1,599..........
$1,600“$1,699....................
$1,700-$1,799....................
$1,800^1,899.....................
$1,900~$1,999....................
$2,000-$2,099—.................
$2,10O-$2,199...............
$2,200~$2,299.....................
$2,300-$2,399....................

22
24
28
33
36
49
43
18
6
3

Total-----------------------

1 489

* The number of employees receiving termination pay includes 18 employees who
accepted termination pay between December 1963 and June 1964. These employees had
transferred or had not previously applied for benefits.

Although there was no extensive study of termination pay expenditure,
individual cases did come to the attention of the company, the union, and the
BLS representative. Analysis revealed two major categories of workers who
received termination pay: One consisted of em ployees, almost all men, who had
other jobs when they left Mt. Lion or found them shortly thereafter. The second
included women who were prim arily long-tim e secondary wage earners in the
family. In both cases, termination pay was likely to be largely invested in sav
ings accounts, home mortgage payments, and debt liquidation. In one instance,
termination pay was used to pay for remodeling of a home, a project begun
before the announcement of plant shutdown; the owner insisted the job would not
have been undertaken had she expected the shutdown. There were no known in
stances of creditors insisting that termination'*pay be applied to outstanding debts,
although some creditors did check to see if debts could be met. At least two
employees used the money to start their own businesses, one of which failed
within 3 months. Others bought new homefurnishings, one a car to look for work,
another a car for a son. Pay received around Christmas contributed to money
spent on gifts. Relatively few people used termination pay for self-maintenance;
those who did were people who were their own self-support and who had exhausted
their unemployment compensation. In no known instance was termination pay
spent in an obviously frivolous manner; i.e ., not in conformity with normal ex
penditures of available cash.
Other Jobs. A major distinction in placement of male and female em
ployees was obvious— men got jobs relatively quickly. Mt. Lion was the only
major industrial employer of women in the community. Other employers were
reportedly reluctant to employ women, not so much because different skills or
physical effort were required but because State legislation on overtime work for
women reduced employer flexibility in meeting variable production loads.

53
As far as was known, all men displaced by the shutdown were working
at regular jobs by November 1963. Approximately 24 men were employed at the
local parent company plant, a result of the preferential hiring arrangement worked
out by the personnel managers. Women, on the other hand, had little opportunity
for employment; age was often another obstacle they had to overcome when
applying for jobs. Their principal opportunity lay in retail store selling. Many
women were reluctant to apply for such jobs, however, preferring the atmosphere
and work of manufacturing jobs with which they had long been associated. N ever
theless, a number did accept retail store work when it was available. Others
became w aitresses or typists if they had the skill. A few found factory jobs;
one woman admitted the only reason she was employed temporarily on a second
shift was because of 11inside pull.11 One woman received training as a medical
secretary under the Manpower Development and Training Act of 1962. Most
women remained unemployed. A ll those interviewed claimed they would have
remained working until retirement if the plant had not closed. Further, they
would return to work if the plant were to reopen or if another manufacturer
could utilize their services.
W hite-Collar Employees
The situation of w hite-collar employees was different from that of work
ers in the collective bargaining unit. Instead of a pension-termination pay fund,
salaried workers had a pension plan with vesting provisions which permitted
a lum p-sum settlement in lieu of a deferred pension. Until the change in
ownership a few years earlier, salaried employees also participated in a
profit-sharing plan, benefits of which could be accumulated or withdrawn peri
odically. These two sources could provide salaried workers from very little to
a substantial amount of money. A manager with 25 y ea rs’ service received over
$ 10, 000. One man who remained with the company had available an individual
account of $ 70, 000 in accrued benefits. On the other hand, some white-collar
employees received le ss money when they left than blue-collar employees with
similar service periods.
All salaried personnel, including clerical personnel, were offered jobs
with the company, though not necessarily at their previous levels. At the same
time, the company did not discourage people from looking elsewhere and leaving
at their convenience.
Local plant officials were active in aiding placement of
salaried personnel. Many decided to leave the organization and remain in the
local area. A few went into business for them selves.
Impact on the Community
The sm all number of people actually working at the time of plant closing,
together with a rapid increase in area employment, minimized any serious adverse
effect that the shutdown might have had on the local economy. Community busi
nessmen pointed out, however, that the larger group of employees on Mt. Lion’ s
seniority rolls were already on layoff at the time of plant closing. Many of these
employees experienced long periods of unemployment and had thus been a loss
to the economy prior to the form al closing.
Continual employment erosion at
Mt. Lion since the m id -19 50's may also have restrained consumer purchases
among those fearing future layoffs.
Both points suggest that the effect of the
shutdown began long before the plant closing.

54
2.

The Navy sail Corporation

Introduction
The Navy sail Corporation manufactures a variety of consumer and
industrial products in many plants throughout the United States. Its Ohio plant was
part of a division whose headquarters were 350 m iles away. The plant had begun
operations in 1951 in a building erected for the company by the community at a
cost of $ 1 20,0 00 . Navysail had agreed to a 10-year lease of the building, at the
expiration of which it renewed the lease through 1966.
In July

1963, the Ohio plant of the Navysail Corporation was closed.

The Ohio plant was located in a city of about 5 ,0 0 0 people in the
Appalachian region of southeastern Ohio. A decline in coal mining had created
a substantial excess of workers over available jobs in the area. Some light
industry had been introduced, including a shoe company that was the only other
m ajor employer in the city.
In 1963, the Ohio plant employed approximately 130 wage and salary
em ployees, somewhat lower than its peak employment in the m i d -1950*s. The
employees were organized by an affiliate of the A F L —CIO in 1952. (The division
headquarters plant had been organized earlier by another affiliated union.)
Relations between management and union were peaceful and no time had been
lost due to work stoppages.
Of the 116 employees in the bargaining unit in March 1963, 71 were
women and 45 were men, distributed among nine labor grades, as follows:
Grade
2~

.34—
5~
6-

7~
910-

11.

The

Wage rate

Women

Men

$1.78
1.87
1.98
2.10
2.26
2.42
2.73
2.91
3.03

62
9

2
1
5
2
1
7
15
10
2

116 employees were distributed by age and length of service, as

follows:
Years of service
1—4__________ .5=9_________ 10-14_________ Total

Age
Men
29 years or less-----------1
30-39 years.............................
40-49 years — -------- —
4
50-59 years--------------60 years and over---------Total------------------

Women Men

Women Men Women

1
-

2
10
7
1
-

2
17
20
-

8
6
4
2

Men Women

3
14
16

18
17
5
2
45

3
32
36
71

Because of the steady work, above-average wages, and working conditions,
the plant was regarded as a highly desirable place to work. Many employees
felt the company was nthe best thing that ever happened to the a r e a .11

55
Plant Shutdown
On M arch 19, 1963, management announced its intention to close the
Ohio plant, starting in May and ending in September. The announcement stated
that termination pay provisions would be in effect when the plant closed.
The decision to close the plant was based exclusively on economic
considerations. The cost of transporting raw and finished m aterials, and of
overhead in multiple plants outweighed the advantages of continuing separate
operations, including the wage and efficiency differentials the company enjoyed
in southeastern Ohio. The decision was part of the company*s continual realinment
of production facilities. Although the Ohio plant was the first in its division to be
closed, experience with shutdown procedures in other divisions proved applicable.
Reaction to the plant closing announcement was shock and disbelief among
em ployees, the union, and the community. There had even been some hope of
production being moved from division headquarters. City and union leaders
volunteered **to do whatever is necessary” to keep the plant open. Only after
they had been assured that the decision was irrevocable did they turn their
attention to coping with the shutdown.
Community officials were concerned with the mortgage remaining on
the plant building and the loss of business resulting from the plant closing. The
company offered a financial settlement for the outstanding portion of the lease.
The city attempted to interest other employers in locating in the city, but 1 year
after the shutdown announcement no new industry had been attracted.
Union leaders met with management to discuss and negotiate plant closing
procedures. The m ajor revision in existing provisions was "r e v e r se seniority
in la y o ffs ,” i. e. , a senior employee had the right to choose layoff if a junior
employee scheduled for layoff could perform the work. This change was designed
to permit senior employees to accept other jobs without forfeiting severance pay.
The company also unilaterally offered to extend severance pay eligibility to
employees laid off m ore than 90 days before plant closing; this change in the
severance pay plan was implemented without being negotiated.
Management, meanwhile, was busy preparing movement of equipment,
scheduling layoffs, and explaining benefits available to employees. The rate of
layoffs depended on the rate of moving equipment which, in turn, was largely
dependent on the ability of the division headquarters plant to absorb additional
machinery. The first schedule of layoffs, posted about May 1, spread layoffs
from May until September. The rate of shutdown, however, proceeded more
rapidly than management had expected, largely because of the number of Ohio
plant mechanics who accepted employment at division headquarters. By early
June, the local newspaper reported movement of one-half of the production
machinery and a revised anticipated closing date of August 1. The movement of
equipment was actually completed on July 10, and the keys to the plant returned
to the city on the next day.
Approximately 10 days before layoff, employees met with the plant
manager who explained in general term s the available benefits and the steps
necessary to obtain them. Each person was then given a form with details of
benefits, including amounts, dates due, and procedures, as they applied to the
individual. (See last page of this section.)
The company decided not to sponsor any employment referral program
since there were no other employers directly interested in the skills possessed
by Navysail w orkers. Cooperation was given to the State employment service,
and all employees were referred there for job placement counseling as well as
filing unemployment compensation claim s.

56
Some management anxiety about the process of closing the Ohio plant
proved unwarranted. There was no instance of employees leaving before scheduled
layoffs apart from the few employees who exercised their right to leave if junior
employees could fill their positions. M oreover, there was no last minute filing
for workmen’ s compensation, as the company had experienced in some other
plant closings.
Management’ s principal personnel concern was administration of the
policies and programs proposed unilaterally by the company or previously agreed
to in collective bargaining: Offers of johs at other company locations; monetary
payments available at the time of plant closing including severance pay, savings
and retirement account, and savings and security account; and other benefits, such
as pensions and insurance plans. Each of these w ill be discussed in turn.
Job Offers with Navy sail
Shortly after the initial announcement of plant closing, the company
informed employees that, in accordance with policy established in prior plant
closings, it would give preferential consideration to terminated employees inter
ested in employment at division headquarters. Interest would be indicated by an
employee signing a list, but this act did not commit either the company to offer
a job or an employee to accept a job. Those who accepted employment at division
headquarters would be considered new employees for layoff purposes but would
be able to transfer length -of-service credits for benefits, such as pensions and
vacations. Although employees accepting employment would receive no moving
expenses, they would get severance pay and would otherwise be treated as
terminated employees. While no one was excluded from employment consideration
at division headquarters, the company was m ost interested in offering jobs to
the 35 mechanics at the Ohio plant. From experience in other plant shutdowns,
management did not expect that many employees would accept employment at
division headquarters.
About 20 em ployees, including three women, indicated interest in being
considered for employment at division headquarters. The plant manager made
job offers on the basis of seniority and job availability. The division headquarters'
wage scale was approximately 10 percent higher than that of the Ohio plant, and
no one was offered a job at a lower grade than at which employed when the plant
closed. Although some employees withdrew their applications, 15 went to division
headquarters, beginning at the end of May. They went as soon as their machines
were moved, or as soon thereafter as suited them. Only 1 of the 3 women,
accepted a job. The 14 men, most of whom were in their late thirties, were
mechanics. While not all of the senior mechanics went to division headquarters,
the company was pleased that so many did, -for this facilitated the movement of
equipment.
Employees who did not express interest in or accept employment at
division headquarters offered a variety of reasons, including financial and
community differences, employment factors, and personal considerations. Moving
involved immediate out-of-pocket expenses. Most people owned homes which were
likely to be sold at a lo ss. The headquarters community reputedly had higher
cost-of-livin g and tax rates. Even its superior school system was viewed as a
deterrent by parents who feared their children would have to transfer into a lower
grade. Another objection frequently raised was the absence of layoff seniority
for employees moving to division headquarters, which made employment appear
tenuous. Futile attempts to work out an arrangement for transfer of seniority
were complicated by different union representation at the two plants. There were
also individual reasons for choosing to remain. A ll of the company employees
regarded southeastern Ohio as their home. Proxim ity to relatives and lifelong
friends was hard to give up. Perhaps m ost important, of all, those who remained
believed that they would be able to find employment somewhere in the area*.

