WorldCom Workers Get the Shaft

Thousands of WorldCom employees look to be out of work, and they may not get their severance pay

August 7, 2002

6 Min Read
WorldCom Workers Get the Shaft

WorldCom Inc. (OTC: WCOEQ) filed for bankruptcy on July 21st (see WorldCom Files for Bankruptcy). And now it looks as if the 17,000 workers who've been laid off will get little if any severance benefits.

Some of the WorldCom employees that are being laid off have received payments, but the majority have not received anything, and the situation is looking grim, according to sources representing WorldCom employees.

Earlier this week, a bankruptcy court authorized WorldCom’s petition to pay 5,100 workers up to $4,650 in severance benefits, the maximum amount allowable under current bankruptcy code. As for the remaining 11,900 employees that will be laid off this summer, it's unclear if they will receive any benefits from the company. The bankruptcy court said that the people laid off before the bankruptcy was filed will get the $4,650, because they had already been promised a severance package. WorldCom doesn't have to give anyone laid off after the bankruptcy was filed anything.

"We can't speculate on future severance," says Tim Guillen, a spokesperson for WorldCom. "It's really in the hands of the bankruptcy court and the creditors' committee."

That leaves many employees in the lurch during the dark days of the telecom depression.

Kate Lee, former senior manager of communications, says she spent 16 years working for WorldCom and MCI (Nasdaq: MCIT) before being laid off this June.

“I knew that I was probably going to be let go,” she says. “But I continued to do my job just like I always did. I felt I owed that to the company.”

According to the standard severance formula, Lee was entitled to a minimum of eight weeks pay plus a week’s worth of salary for each year she had worked for the company. In total, she was expecting a package worth over $40,000. In addition, the company was also supposed to continue paying her medical insurance for at least 18 weeks. So far, she hasn't received any money.

“Some people who were laid off actually cheered when they found out,” she says. "Things had gotten so bad at the company in those last few months. People were just happy to get out.”

The AFL-CIO is working with Lee and other former WorldCom employees to get them more money. The union group launched a class action lawsuit against Enron last February, and succeeded in getting former workers up to $13,500 in severance.

Babette Ceccotti, a partner with Cohen Weiss & Simon, the law firm representing the AFL-CIO, says there are differences between the WorldCom and Enron cases, and it's still too early to know what will happen in the present case. So far, lawyers are still gathering information, and no lawsuits have been filed on behalf of WorldCom employees.

For workers like Lee, who had been promised far more than the current bankruptcy code allows, even the $13,500 seems like a small figure. But she isn’t complaining.

“It’s better than the $4,650 and that’s better than nothing,” says Lee.

But workers might be lucky to get any severance at all. Under current federal law, companies are not required to provide severance to employees. According to the Worker Adjustment and Retraining Notification Act (WARN), companies employing 100 or more workers are only obligated to give workers involved in a plant closing or major layoff 60 days notice (see Got Severance? Count Your Blessings).

While companies aren’t required to provide severance, those that do are expected to follow through with their promises. The Employee Retirement Income Security Act or ERISA, a federal statute passed in 1974, protects workers who work for a company with pension and nonpension benefits like health coverage and severance. This law, which was originally enacted to protect the Teamsters pension fund, ensures that companies pay out benefits promised to employees.

Because WorldCom had a severance plan in place before the bankruptcy, it could be subject to ERISA. The company actually made workers sign releases stating that they would not sue WorldCom in exchange for their severance packages. But Ceccotti warns that bankruptcy proceedings may void some of the company’s responsibility even if it is supposed to adhere to the ERISA requirements.

“Even if a company is using an ERISA plan, the workers’ severance is not absolutely safe,” she says. “The bankruptcy code gives companies a lot of room to determine what they can and cannot afford to pay former employees.”

While these issues are debated, thousands of workers remain in limbo with no idea if their health benefits are continued or if their severance will ever come.

Some employees with illnesses are unsure of what will happen with their disability and health insurance. Cindy Evans, a 46-year-old single mother in Baton Rouge, La., had worked for WorldCom and MCI for 12 years. Evans is now undergoing chemotherapy for breast cancer, and she went on medical leave back in April.

Since being laid off at the end of June, Evans says she has tried to contact WorldCom on several occasions and has left numerous messages, but she has yet to hear back from any company officials. In the meantime, she is worried about what will happen to her short-term disability, her medical insurance, and her severance, which she expects to be much larger than the $4,650 allowed by the courts.

Evans’s short-term disability insurance runs out at the end of August. Her illness makes it impossible for her to look for a job. At the end of the month, she will have no income. And if she isn’t offered COBRA for her insurance, she will likely be unable to get any affordable coverage for herself and her 12 year-old son.

On the other extreme is Bernie Ebbers, the former chief executive officer of WorldCom who was granted a $10 million, two-year retention bonus back in September of 2000. Ebbers was forced to resign from the company in April, six months shy of his two year deadline, but he is keeping the bonus (see Sidgmore Takes Control at WorldCom). Former chief financial officer, Scott Sullivan who was taken into custody last week and charged with securities fraud, conspiracy, and making false statements to the Securities and Exchange Commission (SEC), has also been able to keep his $10 million retention bonus (see Ex-WorldCom Execs Charged With Fraud).

“I saw Scott Sullivan on the TV last night," says Evans. “It just disgusts me that he is off building a $15 million home and I’m sitting here with zero. I have no job, no money, no hair. And I’m fighting for my life. I can’t even get WorldCom to return my calls.”

A WorldCom spokesperson said that he was unaware of employees not being able to reach officials. He also said that he was unable to discuss details of the company's severance plan.

— Marguerite Reardon, Senior Editor, Light Reading

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like