Whose Jobs? Our Jobs!

Here is the untold story of workers' response to the telecommunications meltdown. Unions, ex-employees, and retirees are mobilizing for jobs and reform.

Nomi Prins

This article is from the March/April 2003 issue of Dollars and Sense: The Magazine of Economic Justice available at http://www.dollarsandsense.org

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This article is from the March/April 2003 issue of Dollars & Sense magazine.

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At some point, you become numb to the stories of greedy execs who scammed billions of dollars from their shareholders and workers. The $95 million Bel Aire mansions. The $15,000 umbrella stands. The tax-deductible private jets. Even more maddening, many executives walked away from their fraud-infested firms with multi-million dollar exit perks.

There were no such golden parachutes for the over half a million laid-off telecom workers. They lost out three times. First, the value of their stock-filled retirement plans plummeted. Then, their jobs were cut. Finally, many did not receive the severance pay and benefits to which they were legally entitled.

But one important part of the telecom tale has yet to be told: the story of unions' role in securing jobs and severance pay in the face of the sector-wide meltdown. Unionized workers have survived the crisis with fewer scrapes than their nonunion peers. Unionized companies have had fewer scandals, and have been less prone to cut costs by simply axing their workforce. Even employees laid-off from nonunion telecom companies have turned to the AFL-CIO for help, and for good reason.

Telecom Meltdown

Since January 2001, the telecom industry produced 11 of the top 25 U.S. corporate bankruptcies, six of which are under Securities and Exchange Commission (SEC) investigation. Additionally, over 27% (or 540,000) of the country's 2 million layoffs came from this one sector.

Topping the charts is WorldCom. The world's largest Internet provider and country's number two long-distance phone company, WorldCom went belly-up in July 2002. The company cut 5,100 employees from its 79,000-person payroll in June 2001. By the time it announced additional cuts of 17,000 workers in July, it was heading to bankruptcy court. WorldCom axed workers from all levels of the company—rank and file through vice president—and from sites spanning St. Louis, Tulsa, Clinton, Colorado Springs and Atlanta. The wireless divisions were particularly hard hit, and the brutal drain continues.

As one terminated "WorldCommer," the head of a family of four, put it, "I gave eight years of honest, hard work to WorldCom and MCI. When they showed me the door, they didn't even say thank you." Furthermore, termination at WorldCom was subject to favoritism. Sources say it seemed arbitrarily geared toward those who did not have the best relationships with their superiors. And, according to Kate Lee, a 14-year WorldCom veteran, "it seemed to be disproportionately targeted at the health disadvantaged, those with medical disabilities."

Employees in the heavily unionized Bells have also seen their share of pain, with 70,000 layoffs out of a 651,000-person peak workforce. Although some of the layoffs are considered voluntary departures, "to us, they are all workforce reductions," says Malinda Brent, spokesperson for the International Brotherhood of Electrical Workers (IBEW). "Those workers are still out of a job." Unforturnately, the pain continues. Verizon, the nation's largest telecom, recently announced plans for thousands of additional job cuts. Industry-wide, about 40,000 Communications Workers of America (CWA) jobs have been eliminated.

Still, union workers have fared better than nonunionized employees in terms of their layoff conditions. "Of those cuts, less than 10,000 people were involuntarily thrown out of their jobs," says Morton Bahr, President of the 740,000 member CWA. "That's because of all the protection innovations we came up with, like avoiding involuntary departures by negotiating early retirement benefits and substantially increased severance pay. With a union contract, at least there's a seat at the negotiation table and alternatives can be considered."

Union representation has protected many from arbitrary termination driven by favoritism. "That's the kind of thing that wouldn't happen with a strong union," says Bahr, "when there's no union contract, they lay off who they want when they want."

Telecom Lanscape

Think of the various telecom players as formed by distinct stages of deregulation. First, there was AT&T, a regulated, heavily unionized, monopoly of local and long-distance service. Competing with AT&T were long-distance companies like MCI and United Telecommunications (the predecessor to Sprint).