57
The attitude of those who chose from the outset not to leave was
reinforced by those who went to division headquarters and then returned. Only
6 of the 14 men who went in the summer of 1963 remained there by spring of
1964. These six had moved their fam ilies before beginning work at division
headquarters. Each of the other eight was head of a family who was "trying out",
the job and living conditions before moving his family. Some of the returnees
felt that they had to work harder at division headquarters than previously. Being
assigned to instruct employees who had more seniority, m oreover, aggravated
their uneasiness over job security. Maintaining two places of residence and
commuting 350 m iles each way on weekends proved expensive. Distance also
created family disruptions. Some men quit to return to seek work in Ohio.
Most
of those who returned, however, waited until they were certain of employment
near home to avoid m issing a paycheck.
Payments Available at Tim e of Plant Closing
Several plans and provisions provided terminated employees with financial
resources: A savings and retirement plan, a savings and security plan, and a
termination pay plan.
The savings and retirement plan, begun in 1942, was designed to
serve a variety of purposes and to m eet "sp ecial problems peculiar to our
company . . . such as the large percentage of women in our employ, many of
whom leave before retirement a g e ." The plan provided an annuity at time of
retirement or disability, a death benefit, or termination pay for employees
leaving for any other reason. Employees who elected to join could participate
in the plan after 1 to 3 years of service, depending on the em ployee^ age at
time of employment (3 years for those hired before their 35th birthday, 2 years
for those between their 35th and 40th birthdays, 1 year for those after their 40th
birthday). Benefits were paid from individual employee savings accounts accu
mulated from a 3-percent payroll deduction, and annual share of 6 percent of the
company^ net profits before taxes, and interest. The company made additional
contributions of one-half of employee accumulated contributions in case of laid-off
and retired em ployees. No attachment to or withdrawals from membership
accounts were permitted during employment. Over 98 percent of employees
participated in the plan. Member accounts were frozen in 1961, when the company
converted the plan into a noncontributory pension plan.
The contributory and profit-sharing provisions of the savings and retire
ment plan were incorporated into a new plan, the savings and security plan.
M embers contributed 3 percent of earnings through payroll deductions, and the
company contributed 6 percent of net profit before taxes annually. Employees
could withdraw money from their accounts after 12 months of participation. The
plan encouraged thrift and permitted withdrawals at time of layoff or emergency.
Its prim ary purpose, however, was financial aid at retirement or separation from
employment.
In the I960 collective bargaining negotiations, management proposed a
termination pay plan to be effective the first of the following year. Union
negotiators at the Ohio plant accepted it. The plan also applied to nonrepresented
employees in organized plants and employees in unorganized plants of the
company. The termination pay plan was limited to employees involved in complete
plant closings. Employees laid off within 90 days of plant closing were deemed
eligible for benefits. The amount of pay awarded was related to length of
continuous service, with 8 hours1 pay at straight-tim e hourly rates for each of
the first 5 years of service, and 40 hours at such rate for each year thereafter.
Experience with the plan indicated no administrative difficulties. Management
attributed this record to the simplicity and clarity of the agreement provision.

58
Every hourly paid employee on the company*s rolls at the Ohio plant at
time of plant closing announcement was eligible for termination pay. A m em o
randum on the amount of termination pay due each employee was sent to the
company*s central computing and payroll headquarters. Termination pay was then
mailed together with the individuals final week of wages approximately 1 week
after separation. A total gross amount of $45, 198 in termination pay was paid
to the 116 employees in the bargaining unit: $ 1 9 ,8 1 2 to 45 men and $2 5,38 6 to
72 women. An additional $7 08.59 was awarded to four women clerical and staff
personnel, and $ 1 ,9 2 7 .1 6 to the two foremen of the plant. Individual termination
payments of bargaining unit personnel ranged from $14. 96 for a grade 4 man
employed 1 year to $ 9 31.2 0 for a grade 11 man with 12 years of service.
Termination payments were distributed as follows:

Termination pay

Men

Women

Totals

$0—$99---$100—$199
$200—$299
$300—$399
$400—$499
$500—$599
$600—$699
$700—$799
$800—$899
$900—$999

5
2
9
1
8
6
5
7
1
1

1
8
18
13
25
6

6
10
27
14
33
12
5
7
1
1

Total-

116

Aside from taxes, the only deduction from termination pay was outstanding amount
of "em ployee s a l e s ," i. e. , sale of company products at reduced prices and on
credit to employees. Maximum credit of such sales was restricted to $250, but
only 10 percent of employees had outstanding debt at any one time.
Other payments were available from the company at time of separation.
A lm ost every employee was a form er member of the savings and retirement plan,
and a substantial though sm aller proportion had chosen to subscribe to the savings
and security plan. To some em ployees, one satisfaction from the shutdown
situation came in being able to get their otherwise untouchable savings and
retirement funds. Terminated employees could apply to close their savings
accounts or leave them for 18 months to draw additional interest; no employee
chose the latter option. Processing applications for closing of savings accounts
took approximately a month. Amounts received from the savings plans varied
m ore widely than those of termination payments, since the amount of employee
contributions depended on rate of pay and actual hours worked. For a man at
the top of the pay scale with 10 years of service, the largest return from the
savings and retirement plan could be over $ 3 ,0 0 0 ; senior women employees would
receive about two-thirds of that amount. The short period of effectiveness of the
savings and security plan and the spotty participation in the plan made it of
le sser significance, but payments to participants ranged up to $400.
Maximum total payments at termination from all sources were over
$ 4 ,0 0 0 . M ore typical perhaps were the following amounts: A grade 6 employee
with 11 years of service received $ 2 ,675 in total, of which $630 was termination
pay; a grade 9 employee with 8 years of service, over $ 1 ,6 0 0 , of which $400
was termination pay; a grade 3 employee with 9 years of service, over $ 1 ,7 0 0 ,
of which $375 was termination pay.

59
The amounts of money, substantial in many ca ses, were spent in various
ways: To meet debt obligations, to make new purchases, or to invest in savings
or sim ilar program s. M ost people used at least part of the amount to pay
outstanding debts or to m eet future obligations. Typical expenditures of this type
were m ortgages, car payments, and other form s of installment-purchase debt.
Many employees had incurred new financial obligations shortly before the an
nouncement of shutdown that they otherwise would have avoided; in this category
were new automobiles and home remodeling projects. While there was no feeling
of creditors unduly pressuring to collect or accelerate repayments, at least one
woman had to surrender a car for delayed payments, and others were concerned
about their ability to keep up payments without new sources of income. A s far
as could be determined, few people made additional purchases on the strength
of their severance pay; only two instances were cited of people buying a new
car or taking an elaborate vacation after receiving shutdown payments. Some
workers had already committed part of their shutdown payments; as one employee
who had been extended credit at a local auto service station on condition of
repayment from severance pay. Management believed that employees who moved
their fam ilies to division headquarters probably used shutdown payments to defray
moving expenses. Returnees who were interviewed had given thought to spending
the money as a down payment on a trailer or a house, in the new community, but
found other uses for the money. A s of March 1964, no form er employee had
moved except to division headquarters. Only one undertook training for another
trade by enrolling at a barber school. Finally, some workers banked the money
"fo r a rainy day" or, m ore rarely, "a s a kind of pen sion ." Money banked for
future emergencies sometimes slipped away m ore quickly than planned. Workers
subsequently earning lower incomes had the problem of maintaining form er stand
ards of living. Those without current income had a m ore acute problem. One
man, unemployed 9 months, claimed to have exhausted his shutdown payments of
over $ 2 ,0 0 0 as w ell as previous savings. W orkers who retained much of their
shutdown payments were likely to be women whose husbands were working at w ell
paying jobs or men who quickly found other employment at comparable wages and
who, in both c a ses, made a conscientious effort not to touch the money. These
workers were very few; the overwhelming majority had little, if any, of their
shutdown payments left after 9 months.
Other Benefits
Besides the financial payments, benefits were available at time of plant
closing, from the current pension and insurance plans.
The noncontributory pension plan instituted in 1961 provided for normal
retirement at age 65, early retirement at age 55 with 15 years of creditable
service, and vesting at age 40 with 10 years o f creditable service.
For
service prior to 1961, creditable service was defined as continuous service
less 1 to 3 y ea rs, depending on age when joining the company, as in the case
of eligibility for the form er savings and retirement plan. One employee received
an immediate full pension, and three others qualified for a vested pension. Since
individuals eligible for a vested pension had to get in touch with the company
when they reached 65 years of age, it was imperative that they understood their
eligibility. Interviewed employees knew of no cases of pension vesting. In any
case, pensions vested in 1963 would have been sm all, for they would amount
to 1 percent of total compensation earned after September 1, 1961, i. e. , probably
under $100 annually after age 65.
The company provided employees and dependents with group coverage
of life insurance and hospital-surgical-m edical insurance. The form er terminated
at the end of the last month of employment but could be continued at group rates
for 18 months if the employee paid the full premium. The latter normally ended

60
at the end of the month following the month in which employment terminated.
Employees were offered continued coverage for 18 months by paying the entire
premium at the group rate to the company in monthly installments. The cost
for a family was $14.'88 per month. Fifty-one employees (45 percent of those
eligible) took advantage of the option. Cost was the m ost frequent reason given
by those not maintaining the insurance; in several instances workers were
hospitalized at heavy expense after the termination of their insurance with the
company.

State Unemployment Compensation
Payments from the State unemployment compensation system were
available to all terminated employees without other work. The compensation
lasted for 26 weeks and consisted of a maximum basic weekly rate of $42 plus
maximum "dependents1 allowance" of $11. An official of the system estimated
that about one-half of the employees involved in the Navysail shutdown had used
up the full 26 weeks of eligibility by March 1964. Some workers accepted employ
ment at wage rates that yielded less than unemployment compensation, to preserve
eligibility for unemployment compensation for a time when they would again be
laid off. Others chose to remain on. unemployment compensation until obtaining
"su ita b le " employment.
At the time of the shutdown, the receipt of termination pay did not affect
employee eligibility for unemployment compensation. Effective October 1963, the
Ohio law was revised to affect instances where termination pay was awarded.
Had this provision been in effect 6 months earlier, terminated employees would
have been disqualified for up to 8 weeks of unemployment compensation.

Subsequent Employment Experience
The employment situation in southeastern Ohio in early 1964 was much
the same as it had been in the latter half of 1963. The county in which the
Navysail plant had been located had an unemployment rate of 7. 8 percent. The
figure was low relative to neighboring counties because a substantial portion of
the county’ s labor force was employed in government services and nonprofit
institutions. The next county, in which there was m ore manufacturing, had an
unemployment rate of 18. 9 percent; women constituted one-fourth of the un
employed. The job situation was aggravated by the simultaneous closing of Navy
sail and a furniture manufacturer employing 160 in a nearby community.
N evertheless, m ost form er Navysail employees had other jobs by March 1964,
although some had been without work for many months.
A lm ost all employees who remained in southeastern Ohio registered
for employment placement with the State employment service, if only to establish
eligibility for unemployment compensation. Some registered at several offices
in the area to improve chances for finding employment. Each office could offer
job vacancies in its own area since the interoffice clearance system provided
openings only for skilled and professional personnel. Although no separate figures
were collected, State employment service staff believed that they placed a
significant number of Navysail employees, especially after a new plant opened
in the area in the summer of 1963. In addition, the service conducted special
surveys for potential employers interested in locating new industry in the area.
The outstanding success of the State employment service placement
program was with a rubber company plant, which commenced operations in
July 1963. By spring 1964, employment had climbed to 300. The em ployer's

61
initial requirements were rigid, including minimum height, weight, and intelligence
test scores. The tests were selected and administered by the State employment
service office to about 650 w orkers. A s the company’ s labor requirements rose
in early 1964, some screening requirements were waived. Over tim e, several
dozen form er Navysail employees found jobs at the rubber company, though at
substantially lower wages than they earned form erly. Others interviewed stated
that they would gladly have accepted employment there but had been turned down.

Other form er Navysail employees who had found jobs by March 1964 did
so singly or in sm all groups. Work was frequently obtained through referral by
friends. One woman was hired at a local shoe factory 3 weeks after termination;
six other women were hired there 9 months later. Several women obtained
manufacturing work at a lens company. Some accepted cooking and service jobs
at nonprofit institutions at less than $1 an hour, or one-half of their form er wage.
A local hospital employed two women as nu rse’ s aides. Some men accepted jobs
in g la ss, clay, aircraft, and service industries. Commuting 30 to 60 m iles for
work was not uncommon, with some going as far as 80 m iles from home each day.
In the absence of other work, construction was always a seasonal possibility for
men, if only to qualify for further unemployment compensation. Most of those
interviewed regarded construction as a temporary and unsatisfactory solution.
One man worked 3l/z months on construction until laid off in November; he had
not obtained other employment by the following March. Another worked 5 months
on residential construction before being laid off. Both men stated that they would
be willing to work at lower paying but steadier jobs. Even those able to get
regular full-tim e work were not certain of future employment; layoffs and bumping
threatened to displace some of those with jobs or to cut their wages to the point
where they felt they could no longer afford to commute to work.

