Original URL: https://www.theregister.com/2009/02/27/spansion_sued/
Anatomy of a chipmaker meltdown
AMD's Spansion sued after juicing exec pay amid mass layoffs
Posted in On-Prem, 27th February 2009 20:56 GMT
AMD flash-mem spin-off Spansion has been hit with two separate employment lawsuits after unexpectedly laying off 35 per cent of its workforce earlier this week.
Both suits - Refuerzo v. Spansion and Rubaker v. Spansion - were filed yesterday in the United States District Court for the Northern District of California. Both accuse the company of violating the Worker Adjustment and Retraining Notification (WARN) Act - a twenty-year-old US law that requires employers to provide 60-days notice before making "mass layoffs."
"By all the information we've gathered so far, the numerical requirements for a mass layoff under the WARN Act have been easily met," Kenneth Sugarman, the lawyer backing the Refuerzo suit, tells The Reg. "Employees should have been given 60 days notice before the layoffs, but they were not."
When we contacted the company, their primary spokesperson told us she was unaware of the lawsuits but that she "believed" the company had an exception under the WARN act. Two hours later, she provided the following statement: "We are aware that a class action lawsuit has been filed, though the company has not yet had an opportunity to review it. Nevertheless, we believe there are exceptions to WARN requirements which the company meets. The company will not comment on any of the details of any defense it may have, but will wait for a court to determine."
The company says it did not notify the US Department of Labor about the layoffs until the day they happened.
A joint venture of AMD and Fujitsu, Spansion manufactures so-called NOR flash memory for cell phones and cars. The company is the world's third-largest flash maker, behind Samsung and Toshiba, but NOR is significantly less popular than the NAND flash chips manufactured by the two tech giants - especially now that the US car industry has buckled under the weight of a failing economy.
In September, according to former employees speaking with The Reg, the Sunnyvale, California-based Spansion slashed employee pay, cutting certain execs' checks by 10 per cent and others by 5 per cent. And three months later, it lopped another 15 per cent from the checks of many non-execs, employees say. Then on January 2, an estimated 500 employees at the company's headquarters and Sunnyvale R&D lab were placed on unpaid furlough.
Initially, this was described as a one-month leave. But on January 15, the company told the world that it was working to restructure its balance sheet - and possibly sell itself - after struggling to keep up with debt payments. Then on January 31 the company told furloughed employees that their leave had been extended for another two weeks.
The furlough was then extended a second time. Furloughed employees were due to return in March, but on February 23 the company announced 3,000 worldwide layoffs - and it appears that this included all furloughed employees. Multiple former employees have told The Reg they were notified by phone.
"I was laid off over the phone by someone who wasn't my manager," says Ian Dudley, a manufacturing engineer in the company's R&D lab. "My manager had already been laid off."
To WARN or not to WARN
Dudley's separation letter said it should be considered his official notice pursuant to the WARN Act and a similar California law, often referred to as the California WARN act. Dudley is part of the Refuerzo v. Spansion class action, which seeks damages for alleged violations of both laws.
It appears that jettisoned workers in Sunnyvale and Austin, Texas - where the company operates a full manufacturing fab - did not receive severance pay. But according to an SEC filing, the company gave a roughly $1m golden handshake to departing CEO Betrand Cambou. It paid incoming CEO John Kispert $300,000 upfront for four-months work and promised him an additional $1.75 million bonus if he solves the company's financial woes within six months. And the company's board of directors voted to lift pay cuts for certain executives still with company, saying this was needed for "employee retention."
"In my book, you retain employees by NOT laying them off. But that aside, where exactly would the employees you're trying to retain go? There are no jobs right now," Dudley says.
"It looks to me like top management are lining their pockets before the company goes bankrupt, watching out for themselves with no regard for the talented, dedicated employees who made Spansion, and their management jobs, no matter how incompetently performed, possible."
Spansion says it "deeply regrets the reduction in force, but it was an unavoidable decision that affected all levels of the company, including our executive management team. The Board has reinstated the salaries of certain - not all - executives and other key employees.
"These employees were deemed to be critical to the company’s abilities to successfully navigate through its current challenges so that we can preserve the value of the enterprise. Nearly half of the salary reinstatements were below the VP level, and only approximately 1/2 of our vice presidents received the reinstatement."
Eric Gibbs, the lawyer who filed the Rubaker v. Spansion suit, estimates that his suit affects between 500 and 600 laid-off employees, spanning the Sunnyvale and Austin facilities.
In Sunnyvale, the company has closed its R&D lab, and the WARN act does provide an exemption in the event of a "plant closing." But lawyer Kenneth Sugarman believes that Spansion will have "a very uphill battle" proving this exemption. In the case of a plant closing, the company must show - among other things - that it was trying to get financing to avoid the closing, that it had a realistic expectation it was going to get the funding, and that if it had given notice to employees, it could not have secured the financing.
The company's Austin plant is still open. ®