Then came the 1984 AT&T bust-up that deregulated long-distance and spawned the regional Bell operating companies, or Baby Bells, who got control of local phone service. In the mid-to-late 1990s, Internet carrier companies and Internet service providers (ISPs) exploded on the scene, enabled by the 1996 Telecom Act that deregulated local phone lines. These firms bet that the Internet would replace older communications technologies like the telephone, or at least outpace phone usage. The Federal Communications Commission (FCC) fueled the telecom flame with its increasingly deregulatory stance—it has rejected only one mega-merger in the past 35 years.

Large carriers and Internet service providers muscled their way into the local phone line market chiefly by buying up existing companies and feeding on the revenue bases of the firms they acquired. They needed pumped up shares as currency and debt to furnish their predatory growth plans. Wall Street fundraising and cheerleading aided them there. When the customers did not materialize, accounting fraud gave the appearance of demand.

When it buckled, the NASDAQ telecom index fell 92% from its March 2000 highs. Smaller carriers that failed to get a slice of the acquisition pie fell first as overcapacity swelled. So did the new local service companies, which also arose courtesy of 1996 deregulation. These Internet carriers and local service companies accounted for most of the telecom sector's 60-plus bankruptcies.

Then, starting in early 2001, mid-size Internet-based telecom companies began dropping like flies, including 360 Networks, Winstar, Exodus and a host of others. By 2002, the giants like WorldCom, Global Crossing and Adelphia followed suit. That's not to mention Qwest, Lucent, Nortel and others still hovering on the brink of bankruptcy.

Before the first wave of deregulation, about 700,000 CWA members worked at AT&T. After 1984, these union members were divided among the Baby Bells. Today, approximately 300,000 Communication Workers of America (CWA) and 58,000 International Brotherhood of Electrical Workers (IBEW) members work at the four Bells. Additionally, 34,000 CWA and 13,000 IBEW members work elsewhere in the telecom sector.

The three biggest Bell companies (Verizon, SBC Communications, and BellSouth) have no pending fraud investigations. They are the most regulated firms in the industry. Bell and local companies that were acquired by new entrants like Qwest and Global Crossing fared far worse. But corruption ran deepest at the unregulated Internet-based companies like WorldCom. These firms were guilty of the worst job cuts and the highest volume of fraud.

Those union workers who do get pink slips receive substantially better severance pay than similar workers at nonunion firms. Partly this is because union salaries are higher to begin with, especially for lower skilled jobs. Suman Ray, senior analyst at CWA, explains, "Typically, the union-non-union salary discrepancy can be as much as 25%. The difference narrows with skill level, but nonetheless remains." In certain cases the CWA has negotiated severance amounts that exceed the number of years worked. For example, at SBC Communications, laid-off senior employees' severance pay was computed based on employee tenure-plus-6 years, resulting in an additional $500 a month, thanks to CWA efforts.

Not only are union workers paid more severance; they actually receive the severance pay they were promised—that is, they get the amount they expect to get. This is in stark contrast to the experience of laid-off employees in the nonunion Internet sector, where firms (including WorldCom and Global Crossing) chose not to honor their severance contracts.

The CWA also fights to protect its members' pension dollars (or tries to), taking employers to court when necessary. When nonunion Global Crossing acquired the unionized Frontier Communications in late 1999, it also acquired almost $600 million of Frontier worker pension assets. Global Crossing then sold part of Frontier to Citizens Communications two years later, but kept the pension assets of the Frontier employees—a blatant maneuver to pump up its own balance sheet.

CWA head Bahr confronted Global Crossing chairman Gary Winnick, saying, "Those assets should be with the workers, not with you. Pension assets belong to the current and future retirees." The CWA ultimately took Global Crossing to court. But the corporation deliberately dragged its feet. First, bankruptcy filing became a convenient excuse. Another speed bump arose when creditors and new owners agreed to purchase the restructured Global Crossing. The CWA continues its fight. It is a battle that Bahr and the union are committed to win.