With the exception of two women who chose to withdraw from the labor
force, all of those without jobs in March 1964 claimed to have looked extensively
for work by applying directly to employers and through State offices within a
60-m ile radius. Wages above a given minimum also, were not a prim e concern
of these people, who were willing to work at less than 60 percent of form er
wages. None of the unemployed attributed age as a deterrent to being hired since
they could point to older coworkers of sim ilar skills who had been hired. Yet,
the director of the local State employment service office admitted that age became
a factor when people reached 40. A ll of those interviewed who were not employed
were 40 years of age or older.
The desire for ’’good” employment was stressed repeatedly, even by
those who had jobs. ’’Good” was interpreted as secure jobs with the possibility
for future advancement opportunity. In concrete term s, the concept explains the
eagerness to gain employment at the rubber company rather than at the local
shoe factory and sim ilar institutions. Ironically, Navysail had been regarded as
a place of ’’good” employment. The plant closing experience had convinced some
that the future of local manufacturing would remain tenuous and that the
only ’’good” employment remaining was in utilities, government, or nonprofit
institutions.
A ll of the interviewees, when asked, expressed interest in training if
it would lead to a job in the area. Few had any ideas of what sort of training
would be advantageous, and none had seriously considered the possibility of
training. The interviewees would have been willing to pay tuition for training
leading to a job if they had money available.
205-662 0 - 6 6 -6

62
Exhibit 1
Form Given Employee Prior to Termination
Date_________________
Name

____ ___________________________________________

S.S. No. _______________

The following is general information concerning your "Layoff Lack of Woric Due to Plant Closing:"
1. Last day woiked will be_____________________________ .
2. ____________________________ will be your day of the week to report to the unemployment office to register
for unemployment compensation.
3. The following are sbme of the more important points relating to continuing your group insurance coverage following
your separation from the payroll.
(a) Your life insurance and H-S-M insurance may be continued monthly up to 18 months following your
separation from the payroll.
(b) Life insurance premiums are payable on the date of your separation for the following month. The present
monthly rate is $.310 per $1,000 of insurance. This amount is subject to change from time to time at which
time you will be so notified. Each subsequent payment is due on or before the 20th of the month.
(c) Your H-S-M insurance premium is payable on or before the 20th of each month following your separation.
The present rates are $4.31 for single coverage and $14..88 for family coverages. These amounts, also, are
subject to changes from time to time. Failure to submit your insurance premium on or before the 20th of each
month will result in automatic cancellation of your insurance.
(d) Your first life insurance premium, due on the date of your separation, is to be made at the Ohio plant.
Each subsequent payment and your H-S-M premium payments are to be paid by check or money order made
payable to: "Navysail Petty Cashier" and mailed to:
Personnel Department
Division Headquarters
Navysail Corporation
(e) Following the 18-month period, you may convert your insurance policies to a direct payment plan by
contacting your local insurance agent. The rates for this will undoubtedly be higher than under the group plan.
4. You will receive______________ hours of termination pay for plant closing based on your present straight-time
hourly rate.
5. You will receive your regular pay, accured vacation pay, and termination pay on_____________________ .
Balances due on employees purchases will be deducted from your final check.
6. You may cancel your employee stock purchase plan by completing Form ESP 41 which will allow the funds credited
to your account to be refunded in cash or allow you to purchase full shares applicable from the funds credited
to your account and the remainder of such amount to be refunded in cash.
7. Former S S R members may withdraw the funds credited to your pension account or withdraw the funds anytime
subsequent to your separation up to 18 months at which time you will be so notified to withdraw. After the
Ohio operation ceases, the forms are available upon request from the Personnel Department at Division Headquarters.
8. S &S members may make a normal withdrawal of funds credited to your account 30 days following your
separation date.
9. Important items to remember:
(a) Change of address notices should be mailed to Personnel Department, Division Headquarters, Navysail
Corporation.
(b) Forms for H-S-M claims should be requested from the Personnel Department at Division Headquarters.
(c) All insurance claims will be handled by the Personnel Department at Division Headquarters.

63
3.

Moonwitch Company

Introduction
The management of Moonwitch Company announced in the summer of
1962, that it would close one of its two plants and shift production to the other
plant in a nearby community.
Over 800 employees were affected by the shut
down, less than 15 percent of whom were women.
The majority of Moonwitch
jobs were sem iskilled or unskilled; skilled jobs constituted le ss than 20 percent
of manual employment.
Moonwitch, established in the late 19th century, was a fabricated metal
manufacturer.
The company made a line of consumer products under the "B e
witched" trade name and a variety of other articles on a contract b asis. Through
a 1937 m erger, the company expanded its operations to a second location, 23 m iles
away. A subsequent purchase of the company by Hecate Corporation was chal
lenged as a violation of antitrust statutes.
The corporate entity and name of
Moonwitch Company were reestablished with the sale of operations to a new group
of owners in 1961.
The company was situated in a highly industrialized, heavily unionized
area.
It had been organized in 1937.
There had been only one full-fledged
strike, in 1946, when workers staged a 6-week sympathy strike with workers
in basic steel.
Labor relations at the newer plant were regarded as more
restless, as exemplified by a problem with "w ildcat" strikes.
Nevertheless,
both management and union termed relations between the parties in both plants
as "g o o d ."
Since 1952, the two plant locals of the union negotiated jointly for a
m aster contract with the company.
In general, the agreements followed the
pattern of the basic steel contracts, although there was sometimes a substantial
time lag; for example, severance pay was first included in the Moonwitch agree
ment in 1952, whereas it originally appeared in the U .S . Steel contract in 1947.
The Moonwitch agreement also contained pension and supplemental unemployment
benefits.
Seniority for layoff and transfers was determined by departmental length
of serv ice; there were separate seniority lists for men and women. Employees
retained seniority following layoff for a period equal to length of continuous
company service prior to layoff.
The shifts in corporate ownership affected financial responsibility for,
but not the substantive language of, benefit programs contained in the labor
agreement. A s part of the purchase of Moonwitch, Hecate Corporation received
by transfer a $3, 500, 000 pension fund established for Moonwitch employees, which
it merged into its own pension fund. No further contributions to the fund were
made during Hecate* s ownership.
In the 1961 sale agreement, Hecate agreed
to finance pensions already granted, to pay for past service costs for vested
pensions at the newer plant, and to give Moonwitch $500, 000 for its pension fund.
The new owners would assume the past service costs of the pension plan at the
older plant, and current charges for both plants. In addition, Hecate Corporation
would be responsible for severance pay costs up to $ 5 0 0 ,0 0 0 in the event of a
plant closing within 3 years, a provision which brought Hecate into the negotia
tions following announcement of the shutdown.

64
The 1958 Department Shutdown
In an effort to. cut costs and improve efficiency during its period of
ownership, Hecate consolidated the manufacture of all Bewitched products into
the newer plant in 1958. The headquarters of the Bewitched Division was moved
at the same time. Part of the older plant was closed, resulting in the term ina
tion of approximately 300 employees.
This was the first time the severance
provisions of the collective bargaining agreement were applied.
The severance pay plan was sim ilar to plans negotiated in the basic
steel industry. Employees with at least 3 years of continuous company service
gained eligibility if they were terminated as the result of a permanent plant or
department closing and were not entitled by seniority to another job. The com
pany could offer an option of employment in the same job class and general
locality. M oreover, all eligible employees could elect a limited period of layoff
with supplemental unemployment benefits and retention of seniority, the SUB to
be deducted from severance pay if the employee was not recalled. The scale of
severance pay was 4 to 8 weeks1 pay based on recent average hourly earnings.
The union advised acceptance of the layoff option by those employees
close to retirement or vesting of their pension rights. Though employees choosing
layoff had no transfer rights to the newer plant, management and union informally
agreed that these employees would be considered for employment at the newer
plant as new employees.
Between 30 to 50 employees who were terminated chose layoff in p refer
ence to severance pay. Many of these people were employed at the newer plant,
but some applicants were turned down.
Eventually all of the employees who
selected layoff were recalled to the older plant, the last being recalled in
May 1962.
The 1962 Plant Shutdown
In early 1962, Moonwitch decided to close one of its plants. Financial
problems and the sales volume of Bewitched products made retrenchment neces
sary. Management1s principal consideration in choosing between the two plants
seemed to be marketability of the plant facilities. (By October 1963, the general
offices and warehouse of the newer plant had been sold; the main factory building
remained unsold.)
On July 9, 1962, the union was notified of the impending plant closing
and movement of production of the Bewitched line to the older plant.
On the
following afternoon, notice was given to employees through an announcement on
the plant bulletin boards.
The story appeared in local newspapers on July 11.
Employees at the newer plant were stunned; they had believed that the
more modern and efficient facilities foreclosed the possibility of a shutdown at
the newer plant before the older one. Even after reading the official announce
ment, some employees refused to accept it and counted on an upturn in business
to save the plant. That such hopes were unrealistic was realized only with the
receipt of individual notice of employment termination.
Employment at the newer plant had declined long before the closing
announcement. From 1957 to 1961, employment dropped from 1, 100 to 400 em
ployees with only one m ajor reversal— i. e ., when 200 employees were recalled
in 1958 because of the transfer of production from the older plant. At the time
the plant closing was announced, almost two-thirds of the employees who even
tually received severance pay were on layoff.

65
Management anticipated initially that the transfer of operations to the
older plant would be completed in March 1963. The auction sale of m etal stamping
presses at the end of October 1962 left assem bly and shipping work for 250
people.
Additional m ajor layoffs occurred in December 1962 and March 1963,
and the headquarters of the company was returned to the older plant in September
1963.
By January 1964, 10 employees remained working at the newer plant
becau.se of lack of space elsewhere.
The Shutdown Agreement
The announcement of the plant closing brought forth union demands for
a special agreement. The union wished to obtain protection of pension and em
ployment rights and m ore security than the regular agreement granted. Because
Hecate was still involved in financing pensions and severance pay, tripartite
negotiations were conducted with representatives of Hecate, Moonwitch, and the
union.
The two companies wanted to lim it their financial liability.
Moonwitch
was also concerned with the effect pf the shutdown on employee m orale in the
older plant.
The content and conduct of bargaining had repercussions within union and
management.
Employment rights of terminated personnel were subject to bar
gaining.
The sensitivity of this matter for the union locals concerned was
heightened by the previous rejection of employment rights for personnel affected
by the 1958 shutdown.
When preferential hiring and transfer of seniority of
newer plant employees were first discussed in 1962, the resultant hostility be
tween the locals required the mediation efforts of the international union. Another
reaction occurred because top officials of the corporations and international union
did the actual bargaining.
Local union and management personnel at the newer
plant were too involved with the shutdown to take a major roll in bargaining, but
they were kept informed of the progress of negotiations. Even though company
and union personnel at the older plant were affected by the outcome of negotia
tions, persons on neither side were consulted in the process.
Only when the
final agreement had been reached did they learn of its significance for operations.
The shutdown agreement enlarged the scope and applicability of pension
and insurance benefits available to affected employees but restricted choice among
benefits and other options relating to the SUB plan. The agreement also intro
duced interplant employment rights for certain terminated em ployees.
There
was no change in severance pay provisions. The effective date of plant closing
for determination of benefits was established as October 31, 1962.
The changes in company benefits affected by the shutdown agreement
are summarized in exhibit 1, page 70.
The company1s pension plan was m odi
fied to permit younger, lon g-service employees to qualify for immediate pensions.
The only choice for employees eligible for a pension was between a regular or
a special early retirement pension; the choice became relevant with consideration
of insurance features. Employees aged 60 to 64 with at least 20 years* service
who wanted life and medical insurance coverage had to decide whether it would
be m ore advantageous financially to choose a regular actuarially reduced pension
and company-paid insurance or a special full pension with the company contrib
uting 50 percent of the insurance prem ium s.
Although seniority was to cease with termination of employment, certain
employees receiving severance pay were to be offered preferential hiring rights
as new employees at the older plant.
Qualifying for preferential hiring were
employees on the active payroll any time after November 1, 1961; employees
laid off before that date if 38 years old with 13 years* service; or employees
with a minimum of 15 years* service.
Eligible employees were to indicate in
writing whether or not they wished to be considered for employment at the older

