Showdown Nears on Secret Layoff Plan : Workers’ Suit Against Continental Can Could Result in Huge Damages

The year was 1980, and Bonnie Busby, who had put in 17 years on a Continental Can assembly line in St. Louis, was just months away from vesting in a union-negotiated pension plan.

Busby, 50, says that when the company laid her off in November that year, she was assured that the layoff was temporary. She said company officials for the next five years repeatedly told her that she was likely to be rehired soon. Meanwhile, as the recall failed to materialize (she was never officially terminated), her standard of living collapsed.

She was able to find only temporary, minimum-wage jobs--paying much less than the $7.50 an hour and full benefits she had received at Continental Can. For three months she was on welfare, and she had to move out of her St. Louis house and into a trailer. At times, she says, clothes for her two children came from the Salvation Army.

Jan. 10 Court Date

Continental Can told her she was being laid off because of a decline in business. But documents subpoenaed by lawyers for more than 2,500 Continental employees laid off at plants around the country show that the company’s management had adopted a secret plan to systematically lay off workers permanently to prevent them from vesting in the pension plans, in violation of federal law. On top of that, the lawyers allege, many of the workers were never told that their layoffs were permanent. (Under the plan, once employees vested, they were entitled to receive benefits if they were placed on long-term layoff.)

A class-action lawsuit brought on behalf of workers at 46 Continental plants is due to go to trial in federal court in Newark, N.J., on Jan. 10. Legal experts say a series of earlier court rulings in this case and in two smaller, related ones indicate that Continental may face a major liability judgment, potentially in the hundreds of millions of dollars. Robert Plotkin, one of the lead attorneys for the laid-off workers, predicted that the damages could come to more than $500 million.

Edwin C. Thomas, a Chicago lawyer representing Continental Can, confirmed that earlier court rulings have established that the company’s plan violated the federal pension law, known as the Employee Retirement Income Security Act, or ERISA. The only remaining dispute to be decided in a trial before U.S. District Judge H. Lee Sarokin is how many employees were affected by the illegal plan and how much back pay, lost benefits and other damages they are owed. Continental and lawyers for the ex-employees are far apart on this point.

‘Magic Number’ Pensions

The pensions in question were special “magic number” pensions negotiated in 1977 by the United Steelworkers Union for employees subject to periodic layoffs. They were designed to protect employees with long years of service but who had not yet reached normal retirement age. The pensions typically provided that if an employee’s age and years of service totaled above a certain number--it varied in individual contracts between 65 and 75--they would become eligible for pensions, continued health benefits, as well as special supplements until retirement age if they were placed on long-term layoffs.

But documents obtained from Continental during pretrial legal proceedings established that, as business turned bad for the company in the late 1970s, its management adopted a secret, computerized plan to prevent employees from vesting in the costly pensions by laying them off before they became eligible. In some case, whole plants were shut down to prevent significant numbers of employees from qualifying, the suit claims.

ERISA specifically prohibits employers from taking any action against workers for the purpose of interfering with their pension plan rights.

The secret plan came to light mainly because Daniel McIntyre, a lawyer then with the steelworkers union in Pittsburgh, became suspicious about an unusual pattern of layoffs at Continental’s Pittsburgh plant. The union filed suit on behalf of workers at that plant, and pretrial depositions and subpoenaed documents in that case turned up “all these smoking guns,” according to William T. Payne, a lawyer for the steelworkers.

The bigger class-action lawsuit was later filed on behalf of workers at most of Continental’s other plants. Management documents cited in the nationwide case state that the purpose of the “capping” plan was to lay off workers who were within a few years of vesting, while retaining the vast majority of those who had already vested and would have to be paid pensions and other benefits if they were laid off.

In the Pittsburgh case, the federal court of appeals in Philadelphia ruled in February, 1987, that the secret pension “liability avoidance” program clearly violated ERISA. In their ruling in that case, the appellate judges said that if the Continental scheme to avoid paying the pensions doesn’t violate ERISA, “we are hard pressed to imagine a set of facts that would.”

Los Angeles Case

When Continental tried unsuccessfully to get the U.S. Supreme Court to review that ruling, the U.S. solicitor general, who argues the federal government’s position in Supreme Court cases, agreed that Continental had clearly violated the law. That case has now been sent back to federal district court to determine how much Continental must pay the Pittsburgh workers.