Struggle for Severance Pay at WorldCom

WorldCom's massive job cuts cost employees more than their jobs; the company also withheld severance pay. Under U.S. bankruptcy code, when a corporation files for chapter 11, any severance pay due to the employees terminated pre-filing can be capped at $4,650. The figure represents an inflation-adjusted payment that started as $1,600 in 1979 when Congress passed the original code. Where did that number come from? "Well," explained one New York City corporate bankruptcy lawyer involved in the case, "the legislators at the time pulled it out of their ears."

WorldCom lawyers asked the bankruptcy court to allow it to pay just the severance cap amount, even though many terminated workers were owed far more—and had employment and severance contracts to prove it. As it turned out, WorldCom did not even make these small payments in a timely manner.

For Dawn Harden, ex-financial systems analyst from Atlanta and single mother of three, this was hard to swallow. "I went from $50,000 to food stamps. They have the money. Why haven't they paid me my money and benefits like they promised?"

That's a question that Kate Lee, now chairwoman of the ex-WorldCom Employees Assistance Fund, took to heart, to the bankruptcy courts, and to Congress. The assistance fund was created by Lee and three other casualties of the June WorldCom layoffs. It was modeled on a relief fund that a former Enron employee set up to provide laid-off Enron employees with financial assistance. In its first few months, the fund raised over $190,000. Contributions flowed from the Democratic Congressional Campaign Committee, various senators, and sympathetic members of the public. Not a single WorldCom executive chose to make a contribution.

In early July 2002, WorldCom owed 4,000 severed employees $36 million. The AFL-CIO quickly mobilized to help Lee and other laid-off WorldCom workers retrieve due severance pay. Several levels of the AFL-CIO were involved in the legal effort, from lawyers to union activists to John Sweeney, the President of the AFL-CIO. Damon Silvers, associate general counsel for the AFL-CIO explained, "We had just come off a bankruptcy court coup against Enron, getting $35 million in severance for 4,500 laid-off employees. We had built up the expertise in the courts and knew how to exert pressure to retrieve severance and other benefits. Then, bang. WorldCom happened. We knew what we had to do and went out and did it."

In addition to the legal assistance, AFL-CIO activists set up laid-off worker information websites. They leafleted WorldCom jobsites and call centers. John Sweeney committed the AFL-CIO's support to the WorldCom workers during a Wall Street rally to raise awareness about corporate governance. Hundreds of formerly non-active workers were catalyzed to fight. "There's no way we could have gotten as far as we did without the help of the AFL-CIO," said Lee.

In October, WorldCom went to bankruptcy court, supposedly on behalf of its workers, to request the ability to pay severance benefits. WorldCom appeared not out of the goodness of its corporate heart but in response to the concerted pressure exerted by the AFL-CIO, its network of lawyers, and the former WorldCom employees.

When the court agreed to permit the company to pay severance, the WorldCom public relations machine spread the news of its generosity. Company attorney Marcia Goldstein testified that the payments would allow WorldCom to "restore the confidence of its employees, whose cooperation and continued loyalty are essential." Yet behind the scenes, WorldCom chose not to pay that severance in the lump sums its employees requested, opting instead for biweekly payments.

"You know, it's like a rounding error to them," says Lee of the $36 million, "And yet, do you think, just maybe they could do the right thing, after all the negative publicity, just once do the right thing by their workers?" Indeed, many who had counted on that money were well behind in mortgage and medical payments, some facing home foreclosures and car repossessions.

Moreover, some ex-WorldCom employees also found the company had adjusted their severance payments down by inserting unexplained numbers of vacation days. When one ex-employee called WorldCom's severance dispute hot line to find out why the amount of vacation he had taken had doubled, he was told, "I don't know. I'm not sure. Perhaps. Maybe. I don't have information on that." Other ex-employees have complained of similar treatment.