66
plant. Company insurance at group rates would be available to employees awaiting
employment offers. Job openings at the older plant not filled by employees on the
seniority list would be offered to the ranking employee on the preferential hiring
list who had "the ability to perform the work. " An employee who failed to accept
a job offer "without reasonable cause" was to be removed from the list.
Em
ployees entitled to preferential hiring but requested by the company to remain
at the newer plant would have their seniority at the older plant begin as of the
day employment there was offered. A ll preferential hiring rights were to remain
in effect until October 29, 1964. These rights were designed to enable employees
with the greatest interest in the pension plan, and least chance for other em
ployment, an opportunity to continue with the company and accumulate new
pension rights.
Employees on the preferential hiring lists would be able to purchase life,
hospital, and surgical insurance at group rates if they did not obtain equivalent
coverage on a noncontributory basis elsewhere. The only choices for employees
eligible for severance pay and preferential hiring were whether to enroll for
such employment rights and, if so, whether to buy life and m edical insurance
from the company plans.
Implementing the Shutdown Agreement
The negotiations for the special shutdown agreement were not concluded
until mid—November 1962.
The protracted negotiations caused confusion among
management and w orkers. For instance, the shutdown agreement terminated all
SUB payments as of October 31, 1962. Employees laid off from the newer plant
were still hopefully applying for SUB during November, awaiting the outcome
of negotiations.
Parts of the agreement were actually implemented before the end of
negotiations but after the outline of principal benefits was settled.
Employees
were asked, first informally and later officially, if they wanted to transfer.
The addition of the insurance benefits persuaded some employees who had little
interest in working at the older plant to sign for preferential hiring.
A m ore formidable problem was raised by the union in September 1962
after preferential hiring rights had been discussed in negotiations.
The union
objected when the older plant hired 12 form er employees who had severed em
ployment in 1958. Hiring new employees, the union argued, would jeopardize the
employment rights of terminated employees. The 12 workers were laid off and
their jobs offered immediately to employees with the m ost seniority at the newer
plant who had preferential hiring rights.
Once the shutdown agreement had been negotiated, the parties began to
make arrangements for compliance.
The company drew up lists of employees
eligible for benefits, a summary of which follow s:
Number
All employees on seniority l i s t ------------------------------------------------------------

824

Employees eligible for pensions-----------------------------------------------------------------

120

Regular full pensions-------------------------------------------------------------------------Regular early pensions-----------------------------------------------------------------------Special pensions-------------------------------------------------------------------------------

6
11
103

Severance p a y -------------------------------------------------------------------------------------

680

Eligible for preferential hiring--------------------------------------------------------------Not eligible for preferential hiring---------------------------------------------------------

327
353

Employees not eligible for benefits-------------------------------------------------------------

Recalled to older plant----------------------------------------------------------------------Insufficient qualification---------------------------------------------------------------------

13
11

67
Of employees eligible for severance pay, 327 men qualified for preferential hiring
rights.
No preferential hiring lists were drawn up for women since a large
number of women at the older plant were on layoff, with little prospect of recall.
Separate letters were composed for employees eligible for pensions and
severance pay (exhibits 2a and 2b, pages 71 and 72). The appropriate letter
with pertinent data typed or checked was sent to each employee at his last mailing
address in late December 1962.
Two days later, an announcement appeared in
the newspaper that severance pay or special retirement pay could be obtained at
the company offices in the newer plant beginning December 24. Employees still
working in the newer plant in December 1962 would get their benefits upon em
ployment termination.
Some employees chose to discuss their choices with company officials.
Line management was given no specific role in explaining the shutdown agree
ment or advising on decisions. The personnel manager, contacted informally by
a number of employees, urged eligible employees to sign for preferential hiring
in order to qualify for group insurance.
Union staff was available to employees who wished to discuss benefit
rights and choices.
The local president received office space in the plant and
leave of absence from his job for 10 weeks to devote full time to assisting m em
bers. In addition, the union opened a special downtown office where employees
could obtain information.
Close cooperation between company and union was
illustrated by the fact that the union checked with the company personnel office
to establish individual employee rights and benefits under the agreement.
The
union also encouraged m em bers to take advantage of preferential hiring and in
surance opportunities.
Employees coming to the company office for benefit pay met with the
personnel manager of the newer plant and the union pension representative.
These men described the available benefits and choices, and answered employee
questions.
The employee then signed a form releasing his claim against the
company and, if appropriate, signed applications for insurance benefits and prefer
ential hiring. Filing of applications could be postponed until the deadline date, but
the release form s had to be signed before an employee received a benefit payment.
Severance pay was paid in lump sum s. Standard deductions from gross
pay for Federal and local taxes were about 20 percent.
The company made
further deductions from the pay of three employees who had collected supple
mental unemployment benefits while ineligible.
Four employees protested the amount of severance pay received and four
others, their alleged ineligibility for shutdown benefits. The company corrected
discrepancies in amounts due upon finding errors in the basis of computation.
One employee was granted a pension when his birth certificate showed an earlier
date than the one on his original employment application.
Company denial of
three requests for severance pay because of the employment status of the peti
tioners at time of shutdown were promptly presented as form al grievances. By
mutual agreement of the parties, the grievances were submitted at the third step
of the grievance procedure and were settled at 50-percent payment of the claim s.
The company permitted employees who had found other employment to
request early termination or, if laid off, to refuse recall to the newer plant
without jeopardizing seniority and benefit status. The company arranged schedules
or found substitutes for all 10 workers requesting early releases.
Most active
employees continued working as long as possible because of the scarcity of
alternative employment opportunities in the immediate area. L aid-off employees
with preferential hiring rights who had found other jobs while awaiting employment
at the older plant were likely to refuse recall to the newer plant.

68
As of October 31, 1962, an estimated 200 workers eligible for shutdown
benefits were still employed at the newer plant; at least 360 were working e lse
where; and approximately 240 were without work.
The employment outlook in
the area in which the newer plant was located at this time was still critical:
Throughout 1962, the area was classified as "D n (6 - to 8.9-percen t unemployment)
by the U.S. Department of Labor. Only with the upturn of the steel business in
spring 1963 did employment increase sufficiently for the area to be classified in
the nC M category (3 - to 5.9 -p erc en t unemployment).
Company and union provided employment assistance in relatively few
instances. Long unemployment of some workers, few openings in the community,
and the existence of preferential hiring rights inhibited any major effort.
The
personnel manager attempted to place some skilled workers in local companies
where he had personal contacts.
The union looked for work in the local area;
it did not receive requests from m em bers for work in other areas. Most workers
who found jobs did so on their own or through the offices of the State employ
ment service.
Results and Reactions
A total of $ 6 3 3 ,0 0 0 in severance pay was awarded by the company in
connection with the plant shutdown.
Individual gross payments ranged from
$ 3 68 to $ 1 ,2 4 2 .6 4 .
(Distributions of employees receiving severance pay are
presented in exhibit 3, page 73, by selected characteristics and severance pay
amount.) The maximum number of weeks* pay was given to m ore than 90 p er
cent of employees receiving severance pay. Although women generally had m ore
continuous service than men, generally lower job classifications provided them
with le sse r amounts of severance pay. The median gross severance pay among
men was in the $ 800—$ 899 range; among women, $700—$ 7 9 9 .
Only 26 percent
of the men and 19 percent of the women were under age 40 when they received
severance pay. Tw enty-six percent of the men and 30 percent of the women
receiving severance pay were more than 50 years old.
When the shutdown agreement was negotiated, management privately e s
timated that employment openings at the older plant might eventually accommodate
125 workers eligible for preferential hiring. It anticipated that many employees
would refuse employment offers because the job would not necessarily be identical
to the last one held and because some would consider working conditions inferior.
Moreover, the 23 -m ile distance between the two plants and lack of public trans
portation would create difficulties and expense for many employees with preferen
tial hiring rights.
Opportunities m aterialized more quickly and in greater number than had
been expected.
By June 4, 1963, the two preferential hiring lists had been
exhausted.
The result of employment offers was as follow s:
Total eligible for preferential hiring-------------------------------------------------------- 327
Rejected option to enroll--------------------------------------------------------------------------20
Rejected offer of employment--------------------------------------------------------------------75
Accepted offer, quit by October 1963 -----------------------------------------------------------20
Total with preferential hiring rights employed at
the older plant October 1963----------------------------------------------------------------

212

Some employees went directly from active employment at the newer plant to the
other; others had an involuntary break without knowing how long it would last.
Among the latter, some accepted employment in other companies but returned
to Moonwitch when jobs became available at the older plant. A few people left
for homes outside the State and returned upon being offered jobs at the older
plant. Some employees were unable or unwilling to find another job while waiting
for employment offers.

The 353 workers eligible for severance pay but not for preferential hiring
had various employment experiences. A sizable proportion, perhaps over one-half
of the group, was already employed by another company when they received their
severance pay. Another group was unemployed at the time of severance payment
but obtained employment thereafter. A final group remained unemployed alm ost
a year after final termination from Moonwitch.
The State employment service calculated that the plant shutdown had led
to a 3-percent increase in area claimants for unemployment compensation. The
State office placed about 70 workers, but women and older men usually had to
accept lower-paying jobs in nonmanufacturing industries.
Four displaced em
ployees qualified for an automotive course sponsored under the Manpower D evel
opment and Training Act.
Although neither union nor company made special inquiries about the use
of severance pay, some generalization^ and specific illustrations can be cited.
Many of those who had long been out of work mentioned to the personnel manager
that they would use their severance pay to m eet overdue b ills.
The union be
lieved that only a few employees, not m ore than 3 percent, squandered their
severance pay.
A sm all group of workers, mostly older persons and without
preferential hiring rights, moved to Florida or California but returned to the
local area when they were unable to secure employment. Another man purchased
a second-hand car with his severance pay to be able to commute to the older
plant and accept a job offer. Several people failed to claim their severance pay
by October 1963.
There were no reports of creditors harrassing workers who received
severance pay, including those long unemployed with accumulated debts.
How
ever, both company and union received inquiries from employee creditors about
names and amount of individual severance payments; the union furnished no in
formation; the company provided only names of recipients. Loan company officials
maintained that they instituted no special collection procedures when they learned
of severance, in the announcement in the local newspapers.
A credit manager
of a major department store stated that overdue accounts are reviewed and special
collection efforts made by his organization whenever special lum p-sum payments
of any nature became known.
According to management, union officials, and employees who were
interviewed, m ost of those involved in and affected by the administration of sev
erance pay were satisfied with the procedures used in the plant shutdown.
Primary criticism was directed at the timing and method of shutdown negotiations.
The span between announcement of the shutdown and conclusion of shutdown
negotiations made for uncertainty, confusion, and, in the eyes of some employees
already laid off, an unnecessary delay in their being awarded severance pay.
Management also recognized that it would have been desirable to involve the staff
of the older plant in negotiations.
A more fundamental issue regarding severance pay was raised by some
m em bers of management. They questioned the propriety of awarding severance
pay and preferential hiring rights to the same individual. While employees with
preferential hiring lost competitive seniority and had no guarantee of a job offer,
they received benefits not available to workers terminating employment.
A c
cording to these officials, a distinction should have been made between temporary
and permanent loss of employment, with severance pay reserved for the latter.
A union leader, asked about the possibility of scales of severance pay depending
on an individuals employment status with the company, believed that such a
suggestion would have encouraged rejection of preferential hiring rights, par
ticularly since job opportunities at the older plant originally appeared limited.

Exhibit 1

Changes in Benefits Resulting from Shutdown Agreement
Benefit
Pension

Existing provision

Modification by shutdown agreement

Eligibility for regular pension:
Full--- age 65, 15 years' service.
Reduced--- age 60, 15 years' service.
Vested--- age 40, 15 years' service.

No change.

Eligibility for special full pension only in
case of plant closing:

Same, except that those age 53 with 18
years' service would be eligible imme
diately for actuarially reduced pension.

Age 55, 20 years' service, within 2
years of closing.
Life insurance
Hosp ital - surgi cal
insurance

Severance allowance

Preferential hiring
rights

Offered at no cost to those in first two
categories of regular pension.

Offered at 50 percent of premiums to
those on special pensions because of
plant closing.

Not available to terminated employees.

Available at 100 percent of premiums to
employees on preferential hiring lists.
(See below.)

Eligibility:

Same.

3 years' service (no pension).

Option to employment termination for
layoff with SUB.

Option withdrawn. All SUB payments to
cease on effective date of shutdown.

None.

Two groups gain eligibility:
1. On active payroll any time after
November 1, 1961, or, if laid
off before that date, at least 38
years old with 13 years of con
tinuous service on effective date of
termination.
2. O t h e r s receiving severance pay
with at least 15 years' continuous
service.

