WorldCom will pay full benefits to about 4,000 former employees who lost their severance packages when the Clinton-based telecommunications giant filed for Chapter 11 bankruptcy protection in July.
Bankruptcy Court Judge Arthur J. Gonzalez approved WorldCom’s motion to pay $36 million to its former employees. WorldCom attorneys argued the full severance payments were needed to shore up the morale of remaining workers and to avoid negative attention on the company.
The motion had support from most of the company’s creditors with the only objection coming from Broadwing Communications, a Cincinnati-based local phone company.
Former workers cheered the ruling.
“I think it’s extremely compassionate, and it shows the court’s heart is on the right side of things,” said Dave Willey, a former project manager at WorldCom’s UUNet division in Virginia. “It was the right thing to do.”
WorldCom laid off 5,100 employees nationwide June 28, less than a month before it filed for bankruptcy protection. About 90 of those job cuts were in Mississippi.
Instead of giving those employees severance payments in lump sums, as had been the company’s tradition, WorldCom announced it would pay the benefits in biweekly checks over several months.
When the company filed for bankruptcy protection, the money owed to former employees in severance payments became another debt. Bankruptcy rules cap such payments at $4,650. For about 1,000 of the former workers, the amount owed to them was less than the $4,650 cap.
WorldCom plans to resume its biweekly payments to employees this month. As part of the court’s ruling, 19 former executives who had been laid off will receive severance payments based on their seniority in biweekly payments. Many of those executives had negotiated more lucrative severance packages before leaving the company.
Former President and Chief Executive Officer Bernie Ebbers will not be one of the former executives to receive payments. A court monitor in the Securities and Exchange Commission’s civil lawsuit against WorldCom blocked Ebbers’ $1.5 million-per-year severance package.
Kate Lee, founder of the Ex-WorldCom Employee Assistance Fund, had been working with WorldCom officials and organizations such as the AFL-CIO for the past two months to gain full severance payments to workers.
“It’s been very rewarding for me. Now we’re at the phase of negotiating details instead of negotiating issues,” Lee said.
Lee’s organization raised more than $80,000 in assistance funds following WorldCom’s bankruptcy filing, mainly by pressuring politicians to return WorldCom campaign contributions. Those funds have been used to help former workers make rent and mortgage payments in the absence of severance checks. Lee said although WorldCom plans to resume severance payments using biweekly checks, she hopes the company will reconsider and pay out lump sums.
“Their attorney says (WorldCom) has $1 billion in cash,” Lee said referring to discussions in Bankruptcy Court on Tuesday. “This $36 million is nothing. We’re a rounding error. We’re a gnat on the back of the elephant.”
Lee did praise WorldCom for its cooperation in the matter. She said her group learned from what former Enron workers went through to get severance payments. It took more than six months for many of those employees to receive payments.
“Ours was not as ugly or protracted as what Enron’s workers went through,” Lee said. “I think this sets a precedent that will carry forward to the next big bankruptcy filing. I think companies are going to realize that they can’t save money by cutting out severance.”