Some sources claim that internal departments including Human Resources, Finance, and the post-bankruptcy Restructuring Department were given financial incentives to retain as much cash as possible. Such incentives are just one insidious way that post-chapter 11 corporations placate bank creditors at the expense of workers.

Not only did WorldCom shirk severance responsibilities. Its severance packages were not all created equally. While groups like Lee's battled for severance and health care benefits, a subgroup of 19 employees, all Vice Presidents, were treated suspiciously well. All 19 had links to the international customer base, particularly the billing of goliath multinationals like BP, McDonalds, and MasterCard.

Monica Didier, who resigned from her position as a Director of Executive Product Program Management at WorldCom in June, regularly attended internal meetings run by Scott Sullivan, WorldCom's indicted ex-CFO. "As the company stock sank, even before the accounting allegations were exposed," she recalled, "Scott was under pressure to put together a set of acceptable company numbers to keep the analysts, press and shareholders at bay."

He said that growth would come from the international customer base. Indeed, the only two positive growth areas in the 2001 annual report (prior to being hit by the infamous $9 billion earnings "misclassification") were the Internet and International departments, whose earnings have not yet been restated. Could they be next?

While no wrongdoing has been established, the 19 did receive full severance with no payment disruptions and superior health care packages. Says Didier, "All other severance agreements had health care coverage lasting until December, but these people got coverage until spring (2003)."

Groups including Lee's organization and the AFL-CIO continue to fight for bankruptcy code revisions that would give higher priority to employees and provide a specific seat for an employees' committee in bankruptcy court. Creditor committees, mostly representing Wall Street banks, simply do not take into account employee interests in their efforts to recoup assets. Current federal law effectively sacrifices employees first when companies go under. Without changes to ensure appropriate employee representation at the bankruptcy court table, workers will continue to pay a high price for corporate fraud-induced bankruptcy.

MCI-Worldcom's Anti-Union Legacy

WorldCom had been anti-union long before it acquired MCI in September 1998. Kate Lee explains, "Because offices were located in remote areas like Tulsa, Oklahoma (where WorldCom laid off 1,000 people last year) they were always one of the largest employers in town." Workers did not dare advocate unions for fear of losing their jobs.

MCI's relentless opposition to unions began years ago and not for lack of organizing attempts. In 1986, as long-distance service was becoming more competitive, the CWA attempted to organize an MCI site in South Field, Michigan, just outside of Detroit. The site had 450 people who had signed cards in favor of CWA Local 4009 representation. But, just before Christmas, on the eve of the National Labor Relations Board (NLRB) meeting, MCI decided to close the office and fire everybody. This is relatively easy to do in telecoms where transferring work is done by a simple flip of a switch. In 1987, MCI closed another office, in Virginia, to prevent a union election. The CWA realized that to have any hope of winning an NLRB election, it would have to mobilize at least half of the company's workforce at the same time so that management would be unable to transfer the work and threaten job cuts—a tough task.

During the decade following the 1984 deregulation of long-distance telephone service, MCI's long-distance market share quadrupled (from 4.5% in 1984 to 17.8% in 1995) and their anti-union practices, like replacing full-time employees with contingent workers, intensified (much as they did at Sprint and other long-distance companies). The CWA took to focusing its efforts on the more heavily regulated Bell companies.

In early 1998, however, the CWA saw another organizing opportunity at MCI, when the corporation hired former Secretary of Labor Bill Usery's labor-management relations consulting firm to work on their "labor issues." Several weeks of discussions between Bahr, Usery and the Vice President of Human Resources at MCI began. The talks were to be a preliminary step toward unionization. Yet, on the day they had planned to sign a joint agreement that laid out an official code of conduct for both the company and the union, MCI backed out.

Effects of the Telecom Bust on Retirement Funds

After the Telecommunications Act of 1996, new entrant Internet firms went on a shopping spree using inflated stock as currency. Qwest bought USWest (formerly Bell) with $36 billion of stock; Global Crossing bought Frontier Communications (a local phone company) with $10 billion of stock; and WorldCom bought MCI (a long-distance company) with $37 billion of stock. As a result, workers in these companies saw the old company stock in their savings plans converted to highly inflated new company stock.