71
Exhibit 2 a

Sample of Letter Sent to Employee Eligible for Pension
December 28, 1962

Dear
Under the terms of the pension plan and the applicable company-union agreements covering the shutdown,
your employment is terminated effective_______________ , 1962.
Company records establish that you are eligible for immediate:
( ) Normal retirement (65/15)
( ) Early retirement (60/15)
( ) Special retirement (55/20) or (53/18)
Our records show that you are eligible for a special retirement payment in an amount equal to___ weeks
of vacation pay, or $ ________ . This special retirement payment is in lieu of the first three (3) monthly pension
payments.
Further, if you are eligible for normal retirement (65/15) or early retirement (60/15), you will be provided
limited life insurance and limited hospital-surgical coverage without cost.
If you qualify for special retirement (55/20 or 53/18), you may elect limited life insurance and/or
hospital-surgical insurance coverage under the company's group insurance program by paying one-half (Vjj) the cost
of such insurance. The company pays the other half.
If, by February 28, 1963, you have not elected to participate in the company's group insurance program,
you will be considered to have elected not to receive such insurance coverage.
To receive the benefits to which you are entitled, you must apply to:
Personnel Manager
Personnel Office
Moonwitch Company
Employees applying for a pension must furnish a birth certificate.
If you have any questions regarding any of the above matters, please contact the personnel office.

Yours very truly,

Manager, Industrial Relations

72
Exhibit 2b

S a m p le o f L e t t e r Sent to E m p lo y e e E lig ib le f o r S e v e r a n c e P a y
D ecem b er 2 0 , 1962

Dear
In accordance with the provisions of applicable com pany-union agreements, your em ploym ent is term inated
e ffe c tiv e ____________________ ,

1962.

Our records establish that you are eligib le to receive ____ weeks of severance pay in the amount of $___________ .
Further, two preferential hiring lists have been established for the purpose o f according preference to certain
em ployees (exclusive of those eligib le for im m ediate pension) over new hires for em ploym ent opportunities at the
older plant.
The "First Preferential Hiring List" (designated as List 1) consists of the follow ing em ployees ranked in the
order of continuous service at the new plant:
1.

A ll

persons on the active payroll list at any tim e since N ovem ber 1,

1961,

and all persons who,

October 3 1 , 19 6 2 , were at least thirty-eight (3 8 ) years of age and had at least thirteen (1 3 ) years of continuous service.
The "S e con d Preferential Hiring List" (designated as List 2) consists of the following em ployees ranked
the order of continuous service at the new plant:
2.

A ll persons not on List 1 who, on October 3 1 , 19 6 2 , had at least fifteen (1 5 ) years of continuous service.

Our records establish that you are eligib le to be p laced upon
( ) List 1; ( ) List 2; ( ) Neither List 1 or 2.
Those who are p laced upon either of the preferential hiring lists m ay e le c t to participate in the com pany's
group insurance program by paying the prorated cost per em p loyee.
If you are e ligib le and desire to be placed upon the applicable preferential hiring list, you must file your
request with the com pany no later than January 3 1 , 19 6 3 , or you w ill be considered to have w aived your right to
placem ent on such list.
To receive the benefits to which you are entitled you must apply to:
Personnel M anager
Moonwitch Company
If you have any questions regarding any of the above matters,

please contact the personnel o ffic e .

Yours very truly,

M anager,

Industrial Relations

Exhibit 3

D i s t r i b u t i o n o f 93 P e r c e n t o f E m p l o y e e s R e c e i v i n g S e v e r a n c e
b y S e p t e m b e r 1963

Pay

Years of continuous service

1 5 -1 9

20 or more

Item

M en

W om en

5 -9

1 0 -1 4

M en W om en

T otal

Under 5

M en W om en

Y ear of birth:
Before 1 9 0 3 ---------------------1903 12---------------------------1913 2 2 ----------------------------1923 3 2 ---------------------------1933 and on---------------------T o t a l------------------------------

1 12

41
117
6

12
-

108
55

21
4

32
51

2
10
10

3
11
6

164

222

123

2
4

1
2
4

5 -6

7 -9

10 or more

_
2
4

17
124

261
125

47
17

542

3 -4

T otal

Am ount of gross severance pay:
$ 1 ,0 0 0 or m ore-----------------$ 900

$ 9 9 9 --------------------------

$800
$700
$600
$500

$ 8 9 9 -------------------------$ 7 9 9 -------------------------$ 6 9 9 -------------------------$ 5 9 9 --------------------------

$ 4 0 0 $ 4 9 9 -------------------------$ 3 0 0 —$ 3 9 9 -------------------------T o t a l---------------------------------

71
152

1
-

153
124
7.

21
41

153
133
22

21
41
20
3

8
16

1
6

2
1
6

509

541

71
153

The Riner Company

Introduction
In early 1963, the Riner Company announced the closing of a major
portion of its Mayer Street plant, A total of 140 employees were affected by
the partial shutdown. Company and union officials realized that there was little
chance of recall for most of the employees to be laid off.
The Riner Company was a major manufacturer of paper products and
had more than 3,000 employees in 13 plants throughout the United States, A l
though most of the plants had union representation, they were organized at different
times by different unions. Workers at the Mayer Street plant and at three other
Riner plants in the same city voted in 1956 for representation by a national union
affiliated with the AFLr-CIO. The four plants bargained jointly and were covered
by a master agreement. According to the company, competing companies in the
area remained unorganized.
Plant Closing Allowance
At the union's request, a plant closing allowance was included in the
1958 collective bargaining agreement. The clause provided for an allowance to
employees who had a minimum of 5 years of continuous company service and
who were separated because of complete plant abandonment. The allowance, con
sisting of a day's pay for each year of service (to a maximum of 20 years), was
to be paid to eligible employees who did not choose to accept a job in another
company plant. Job posting at other plants was to be waived temporarily on jobs
offered to employees from the abandoned plant. Employees who accepted jobs
at another company plant were to retain company seniority for benefit purposes
and receive reimbursement for expenses incurred in moves of over 30 miles.
Although there had been no history of plant closings, it was apparent that some
of the company's outmoded facilities were unprofitable and would eventually be
abandoned. The threat became a reality before long.
Plant closing allowances were first paid in 1958 when 1 of the 4 Riner
plants in the city was closed. Not long thereafter, another of the company's
plants in the city was closed in two stages separated by a 6-month interval. An
unexpected change in shipping rates led to a decision by management to convert
a partial plant closing to a complete one and transfer production facilities to an
area closer to customers. According to management's interpretation of the plant
closing allowance provisions, only employees affected by the second stage of the
closing were technically eligible for the special pay, since the plant had not been
abandoned until then. Management agreed, however, to make the provision retro
active to include all employees working in the division before the partial closing.
Mayer Street Plant Partial Closing
In April 1963, the company announced that part of the Mayer Street plant
would be closed beginning at the end of the following month and production equip
ment moved to a modern plant in another city 200 miles away. The first notice
to employees on the company bulletin board was followed by a meeting in which
management explained the decision and applicable personnel policies. The reason

for curtailing operations at the old, multistoried plant was the expectation of
improved efficiency in manufacturing and distribution of goods. About 60 workers
would be needed to operate the equipment left at the Mayer Street plant; the
remainder of the 199 employees in the bargaining unit at the beginning of 1963
would be laid off. The numbers of affected employees by skill and sex were:

Men

Women

Skilled.............................. - ..........
Semiskilled-------------------- ...........
Unskilled-------- -------------- ...........

15
19
40

49
17

15
68
57

Total--------------------- ...........

140

Total

The seniority of these employees ranged from almost none to 16 years.
Policies in Effect at Time of Layoff
Management discussed with employees affected by the partial closing, the
relevant provisions contained in the collective bargaining agreement and policies
followed unilaterally by the company. Subjects included pensions and the role
of seniority in allocation of jobs.
Employees eligible for a pension had the option of either retiring or of
remaining at Riner if they had sufficient seniority to qualify for jobs. Eligibility
for pensions required a minimum of 15 years' service (or 10 years if employment
commenced before October 1, 1956) and a minimum age depending on type of
pension (65 years for a normal pension and 55 years for an actuarially reduced
early pension). ,To qualify for a deferred vested pension, an employee had to be
at least 45 years old and have 15 years of service. In case of complete plant
abandonment, the age factor was waived for deferred pension eligibility; since
the present situation did not involve complete plant abandonment, the waiver of
the age requirement was not in effect.
Management was prepared to allocate the remaining 60 jobs in accordance
with regular layoff provisions. The plant seniority system was structured by
sex and by skill classification in eight grades. In the top three grades, seniority
was by grade and skill classification; in the lower five grades, seniority appli
cable to layoffs was plantwide. A laid-off employee from one of the top three
grades could not bump an employee in another skilled grade; he could acquire a
semiskilled or unskilled job only if he had more plant seniority than the man
with the least seniority in the lower grade. Seniority of laid-off employees was
protected for a period equal to length of service up to 18 months. Employees
temporarily working at another company plant retained seniority in their home
unit; if they accepted permanent work there, they surrendered accumulated sen
iority in their home plant.
Management proposed to offer laid-off employees jobs at other plants
with job vacancies. The plant manager and superintendent were to determine on
the basis of employees' past performance who would be offered available jobs.
The company was to pay expenses of employees to visit plants offering jobs and
to move their households if acceptance of the job required relocation in excess
of 30 miles. Employees accepting offers were to carry their company service
for purposes of computing benefits, but they were to be regarded as new employees
as far as plant and job classification seniority were concerned. Employees re
jecting offers incurred no penalties.

A management suggestion of preferential hiring rights for laid-off Mayer
Street plant employees at the fourth company plant in the city was rejected by
employees of the fourth plant. The suggestion would have permitted the company
to bypass posting procedures in offering jobs to qualified Mayer Street employees;
refusal of the offer would have meant forfeiting seniority.
On the matter of plant closing allowances, management decided the pro
vision was inapplicable to the situation at hand. The company did not contemplate
complete abandonment of the plant, and laid-off employees retained recall rights.
A strict interpretation of the provision was necessary, management believed,
lest the application of the provision become more liberal than the contractual
commitment to the employee. In meetings with management following the closing
announcement, the union tried to convince management that jobs were being perma
nently abolished with the movement of machinery. Management stood firm, al
though privately some of its members were embarrassed at the prospect of laying
off employees with little chance of recall and no special financial compensation.
The subject was closed until the next regularly scheduled negotiation in fall 1963.
Implementing the Policies
Meanwhile, implementation of personnel policies began as plant manager
and personnel manager interviewed employees eligible for pensions and those
entitled by seniority to remain at the Mayer Street plant. Among the former
employees, 10 chose retirement— 2 employees received normal full pensions,
while 8 of 13 eligible employees elected early retirement with reduced pension
benefits. The latter group of employees were told of the job and shift available
to them. About one-fourth of the retained personnel had to accept a lower graded
job than they previously held; most of the downgrading involved skilled men
accepting unskilled jobs, which could mean up to a 30 percent reduction in pay.
Two employees who had a choice between continued employment at a lower grade
level and pension chose a pension. At least one man refused an offer to a down
graded job and was considered a quit. On the whole, however, employees were
willing to accept offers of downgraded jobs to acquire eligibility for retirement
or to qualify for possible later promotions.
Beginning in June, management interviewed employees it considered qual
ified for job opportunities available at other company locations. There was no
general announcement about the job program or when it would terminate. Inter
viewed employees who were interested in an offer would contact the appropriate
plant and arrange for an employment interview. The number of available jobs
were limited in number and kind, occurring mostly in the skilled classifications.
Not all men with a skill in demand received offers of other jobs, nor were offers
made on the basis of seniority. For instance,-only 6 of 14 laid-off machine ad
justers received offers at other plants. Although some people investigated plant
and living conditions at other locations, few took advantage of the company's offer
to pay for the trips. Apparently they felt that requesting reimbursement involved
an obligation to accept offers of employment. The acceptance of jobs was related
to the distance of their location from the city of residence. Four job openings
available at the fourth plant in the city in June 1963 were quickly filled, as were
6 permanent positions and 30 temporary ones later. Three employees accepted
employment at a company plant which required about 2 hours of commuting daily;
they were joined by a fourth employee who successfully applied at this plant on
his own. Of the eight employees who took jobs in other States requiring a transfer
of residence,, four soon returned because of the higher cost of living in, and
unfamiliarity with, the new community. These two reasons were also given by
employees rejecting job offers at other plants, along with the hope for recall or
other local employment. Several openings in more distant plants remained unfilled.
Management had expected that more employees would take advantage of job offers
in other company locations.

Layoffs
Employees were laid off beginning in mid-May, sometimes with as little
as 24-hours' notice of layoff. Employees on layoff received 3 months' coverage
of hospital and medical insurance paid for entirely by the company. Pension
eligibility accumulated for 18 months after layoff if the employee had acquired an
equivalent amount of seniority before layoff. An employee laid off and subsequently
recalled, even temporarily, again qualified for a full period of benefits upon layoff.
The union advised employees to remain with the company, if only on
layoff status, to protect their seniority. While the union took no position with
regard to employees accepting jobs at other plants, it urged employees not to
quit on their own or by default. Only a few did so.
By the end of summer 1963, after a few changes in available positions,
the disposition of Mayer Street plant employees was as follows:
Disposition

Employees

Working at Mayer Street plant-------------------Working at other company plants--------------Retired-----------------------------------------------Quit---------------------------------------------------On layoff----------------------------------------------

70
16
10
4
99

Total---............... - ........ —...................