A similar case in Los Angeles involving a plant in East Los Angeles also went against the company. Continental Can agreed last year to pay a settlement of $7.5 million to laid-off workers after U.S. District Judge Laughlin E. Waters in Los Angeles ruled that the company had violated ERISA. H. Tim Hoffman, an Oakland lawyer who represented the Los Angeles workers, said the judge ruled that Continental had intentionally deprived workers nationwide of pension benefits.

Judge Waters in that case also sharply criticized Continental after he found that the company’s management had deliberately submitted false documents in the lawsuit.

Continental Can is now a unit of Omaha, Neb.-based Peter Kiewit Son’s Inc., a closely held construction, mining and packaging concern, which acquired the beverage can manufacturer in 1984. An in-house lawyer for Kiewit referred questions on the case to Thomas.

Laurence Gold, general counsel to the AFL-CIO in Washington, said the Continental case comes at a time of heightened concern nationwide about the safety of pension plans, mainly because of the wave of corporate takeovers and leveraged buyouts.

But Gold and other labor lawyers said the Continental case appears to be unique. Payne, an assistant general counsel for the steelworkers union, said, “We haven’t come across any other company that has done this.” He said the lawsuit might discourage other companies from trying.

Lost Customers in ‘70s

According to Thomas, the seeds of Continental’s problems began in the late 1960s, when other firms invented the aluminum can for soft drinks and beer. Continental held patents on manufacturing techniques for the older steel can. Continental’s management failed to foresee that the aluminum can would sweep the market. Aluminum doesn’t affect the taste of the beverage the way steel does, and the new cans had the advantage of being recyclable.

Continental went on making only steel cans until, in the 1970s, it began losing big customers. Beer manufacturers, including such Continental customers as Anheuser-Busch and Miller Brewing Co. started making their own aluminum cans.

Documents in the court file in Newark show that, beginning in 1977, Continental’s management drew up the capping program to get rid of employees who were close to meeting the age and years of service requirements for the pensions. According to one Continental document, “A major objective of the (plan) is to reduce or avoid massive liabilities which will otherwise effectively mortgage our business.”

The program was adopted secretly, which lawyers for the employees claim was to avoid arousing the union’s suspicions. The suit claims that workers were deliberately misled to believe that their layoffs were only temporary. As a result, many were continually assured that they would be recalled to their high-paying union jobs in a matter of weeks or months, and so many ended up waiting months or years before looking for other permanent employment.

Gets Less Pay

According to the lawyers in the case, few of the laid-off workers were able to find new jobs with wages anywhere near what they were earning at Continental.

Konrad Trojniar, laid off from a plant near Chicago two years before he would have vested in the plan, said it took him five years to find another full-time job, at a chemical plant. And his new job pays less than the $9 an hour he was making at Continental.

McIntyre said that when the monthly pension benefits, supplemental payments, special lump-sum retirement allowances due on reaching age 62 or 65, health insurance premiums and interest are calculated, the amount of damages owed to many of the workers individually would be more than $100,000 each.

According to the lawsuit, management in many cases had to lay off employees who weren’t close to vesting to get at those who were, because of seniority rules. And to prevent employees close to vesting from being inadvertently rehired, the company developed a “red flag” computer system to prevent it.

Disagreement About Numbers

As the work force shrank because of layoffs, the remaining workers at some plants were required to put in enormous amounts of overtime to maintain production. The suit claims, for example, that employees at Continental’s Clearing, Ill., plant were often required to work seven days a week after the capping program reduced the plant’s work force.

Thomas, one of Continental’s lawyers, said the company agrees that some workers are due compensation for having been laid off under the scheme. But he said the company strongly disagrees with the plaintiffs about how many workers were affected by the plan. He argues that because business was bad, many of the laid-off workers would have lost their jobs anyway. He declined to say how many workers Continental believes are due compensation but said it was much smaller than the 2,500 claimed by the plaintiffs. That number, he said, amounts to Continental’s “entire layoff population” since 1976.

Issue for Trial

He said many of the laid-off workers were more than 10 years away from qualifying at the time of their layoff. “We can’t comprehend that persons that far away could have been affected by any plan to deprive people of pensions,” he said.

This is one of the main issues that will be decided at the trial. But in a pretrial ruling in August, Judge Sarokin noted that because of seniority rules, many employees who weren’t close to vesting had to be laid off to get at those who were. He ruled that if the main purpose of the layoffs was to violate ERISA, then even those not close to vesting may be entitled to back compensation.