In the telecommunications sector, 70% of union workers have defined benefit pensions that provide a guaranteed level of retirement income. In comparison, just 16% of nonunion telecom workers have defined benefit plans. Most nonunion workers rely on 401(k) and other defined contribution plans with no retirement income guarantee. Such plans may be legally filled with employer stock.

At unionized USWest and Frontier Communications, workers had 401(k) plans in addition to their defined benefit pensions. Their 401(k)s were injected with Qwest and Global Crossing stock respectively. At nonunion MCI, employees relied on 401(k)s as their primary retirement plan. These were filled with WorldCom stock—as much as 55% of total 401(k) assets in 1999 and 32% in 2000.

Employees report they were under pressure to buy and hold stock even as executives were selling. Even as their retirement money dwindled, companies pumped them with rhetoric about future riches and the need for patience, all while executives were cashing out. WorldCom workers lost between $600 million and $1.8 billion from their 401(k) savings plans, according to the Employee Benefits Research Institute (EBRI). Global Crossing workers lost around $275 million in 401(k) plans filled with Global Crossing stock. These retirement plans had 5-year lock-out periods prohibiting stock sales.

Under the bright lights of a congressional hearing last October, Winnick offered to give up $25 million of "his own money" to help those employees who had lost theirs. That is a mere fraction of the $735 million that he pocketed from stock and option sales. (He didn't have a lock-out period.) So far, there has been no distribution of that promised money, nor any agreement on the terms of distribution. Winnick quietly resigned as chairman on New Year's eve.

Recent union interventions have not gone unnoticed by nonunion ex-"WorldCommers." Said one former employee from New York, "I never thought much of unions before this happened, thought they were a relic of a past time—you know, children working too long, factory workers, low wages and the like. I've had a change of heart. The rank and file need someone who is on their side, against companies who treat us like disposable assets."

But despite a very troubled industry, union organizing does not become simpler overnight. According to Ray, "The rules of the game are heavily stacked by the corporations. Just because some employees are more sympathetic does not always make it easier. That change in opinion, while encouraging, does not immediately translate into huge organizing increases." Still, there is hope that the current executives-come-first environment will foster more union support. Meanwhile, CWA organizing efforts march forward, particularly in the cable industry where Adelphia's massive corruption has been met with intensified union activity.

Others in the Fight

A new voice in the fight for employee rights is coming from the retirement community.

Bill Jones, a former middle manager at Bell Atlantic Telephone, formed a retiree group with a colleague in late 1995. Under old company policy, pension benefits were supposed to increase every two years with inflation. Instead, they discovered, though pension fund surpluses at "Bell Tel" were increasing, as was executive compensation, payouts were not.

Fast forward seven years and Bell Tel has become part of what is now Verizon. The Bell Tel Retiree organization has grown from a two-person operation to 165,000 members. Membership has increased by 25% over just the past year. Today, the group is mixed, with 40% former union members and 60% former managers. Jones argues, "once you become a retiree, that's your label—doesn't matter if you were management or union."

Many other retiree organizations were also formed in the mid-1990s, including many established by employees who had worked at pre-divestiture AT&T and later at the various Bells—employees who remembered times when workers' security and benefits meant something. As Nelson Phelps, founder of the growing Association of USWest Retirees (AUSWR) put it, "We realized that corporations couldn't be trusted and no one was going to protect our rights, but us."

Together, the retiree organizations formed the National Retiree Legislative Network (NRLN) which represents almost two million retirees. The NRLN is fighting for legislation to ensure federally guaranteed maintenance of health care benefits, much like the 1974 Employee Retirement Income Security Act guaranteed defined benefit pensions through the pension benefit guarantee corporation (PBGC). They are also fighting for stricter corporate governance measures.