199

Subsequent Employment Experience
Laid-off employees faced a relatively difficult local labor situation.
The average unemployment rate in the area for the last 7 months of 1963 was
6.4 percent, ranging from a monthly high of 7.1 percent in June, to a low of
5.3 percent in October. In addition, Riner employees had to contend with limited
transferability of some skills, and a history of above average wages that might
influence their attitude to available employment. All laid-off employees seeking
work qualified for unemployment compensation consisting of a maximum basic
payment of $40 plus dependents' allowance for up to 30 weeks.
To help laid-off employees find new jobs, management and the State
employment service offered aid and special programs. The plant manager sent
letters to companies in the area which he felt might be able to use the workers'
skills. In addition, he arranged for the County Metal Trades Association to send
a letter to its membership describing the laid-off personnel and offering to arrange
interviews. The plant manager received many telephone calls in response to the
mailings. He compiled and distributed to employees a list of 30 companies ex
pressing interest in receiving applications. No followup was made to determine
how many workers found jobs by using the list.
The State employment service interviewed 125 employees, including some
who were later recalled, and found them above average in aptitude and ability.
Employment counselors told of available jobs, contemplated training programs,
and application procedures. The counselors urged workers to take a battery of
tests on a voluntary basis in order to know their abilities and potentialities better,
to receive more meaningful counseling, and to assess their qualifications for
specific employment and training programs. Only about one-fourth of those inter
viewed agreed to take the tests; those who refused seemed to fear the consequences
of possible poor results. At least three women were successfully placed as result
of tests at a local steel company. Six other workers were also placed, though
sometimes at lower wages than they had been receiving.

The employment service was also able to refer workers to training pro
grams established under the Manpower Development and Training Act (MDTA).
Despite wide interest in the programs, the number enrolled was limited by re
quirements of demonstrated or tested ability, age under 50, and willingness to
complete the program. Three men took an MDTA training course to become
general machinists, and several women to become clerks.
Most laid-off workers apparently sought work on their own through friends,
newspapers, and direct factory gate applications. A few employees decided layoff
provided a good opportunity for a break with their present occupational skills;
although several skilled men had job offers from nonunion companies, they chose
to seek physically lighter, though less skilled and lower paid work.
The employment experience of one man following layoff illustrates the
difficulties in subsequent employment encountered by many laid-off employees on
account of wage differentials, incomplete knowledge of employment opportunities,
and uncertain stability of employment because of lack of seniority. The man,
a skilled worker in his forties, looked for work solely through friends and direct
applications; he avoided the State employment service. His first offer was as
a machinist learner at $1.40 per hour, exactly one-half his former job rate. He
rejected the offer since his unemployment compensation was greater than earnings
at this job would have been. Three weeks following layoff, the man accepted
a job on the midnight shift in a carpet factory. He switched employers after
3 weeks to become a metal buffer on the day shift in a factory nearer home.
This job had lasted 6 months when a lack of orders caused an indefinite layoff.
Displacement Allowance
The collective bargaining agreement expired on October 1, 1963, almost
6 months after the partial shutdown had first been announced and several months
after it had been effected. As part of its initial demands, the union proposed
a broadening of the plant closing payments to provide a displacement allowance
for all employees leaving for reasons beyond their control. During negotiations,
th e c o m p a n y c o u n t e r e d w ith a p r o p o s a l that f o r a ll in te n ts w a s the on e in c lu d e d

in the final agreement. The proposal was framed to supplement the existing plant
closing arrangement and to cover employees affected by the partial closing of
the Mayer Street plant. Adoption of the proposal came as a welcome surprise
to many former employees.
The displacement allowance provision negotiated in 1963 was as follows;

Any employee with 5 years or more of uninterrupted service with the company who
is laid off for a period of 6 consecutive months, and who has not declined a lateral or
downgrading transfer to which his seniority entitles him, has the following options:
1.

At the end of said 6-month period, of accepting an allowance of 1 day's pay for
each year of service and forfeiting all recall rights.

Decline this displacement allowance and retain the balance of the 18 months accrued
to him for recall rights.

Any employee who takes the option 1 above, and is later reemployed by the company
will forfeit all accumulated seniority and length of service benefits, and his reemployment
will be on the basis of a new employee.

In many ways the displacement allowance provision was similar to the plant closing
payment. It differed in that it required a waiting period following the end of
active employment, contained no maximum pay limit, and offered a layoff option.
It also did not include waivers of age for a deferred pension and of job posting
for jobs at other plants.
Employees on layoff from the Mayer Street plant, the only workers
immediately eligible for the displacement allowance, were informed by letter from
the union of the new provision and of a special union meeting to discuss it. A l
though the special meeting was poorly attended, many former employees chose
to talk informally with local union officials, who provided details of the plan but
would not advise on choices. A statement of the displacement allowance and the
implications of accepting it were also given by the plant manager and union
financial secretary to employees who came to the plant office to apply for a dis
placement allowance. Both union and company were eager to warn employees
close to recall or within 18 months of pension qualification what they would lose
if they chose a displacement allowance; several employees reconsidered their
choice as a result of these warnings.
Upon receiving an application for a displacement allowance, the company
computed the amount due and forwarded the forms to the company's central dataprocessing center. Displacement allowance checks were mailed from the center
to the individual approximately 1 month after the original date of application.
Since the checks would not reach applicants until after Christmas, the company
agreed to advance partial payments to applicants who came to the office of the
other plant in the city; the balance due was mailed to the individual later.
Because the displacement allowance was negotiated relatively late in the
6-month period of layoff of many employees, management and union agreed to
extend the deadline for filing applications in this one instance. December 31, 1963,
became the deadline for all employees on continuous layoff since the partial closing
announcement. If employees had worked at any company plant since July 1, their
6-month waiting period would begin as of the last day of work.
The displacement allowance eligibility and choice among laid-off em
ployees as of January 1, 1964, can be summarized thus:

Eligible for displacement allowance---------------------------- 58
Chose displacement allowance------------------------------- 38
Chose additional layoff
(retained seniority)------------------------------------------- 20
Not eligible for displacement allowance---------------------- 41
Insufficient company service---------------------------------37
Insufficient layoff---------------------------------------------- 4
Total employees on layoff---------------------------------- 99

A few workers chose layoff to gain enough seniority to qualify for a pension.
The remainder choosing layoff apparently believed either that they were high
enough on the seniority list to have a chance of recall or that future events, such
as complete plant shutdown, would improve their benefits. Yet, some workers
relatively high on the seniority rolls preferred the displacement allowance on
205-662 0-66-7

80
the grounds that recall probably would involve a downgraded job on a late shift,
with threat of frequent layoff. Many eligible employees had already secured other
jobs; company officials believed that only 2 of the 14 men electing a displacement
allowance were without work at the time. One person with a displacement allow
ance was old enough to qualify also for a deferred pension. A breakdown of em
ployees choosing displacement allowance, by skill, sex, and seniority, follows:

Men

Women
Semi
skilled

Unskilled

Semi
skilled

Skilled

3
4

6
8
3

2
1
-

4
2
-

4
1

15
19
4

Seniority

Unskilled

5-9 years---------------10-14 years------------15-19 years------------- —
Total--------------

Total

The amount of gross displacement allowance ranged from about $90 to
$280, with an average payment of approximately $200. Total cost to the company
for the group above was about $7, 500. Deductions from gross pay were limited
to income and social security taxes.

Although no special effort was made by company or union officials to
follow the disposition made of the displacement allowance, information was r e
ceived on an individual basis.
The employee credit union, which did not have
direct call on the displacement allowance, was contacted voluntarily by several
form er employees who wished to apply their displacement allowance to outstand
ing loans. Others used money to pay accumulated bills or to buy Christmas gifts;
in one case the allowance served as down payment for a car. No reports were
r e c e iv e d

a b ou t

c r e d ito r s

h a r a s s in g

allowance. Union officials believed
allowance regarded it as a windfall.

w orkers

w h o h ad

r e c e iv e d

that m ost recipients

a d is p la c e m e n t ,

of the displacement

Employees Remaining at the Mayer Street Plant
Employees who remained at the Mayer Street plant reported that they
viewed the events of the partial shutdown with mixed emotions. On the one hand,
they were pleased to have steady employment, even if it meant lower wages and
less desirable hours. Knowledge that form er junior employees were working in
other company plants, at their old classification and wage rate, disturbed the
more senior employees who had been forced to accept downgrading. On the other
hand, the remaining employees were wary about the future prospects of work at
the Mayer Street plant. They felt that the plant might close in the not-too-distant
future and that the company might move out of the city altogether not long there
after. Some employees hoped that these closings would take place soon. If the
Mayer Street plant were to close completely, lower pension eligibility require
ments would permit many of the younger employees to qualify for a deferred
pension. Jobs at other company plants, especially in the city, might be scarce,
however, and largely filled by employees laid off earlier.
To prepare for a
possible complete shutdown and to have more skill to offer in the labor area,
a few employees went to trade school on their own time and at their own expense
to learn new skills and renew old ones.

81
5.

The Closing of a Newspaper

The management of a large newspaper in a major city ceased publication
with the announcement of the sale of the paper. More than 300 employees were
affected by the action. Management was committed by agreement to award
approximately 150 employees represented by the American Newspaper Guild
(AFL—CIO) up to 42 weeks of severance pay.
It offered to give employees in
printing departments 2 weeks' severance pay in addition to accrued vacation pay
although there was no contractual obligation to do so. This study, in the main,
deals with the operation of the severance pay plan as it affected workers rep
resented by the Guild.
Background
The newspaper had been founded more than 50 years ago. A steady
rise in circulation following World War II was reversed in the m id -1 9 5 0 's.
In
recent years, the paper had suffered a decline in subscriptions despite rapid
growth in the population of the metropolitan area it served. A continuing financial
loss led to the decision to end publication and to sell the building, property,
equipment, supplies, and other assets.
Of the more than 300 workers employed at the time of sale, 287 were
considered eligible for union organization. All but those engaged in display
advertising, about 30, were represented by unions. A local of the Guild had
been established before World War II to represent employees engaged in gathering
and editing news, distributing the papers, soliciting advertisements, conducting
business and financial operations, and maintaining the building and power equip
ment.
The Guild represented about 150 employees.
Craft employees had been
organized earlier; they were represented by the International Typographical Union,
International Stereotypers' and Electrotypers' Union of North Am erica, Inter
national Printing P ressm en and Assistants' Union of North Am erica, International
M ailers Union, and Lithographers and Photoengravers International Union.
The age distribution of the 287 employees was as follows:

Age

Number of
employees

18—29 years----------------------------------------------30—49 years----------------------------------------------50 years and over----------------------------------------

75
95
117

The seniority distribution followed parallel lines.
A number of employees had
over 30 years of service, with average length of service about 10 years. Although
only men were employed in the mechanical departments, women comprised about
25 percent of the total force.
The sale came without advance notice about a month before expiration
of the labor agreement with the Guild. Employees were told by their respective
department heads and by posted notices that the last edition of the paper would
be printed that day and that all contractual commitments would be met. A ll p er
sonnel engaged in writing, producing, and distributing the paper were terminated at
once. Some employees in the business and maintenance departments were asked to
remain to help close the paper. If they wished to leave for another job, however,

