Spend a little time with the U.S. District Court case of Millsap v. McDonnell Douglas Corp., and it may leave you aghast at the heartlessness and mendacity of the people who ran the aircraft manufacturer (since acquired by Boeing Co.) in the 1990s. That certainly seems to have been the effect on Judge Sven Erik Holmes, who in his 2001 ruling in favor of James R. Millsap and the other workers who lost their jobs when McDonnell Douglas shut down its factory in Tulsa, Oklahoma, in 1994, fumed that the company had:
embarked upon a remarkable course of obstruction, inconsistent representations, and outright falsehoods. The sworn testimony at trial confirmed a history of deception and bad faith by the company and laid bare that discovery in this case was replete with the same duplicity that marked Defendant's treatment of its employees and the public at large.
The backdrop to the case was that government spending on defense procurement had begun declining in the late 1980s after a boom under President Ronald Reagan. In response, McDonnell Douglas Chief Executive Officer John McDonnell — son of founder James Smith McDonnell — launched an effort he dubbed "Hard Reality" in 1990 to cut company expenses by $700 million a year.
Pensions immediately became a major focus for executives looking to meet the target. The McDonnell Douglas pension plan was actually considered overfunded by the accounting standards of the time, but any reduction in pension liabilities went straight to the corporation's bottom line. Workers with 30 years of service at the company could start drawing a full pension at age 55, but they received relatively little if they left before that age. From Holmes's ruling:
From the beginning of "Hard Reality," MDC discussed ways to maximize its pension surplus by focusing on the relationship between plant closings and older, more senior workers approaching eligibility for pension and other benefits. Within two days of the announcement of "Hard Reality," Defendant was told by its outside actuaries that tremendous additional savings were available if the persons laid off were older and more senior. Thereafter, on almost a monthly basis, Defendant monitored the pension savings on its ongoing layoff and plant closing program.
The McDonnell Douglas plant with the oldest workforce was the facility in Tulsa, where production workers at an average age of 51 and average tenure of 19.7 years built sections of F-15 fighter jets. Ebbing demand for F-15s had recently been somewhat revived by a $9 billion, 72-jet Saudi Arabian order that Oklahoma politicians had vigorously lobbied President George H.W. Bush to approve. For aircraft production needs, Tulsa may not have been the optimal plant to close. But in terms of pension accounting, it was the best, so the company shut it down in 1994.
Courts generally don't interfere in plant closures and other such "business judgment" decisions, but Holmes — who subsequently left the judiciary in 2005 to become vice chairman and chief legal officer of accounting and consulting firm KPMG LLP — ruled that McDonnell Douglas's decision had been so clearly aimed at preventing the Tulsa workers from collecting pensions that it represented a violation of Section 510 of the Employee Retirement Income Security Act of 1974, which says it's unlawful to "discharge, fine, suspend, expel, discipline, or discriminate against" a pension plan participant "for the purpose of interfering with the attainment of any right to which such participant may become entitled."
Millsap v. McDonnell Douglas reportedly marked only the third time that a plant closure had been found to be in violation of Section 510. According to Holmes's ruling, the company could have gotten a summary judgment in its favor if it had simply disclosed "the financial basis of [its] business judgment to close the factory," but it failed to do so in even a remotely credible way.
In the end, the company (Boeing by that point) settled for $36 million. A $90 million claim for back pay from the time of the layoffs was, despite support from President George W. Bush's Labor Department, turned back by a federal appeals court. After legal fees and court costs, this left $24.7 million for the 1,100 workers, an average of $22,454. That's not nothing, but neither was it a lifetime pension, and there now appear to be a lot of former aircraft workers in Tulsa in their mid-to late 70s struggling to get by.
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