Jones and other NLRN shareholder activists argue for:

  • Truly independent boards. Boards should have limited or no representation from management ranks. This is key to establishing checks and balances within corporations. (Some members of the retiree and union movements advocate employee or union leader representation on boards as well.)
  • Removal of pension asset performance projections from company income statements. This is essential to giving shareholders and employees a more accurate view of a firm's performance.
  • Broad shareholder review of golden parachute packages. All shareholders, and not just members of the firm's compensation committee (who have a vested interest in treating their ex-bosses fairly) should have the right to inspect—and reevaluate—the excessive exit perks handed to corporate executives. Redistributing CEOs' multi-million dollar parting gifts to current and former telecom workers would be a good first step toward fairer treatment of the sector's workforce.

Corporate practices are difficult to change, however. This was a lesson members of the AUSWR learned when they presented two proposals limiting executive benefits at Qwest's annual shareholder's meeting last June. The first was a golden parachute proposal that would subject executive packages to a general shareholder vote. The second was a proposal to eliminate executives' ability to garner bonuses based on the firm's pension fund performance—a widely used corporate tactic. Though shareholders rejected both proposals, the pension incentive proposal received 39% approval (more than double the prior year). The golden parachute proposal earned 17% approval.

Bell Tel Retirees fared slightly better when they presented similar proposals at Verizon's annual meeting last April. That's because they were not hampered by one large shareholder. At Qwest, billionaire former chairman Phillip Anschutz owns 18% of company stock and holds the associated voting rights.

Facing the Future

Rather than learning from past mistakes, the Federal Communications Commission (FCC) approved yet another mega-merger between AT&T Broadband and Comcast in an all-stock deal on November 13, 2002. AT&T Comcast retained $26 billion of debt left over from AT&T's previous four mergers and got 30% of the U.S. cable market. The Wall Street advisors for the deal bagged $221 million in fees, while 1,700 employees got axed.

Global Crossing will emerge from bankruptcy protection sometime this year. Other telecoms have already resurfaced. With their debts erased, they will once again be able to pile on loans. And again, banks will rush in to help them, in return for fees, despite their horrendous track records. Also troubling: despite high debt, Bells like SBC Communications are going shopping. SBC recently announced its intent to buy unregulated DirecTV as part of an expansion into cable. Unfortunately, without major regulatory changes, the cycle of debt, earnings peppered with creative accounting, and layoffs is destined to continue.

WorldCom will likely be resurrected in some form later this year, possibly under the old MCI moniker, or cut up into parts and sold off to a Bell. Astonishingly, the SEC (whose primary mission is to protect investors) granted WorldCom a permanent injunction (a pardon) on November 26, 2002, for its $9 billion in misstated earnings, a move that received no front-page coverage.

Equally remarkable is that WorldCom named Hewlett Packard's Michael Capellas to all three of the top spots at the firm: president, CEO, and chairman of the board, with an $18 million sign-on package. Even though so many of WorldCom's problems stemmed from its lack of an independent board, and the unchecked authority of former President and CEO Bernie Ebbers and his cronies, WorldCom failed to divide the power of its top three positions. There is no possibility of board independence when the chairman happens to be the CEO.

Fortunately, counteracting this corporate maneuvering, there is evidence of a growing and increasingly united struggle. Whether it is unions fighting for workers' rights, collective action campaigns, ex-employees advocating changes to bankruptcy codes, or retirees promoting health benefit guarantees, working people are coming together to help each other. Together, laid-off telecom workers, retiree groups, and the AFL-CIO represent 17 million people. That's a lot of votes. It's crucial that these groups continue to mobilize to strengthen a corporate corruption-resistance movement. It's a long haul littered with opposition from the same corporations and legislators that combined forces to create the current mess, but the battle is building up steam.

Nomi Prins is a former investment banker turned journalist. She has written for Fortune Magazine and the Left Business Observer. Her book on corporate corruption, Money for Nothing, will be published by The New Press later this year.