82
they were not to be considered as leaving voluntarily (an action that would have
disqualified them from receiving severance pay).
Ten weeks after the closing,
10 employees were still working full time and several form er employees helped
on weekends.
Severance Pay
Only the agreement with the Guild contained provision for severance pay.
Although the scale of payments had been increased, the basic term s of the plan
had remained unchanged for more than two decades.
The clause in the agree
ment provided for 111 week's pay for every 6 months (or a major fraction thereof)
of continuous employment with the publisher, the maximum payment not to exceed
42 weeks' pay which may be paid on a weekly basis at the option of the person
entitled to the benefits under the clause."
Discharge for "ju st and sufficient
cause" constituted eligibility for severance pay; only workers terminating their
employment voluntarily were ineligible.
The pay used in calculating the severance amount was the employee's
highest straight-tim e weekly salary for any 2 consecutive weeks within the
42 weeks prior to d ism issal. The Guild had negotiated minimum wage scales for
each job, with len gth -of-service increases. For instance, the weekly salary for
a secretary in 1963 was $55.25 at the beginning and $64 after 1 year of exper
ience; a seven-step weekly scale for editorial employees ranged from $65 at the
start to $ 126 after 5 years.
Individual employees could deal directly with
management for higher wages than those specified in the agreement. Most
editorial and top circulation department employees with more than 10 years'
service earned more than the scale negotiated by the union.
Although there was little turnover, and much of that was voluntary, the
company had had experience with severance pay.
Because pay was awarded to
those leaving for any reason other than voluntary termination, occasional difficulty
was encountered with management charging that an employee invited dism issal
in order to collect severance pay or with the union accusing management of
attempting to force an employee to quit rather than dism issing him. Management
had expressed to Guild representatives a desire for a "policem an" to oversee
application of the severance pay provision so as to restrict payment to employees
terminated for reasons beyond their control.
Although employees covered by other agreements were not entitled to
severance pay, management decided to give all employees on the payroll on the
day of the closing announcement a minimum of 2 weeks' termination pay. Thus,
employees who were not contractually entitled to severance pay received 2 weeks'
pay and those covered by the Guild agreement were assured at least 2 weeks'
pay, even if they had less than 9 months of continuous employment. In addition,
management offered a special plan to terminating employees in nonrepresented
departments.
A lum p-sum severance payment was mailed to all terminated employees
3 weeks after the announcement of the sale of the newspaper. Employees con
tinuing to work with the paper received the payments on their day of termination.
There were no major problems raised about the amounts received; a few clerical
miscalculations were corrected, and other inquiries were readily answered.
Because of the nature of the severance pay arrangement, the range of
payments actually made was broad. Amount of pay depended on the applicable
plan, regular salary, and length of service.
A recently employed charwoman
or m essenger, the lowest paid employees on the staff, would receive $ 98. An
editorial employee with 21 years' continuous service would be assured at least

83
$ 5, 292 and would receive more if, as was likely, his salary was above the
scale.
It was estimated that up to 45 percent of employees represented by the
Guild had sufficient service to receive maximum severance payments, i.e .,
21 years.
The distribution of payments was:

Severance pay

Less than $1,000 ---------------------------------------$1,000—$2,999 ....... - ............ - .....................
$3,000-$5,999 - ....................... - ........ ........
$6,000 and over------------------------------------------

Number of
employees

157
67
46
17

Although the total amount paid by the company was not available, it is
probable that at least $ 500,000 was awarded in severance pay following the sale
of the newspaper. Excluding the craft employees who received 2 w eeks’ sever
ance pay, severance payments averaged about $ 2, 600.
Other Benefits
In addition to severance pay, employees were eligible for other benefits
at the time of separation following the end of publication.
Arrangements were made to permit employees to convert life insurance
and Blue C ross—Blue Shield insurance from group coverage to individual policies.
Employees received up to 3 weeks' salary as vacation pay, depending
on length of service and time elapsed since the last anniversary date of employ
ment. Accrued vacation pay was sent together with severance pay.
A variety of pension plans were in effect.
The end of publication did
not affect the membership of some of the craft employees who were covered by
union-operated plans. Nonrepresented employees were part of a company-initiated
plan, which was dissolved according to the term s of the plan. A jointly admin
istered noncontributory pension plan for Guild mem bers had been negotiated
3 years earlier. According to this plan, an employee needed 10 years' service to
be eligible for normal retirement benefits under the plan.
If the plan were
dissolved within the first 10 years of operation, accumulated funds would be
apportioned on an actuarial basis to employees eligible for benefits, including
those already on pension. The plan was terminated upon completion of actuarial
studies and approval of the joint pension plan agreement committee and the
Internal Revenue Service, as follows:
1. Eligible participants in the plan with calculated benefits of at least
$ 1 0 per month at age 65 would receive insured benefits under a group annuity
policy contract, purchased with a lump sum from the trust fund. Those 65 years
or older would start to receive benefits for life.
In the event of death, the
beneficiary would receive monthly benefits for the balance of the 60-month period
since the benefits originally went into effect.
2. Eligible participants with calculated benefits of le ss than $ 10 per
month at age 65 would be paid a cash lump sum in lieu of a pension, regardless
of their age.
Employees without immediate employment were qualified to file for un
employment compensation.
The State system provided for a maximum weekly
payment of $ 3 7 for 26 weeks. Money paid by an employer as wages in lieu of
notice lengthened the waiting period for benefits by an equivalent number of

84
weeks. Severance pay, including that paid to craft em ployees, was not considered
in the same category as wages in lieu of notice, however, and did not affect the
amount or timing of payments. A ll of the newspaper's employees could file for
unemployment compensation without penalty.
Subsequent Employment Experience
The suddenness of the closing of the newspaper prevented employees
from planning and seeking other employment in advance. Although the general
employment outlook in the area was relatively favorable (3.1 percent of the labor
force unemployed), the highly specialized skills possessed by many of the workers
presented problem s.
However, a large number of the displaced workers were
employed immediately and many others soon afterward.
The speed of these
placements surprised all concerned.
Other newspapers in the community were the prime source of immediate
employment.
The company buying the newspaper offered jobs on the same day
as the sale to all district managers of the circulation staff.
Those accepting
were not guaranteed permanent employment and were hired as independent con
tractors rather than salaried personnel. Most accepted the offer, although some
later left. About 18 of the 50 editorial employees were either retained by the
purchasing paper or hired by another newspaper
in the community. Several
advertising department employees as well as printers and other craftsmen were
also employed by these newspapers to help expand their operations.
The company had offered to advertise the available skills and operate a
form al employment service, if necessary.
The rapid placement of many em
ployees made such large scale form al efforts unnecessary.
The responsibility
for assisting employees was delegated to department heads, who would know of
suitable contacts for positions and could a ssess the needs and abilities of their
staff m em bers.
Management of the editorial department informed employees that tele
phone interviews for jobs in other cities would be arranged for interested
personnel. A number of interviews were arranged.
In addition, out-of-town
newspapers called to offer jobs to editorial personnel. Among the contacted or
contacting papers were several affiliated with the same chain as the closing
newspaper.
Eight w riters and reporters and one circulation man accepted jobs
in other cities throughout the country. There was no standard policy regarding
the moving expenses of these workers since the matter was left to individual
negotiation between the worker and his new employer.
The Guild made separate efforts to a ssist employees in finding new jobs.
Immediately after the sale announcement, the union arranged for a spokesman
of the State employment com m ission to address a meeting of all employees the
following Sunday. At the meeting, affected employees were told of the mechanics
of unemployment compensation and benefit rights, given form s for initial claims
and application for employment, and scheduled for interviews at the placement
offices during the next week.
The Guild also established an employment committee.
The union r e
ceived a few calls directly from papers in other cities regarding available jobs.
An arrangement was reached with the State employment com m ission whereby
office facilities and staff assistance would be made available to the committee
at one of the com m ission's downtown offices.
Volunteers from the union com
mittee manned the special facility for 3 weeks to receive calls from em ployers,
review the com m ission's employment files and assist workers. During the
period, approximately 60 persons of all skill categories, craftsmen as well as

85
Guild-represented em ployees, came to the special office to receive information
on unemployment compensation claims and available jobs. The Guild announced
that approximately 50 Guild members had filed for unemployment compensation.
Employment applications were forwarded for processing to the State
employment com m ission's offices specializing in certain occupational classifica
tions, e.g ., industrial jobs, professional jobs. The State employment comm ission
did not maintain separate figures on unemployment compensation claims and
placements of the newspaper workers. Comm ission officials who were interviewed
knew of at least five office workers and two mechanical craftsmen who had been
placed.
Displaced workers used other resources to locate employment. A few
paid private employment agencies to help find suitable employment. A far
greater number utilized personal contacts and direct applications.
Eight edi
torial employees joined local public relations and advertising firm s.
Others
decided to freelance or accept jobs with public agencies. Advertising solicitors
and classified salesm en not employed by other daily newspapers m ostly joined
various sm aller publications, went into business for them selves, or became
salesmen. Office and bookkeeping personnel found sim ilar jobs in other firm s.
Three workers retired from the labor force and two died shortly after the
closing.
Three women, form erly in classified advertising, began courses to
qualify for positions in real estate and insurance.

Within a few weeks of the sale, over 90 percent of the displaced editorial
workers were employed elsewhere.
The reemployment record of other groups
was not as good. Those form erly engaged in soliciting classified advertisements
found age and past wage levels to be definite handicaps. The State employment
comm ission and m em bers of the Guild employment committee believed that at
age 45 and over employment opportunities were severely limited. Age indirectly
affected employment in another way; older workers were likely to have earned
length-of-service wage increases which made it more difficult for them to accept
the lower wage rates of available jobs.
Several workers still unemployed
Z months after the shutdown were considering job offers or planning to intensify
their job campaigns for 11suitable" jobs in the local area and elsewhere.
For
others, including a few older printers, the job prospects were dim.
Severance Pay Expenditure

Neither the company nor the Guild had comprehensive information on how
employees used their severance pay. From interviews with officials and some
separated w orkers, certain impressions were formed.
Use of severance pay
outside of normal expenditure patterns was exceptional. Some recipients of
severance pay paid outstanding bills. Although creditors did not generally press
recipients to settle accounts, at least one worker receiving a sm all amount of
severance pay and not reemployed at his form er wage level had his mortgage
foreclosed.
A few others made major new purchases, such as autos, or took
extended vacation trips on the strength of severance payments. Those beginning
an enterprise invested the money in their businesses. Severance pay also gave
three women the opportunity to pursue training in real estate and insurance.
Apparently, the m ajority of recipients of substantial amounts of severance pay
banked all or the greater part of their pay. For some, the banked money
represented a fund to assist them in meeting current living expenses until r e
employed; for others it was an investment or contingency reserve.

Appendix. Questionnaires
2826 A ---- Conventional Severance Pay Plans

BLS 2826 A

Budget Bureau No. 44—6326
Approval expires March 31, 1964

U.S. DEPARTMENT OF LABOR
BUREAU OF LABOR STATISTICS
Wa s h in g to n

25, D.C.

Study of Severance Pay Plans
IDENTIFICATION:

Location of establishment for which data are
desired if different from mailing address.
Union__________________
Occupation of workers covered:
Production and maintenance Clerical-------------------------------Professional, technical, sales
Other--------------------------------------

Number of workers
covered by agreement

In which year was a severance pay provision first included in the collective bargaining agreement?----

Prior to that time, did the company have a formal severance pay plan for these employees?------------ Yes_____ No____

How many employees under the agreement were awarded severance pay in each of the following
years? (If severance pay was awarded in installments, count employees only in year pay was
first awarded. Answer only for years in which plan was under agreement. )
1962 (or corresponding fiscal year)-------------------------------------------------------------------------------------------1961 (or corresponding fiscal year)------------------------------------------------------------------------------------------1960 (or corresponding fiscal year)----------------------- --------------------------------------------------------------------

Of those employees awarded severance pay in 1962, approximately how many were in each of the
following categories of length of company service?
Under 3 years----------------------------------------------------------------------------------------------------------------------------3 and under 10 years------------------------------------------------------------------------------------------------------------------10 and under 15 years---------------------------------------------------------------------------------------------------------------15 and under 20 years---------------------------------------------------------------------------------------------------------------20 years and over-----------------------------------------------------------------------------------------------------------------------

For employees awarded severance pay in 1962, what were the reasons for severance?
Check as appropriate and, if possible, estimate the number of employees receiving
severance pay for each reason.

Check

Involuntary separation due to lack of \^ork (lack of business, closing or
consolidation of plants, technological change)--------------------------------------------•----------

---------

Retirement or disability without being eligible for retirement annuity---------------------

---------

Discharge for cause or inability to perform work--------------------------------------------------------

---------

Voluntary separation --------------------------------------------------------------------------------------------------

---------

Other (specify)_______________________________________________________________________

______

Number of
employees

How much severance pay did employees receive in 1962?
a.

Total gross amount (do not include payments in lieu of separation notice)-----------------------

$ _________________

Total net amount (gross amount less all deductions)----------------------------------------------------------

$ _________________

Have severance payments ever been liberalized beyond amounts required by the p la n ? -----------------

Yes_____No

If "Yes, " under what circumstances? _____________________________________________________________________

Is there a waiting period between time employment is severed and time employee receives
severance p a y ?--------------------------------------------------------------------------------------------------------------------------------

Yes____ No_

If "Yes, " how long is the waiting period?----------------------------------------------------------------------------

--------------------

How are severance payments paid? (Check one)
Only in lump s u m -----------------------------------------------------------------------------------------------------------------

-------------------

Only in regular installments -------------------------------------------------------------------------------------------------

---------------_----

Other (specify)__________________________________________________ __
10.

Are severance payments in whole or in part contingent on the worker remaining unemployed?------

Yes____ No___

11.

Does an employee lose all recall rights to employment with the company when he accepts
severance pay?------------------------------------------------ ‘------------------------------------------------------------------------------

Yes____ No___

12.

What company services have been available to employees before and after severance?
Check as appropriate.
Before

After

N o n e ----------------------------------------------------------------------------------------------------------------------------Training for other jobs with company-------------------------------------- ----------------------------------Testing or guidance------------------------------------------------------------------------------------------------------Company-sponsored employment referral---------------------------------------------------------------------Training for employment outside of company-------------------------------------------------------------Other (specify)________________________________________________________________ _
13.

Options to severance pay:
a.

Does an employee have the option to choose between severance pay and each of the fol
lowing? Check. (If employee loses severance pay when rejecting offer, check "No. ")
Another job with the company at the same or higher rate of pay in-the same
plant or area---------------------------------------------------------------------------------------------------- •»------------------

Yes____ No_

Another job with the company at a lower rate of pay in the same plant or area-----------------

Yes____ No_

Layoff with preferential recall-----------------------------------------------------------------------------------------------

Yes____ No

Transfer to another plant of the company in a different geographic area----------------------------

Yes____ No_

Other (specify)
If an employee has any of the above options, please answer questions "b " and "c . "

13.

Options to severance pay— Continued
b.

During 1962, how many employees were offered and chose each of the following options in lieu of severance pay,
and how many rejected one or more of the options in order to receive severance pay? (For employees receiving
severance pay, indicate all options offered and rejected by each employee. Because employees may have been
offered none, one, or more options, the total number of employees rejecting options to take severance pay will
not necessarily coincide with the total number receiving severance pay.)
XT .
r
n
’
Number of employees
Rejected
option (and
received
Accepted severance
option
pay)
Another job with the company in the same plant or area at the same or higher
rate of p a y -----------------------------------------------------------------------------------------------------------------

xxx

Another job with the company in the same plant or area at a lower rate of pay--------

xxx

Layoff with preferential recall-------------------------------------------------------------------------------------

-------------

----------

Transfer to another plant of the company in a different geographic area at the
same or higher rate of pay-----------------------------------------------------------------------------------------

-------------

----------

Transfer to another plant of the company in a different geographic area at a
lower rate of pay--------------------------------------------------------------------------------------------------------

-------------

-----------

Other (specify)__________________________________________________________________________ _
c.

Did the company pay all or part of moving expenses of employees accepting option to
transfer to a different geographic location?------------------------------------------------------------------------------

Yes___

14.

What other kinds of monetary payments are available from the company to employees at time of
severance (e. g. , individual thrift funds to which employer has contributed, profit sharing, etc. )?

15.

Does company pay severed employees for accumulated vacation time?---------------------------------------------

Yes___ No_

16.

Does company offer employees in the bargaining unit a life insurance plan to which it contributes
all or part of prem ium ?-------------------------------------------------------------------------------------------------------------------

Yes___

When employee is no longer covered by the company, may he pay for continued coverage
at group rate?------------------------------------------------------------------------------------------------------------------------------

Yes___

Does company offer employees in the bargaining unit hospital, surgical, and/or medical
insurance plans to which it contributes all or part of premium?------------------------------------------------------

Yes___

If "Yes, " please answer questions "a " and "b. "
a.

When does coverage under this plan end?

(Check one)

At time of la y o ff-------------------------------------------------------------------------------------------------------------When employee accepts severance pay---------------------------------------------------------------------------Other (specify) _________________________________________________________________________
b.

17.

If "Yes, " please answer questions "a " and "b. "
a.

When does coverage under this plan end? (Check one)
At time of layoff---------------------------------------------------------------------------------------------------------------------

------------------

When employee accepts severance pay------------------------------------------------------------------------------------

------------------

Other (specify)__________________________________________________________________________________________ __
b.

Yes___

18.

Does company have a pension plan for employees in the bargaining u n it?----------------------------------------

Yes___

No_

If "Yes, " please answer questions "a, " "b, " and "c . "
a.

Is there any vesting?.----------------------------------------------- ---------------------------------------------------------------------

Yes___

How many employees receiving severance pay in 1962 had earned vested rights
to accumulated pensions?----------------------------------------------------------------------------------------------------------

------------------

Can severance payments be deducted from deferred vested pensions?------------------------------------------

Yes___

No_

Does company offer a severance pay plan to nonsupervisory white-collar employees
(professional, sales, technical, clerical) not in the bargaining u n it?---------------------------------------------

Yes___

No_

Yes___

No_

c.
19.

If "Yes, " please answer questions "a, " "b, " and "c . "
a.

Is severance pay plan for these employees similar to the one for employees in the
bargaining unit?----------------*-------------------------------------------------------------------------------------------------------

If plan is different, please send copy of the plan or describe briefly the major features of the plan.

20.

How many employees are covered by such a plan?------------------------------------------------------------------------- -------------------------

How many employees were awarded severance pay under this plan in 1962?-------------------------------- -------------------------

Would you please comment on aspects of your severance pay plan and its operation which have helped workers find
new jobs, learn new skills, or move to new locations. Equally important, we would appreciate your comments on
aspects which tend to diminish the effectiveness of the plan as far as mobility of workers is concerned. (Use ad
ditional sheets if necessary.)

Name of person reporting

Title

Date

2826 B-----SUB-Type Severance Pay Plans

Budget Bureau No. 44—6326
Approval expires March 31, 1964

BLS 2826 B

U.S. DEPARTMENT OF LABOR
BUREAU OF LABOR STATISTICS
W ash in g to n

25, D.C.

Study of Severance Pay Plans
IDENTIFICATION:

Location of establishment for which data are
desired if different from mailing address.
Union
Number of workers
covered by agreement

Occupation of workers covered:
Production and maintenance-------Clerical-----------------------------------------Professional, technical, sales-----Other---------------------------------------------

In which year was a severance pay provision first included in the collective bargaining agreement?----------

--------

Prior to that time, did the company have a formal severance pay plan for these employees?--------------Yes_____ No_

How many employees under the agreement were awarded severance pay in each of the following
years? (If severance pay was awarded in installments, count employees only in year that pay
was first awarded. Answer only for years in which plan was under agreement. )
Number of
employees
1962 (or corresponding fiscal year)1961 (or corresponding fiscal year)1960 (or corresponding fiscal year)-

Of those employees awarded severance pay in 1962, approximately how many were in each of the
following categories of length of company service?
Under 3 years-----------------------------------------------------------------------------------------------------------------------------3 and under 10 years-----------------------------------------------------------------------------------------------------------------10 and under 15 years----------------------------------------------------------------------------------------------------------------15 and vuider 20 years----------------------------------------------------------------------------------------------------------------20 years and over------------------------------------------------------------------------------------------------------------------------

For employees awarded severance pay in 1962, what were the reasons for severance? Check as
appropriate and, if possible, estimate the number of employees receiving severance pay for
each reason.

Check

Number of
employees

Involuntary separation due to lack of work (lack of business, closing or consolidation
of plants, technological change)---------------------------------------------------------------------------------- ------------

-----------------

Retirement or disability without being eligible for retirement annuity-------------------------------------

-----------------

Discharge for cause or inability to perform work------------------------------------------------------------ ------------

-----------------

Voluntary separation------------------------------------------------------------------------------------------------------ ------------

-----------------

Other (specify)_______ ___________________________________________________________________________________________
6.

Does the severance pay plan provide for a waiting period (e. g. , 1 year in auto industry, 2 years
in rubber industry) before laid-off employees become eligible for severance p a y ?-----------------------

Yes___ No___

If answer is "Yes, " please answer questions "a " and "b. "
a.

Proportion of employees applying for severance pay as soon as eligible.
(1) In 1962, how many employees became eligible for severance pay after normal
waiting period?--------------------------------------------------------------------------------------------------------------------

-----------------

(2) How many of these employees applied for severance pay as soon as eligible?---------------------

-----------------

Did the company in 1962 permit some employees to apply for severance pay before
completion of normal waiting period?--------------------------------------------------------------------------------------

Yes___ No____

If "Yes, " under what circumstances?______________________________________________________________________________

(1) In 1962, how many employees were eligible to apply for severance pay earlier
than normal?-----------------------------------------------------------------------------------------------------(2) How many of these employees applied for severance pay as soon as eligible?—
7.

How much severance pay did employees receive in 1962?
a.

Total gross amount-----------------------------------------------------------------------------------------------------------------------

Deductions because of prior payments of Supplemental Unemployment Benefits-----------------------

Total net amount (gross amount less all deductions)--------------------------------------------------------------------

How many employees receiving severance pay in 1962 had SUB payments deducted from
gross severance pay?-------------------------------------------------------------------------------------------------------------------------

------------

Is severance pay financed from SUB fund?------------------------------------------------------------------------------------------

Yes___ No_

If "Yes, " please answer questions "a " and "b. "
a.

Can severance payments be reduced if fund falls below a minimum le v e l? -------------------------------

Yes___ No

Have severance payments ever been reduced because of level of fund?--------------------------------------

Yes___ No

10.

Have severance payments ever been liberalized beyond amounts required by the plan?------------------------- Yes____ No
If "Yes, " under what circumstances?_____________________________________________________________________________ _

11.

What company services have been available to employees before or after severance? Check.

Before

After

None------------------------------------------------------------------------------------------------------------------------------------------------------------------ -------Training for other jobs with company-------------------------------------------------------------------------------------------------------------- -------Testing or guidance------------------------------------------------------------------------------------------------------------------------------------------ -------Company-sponsored employment referral------------------------------------------------------------------------------------------- ------------- -------Training for employment outside of company------------------------------------------------------------------------------------ ------------- -------Other (specify)____________________________________________________________________________________________________ _
12.

Options to severance pay.
a.

When an employee becomes eligible for severance pay, does he have the option to choose
between severance pay and each of the following? Check. (If employee loses severance
pay when rejecting offer, check "No. " ) ---------------------------------------------------------------------------------------- Yes____ No_
Another job with the company at a lower rate of pay in the same geographic area-------- ----------------Yes____ No_
Transfer to another plant of the company in a different geographic area------------------------------------------ Yes____ No_
Other (specify)_________________________________________________________________________________________________

If an employee has any of the above options, how many employees who received severance
pay in 1962 rejected each of the following? (Because employees may have been offered
none, one, or more options, the total number of employees in this question will not
necessarily coincide with the total number receiving severance pay. )
Number of
employees
Another job with company in the same geographic area at a lower rate of pay-------------------------------

-----------------

Transfer to another plant of the company in a different geographic area at the same or
higher rate of pay---------------------------------------------------------------------------------------------------------------------------

-----------------

Transfer to another plant of the company in a different geographic area at a lower rate
of pay---------------------------------------------------------------------------------------------------------------------------------------------

-----------------

Other ( s p e c if y ) ______________________________________________________________________________________________________________

13.

What other kinds of monetary payments are available from the company to employees at time of
severance (individual thrift funds to which employer has contributed, profit sharing, etc. )?

14.

Does company have a pension plan for employees in the bargaining unit?-------------------------------------------

Yes___ No_

If "Yes, " please answer questions "a, " "b, " and "c. "
a.

Is there any vesting?-------------------------------------------------------------------------------------------------------------------------

Yes___ No_

How many employees receiving severance pay in 1962 earned vested rights to
accumulated pensions?-------------------------------------------------------------------------------------------------------------------

-----------------

Can severance payments be deducted from deferred vested pensions?---------------------------------------------

Yes___ No

15.

Does company offer a severance pay plan to nonsupervisory white-collar employees (professional,
sales, technical, clerical) not in the bargaining unit?------------------------------------------------------- Yes___ No_
If "Yes, " please answer questions "a, " "b, " and "c. "
a.

Is severance pay plan for these employees similar to the one for employees in the
bargaining unit?---------------------------------------------------------------------------------------------- Yes___No_
If plan is different, please send copy of the plan or describe briefly its major features.

Number of
employees
b. How many employees are covered by such a plan?----------------------------c. How many employees were awarded severance pay under this plan in 1962?
16. Would you please comment on aspects of your severance pay plan and its operation which have helped workers find
new jobs, learn new skills, or move to new locations. Equally important, we would appreciate your comments
on aspects which tend to diminish the effectiveness of the plan as far as mobility of workers is concerned. (Use
additional sheets if necessary. )

Name of person reporting

Title

Date

U. S. GOVERNMENT PRINTING OFFICE : 1966 0 -2 0 5 -6 6 2

Full text of Operation of Severance Pay Plans and Their Implications for Labor Mobility : Bulletin of the United States Bureau of Labor Statistics, No. 1462

FRASER