Reality HR: Don Mallo, VP HR & Labor Counsel of Pillowtex

Former Fortune 500 Company Pillowtex, well known for Fieldcrest, Royal Velvet, Charisma and Cannon textiles, has gone into bankruptcy.

Don Mallo, Vice President of Human Resources & Labor Counsel shares the strategies Pillowtex followed to successfully navigate through Chapter 11.

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HR.com: What is the current status of Pillowtex?

DM: On July 30, 2003, Pillowtex filed for bankruptcy in the United States Bankruptcy Court, District of Delaware under Chapter of the bankruptcy code. This filing was for a "liquidating" chapter 11 and meant that Pillowtex would not emerge from bankruptcy as an ongoing enterprise. Instead, it would effectively go out of business by selling-off all tangible assets, plants, equipment, real estate and its intellectual property, such as its famous brands. At the time of the July filing, we had nearly 9,000 employees in over 16 manufacturing and warehousing facilities and 20 retail stores. On July 30th, nearly 7,000 employees were separated. Currently we are winding down operations and maintaining a skeletal staff of about 25 employees winding down the business.

HR.com: Can you tell me what led up to going into Chapter 11?

DM: The primary factor for the bankruptcy filing was the inability to compete with foreign imports. We were unable to absorb the overhead of operating our plants in the United States and meeting the demands of our customers to further reduce costs and service our debt. Imported textiles from India, Pakistan, and China are being shipped to the U.S. in larger numbers. In addition, in 2005, the import quotas on textiles from China are being eliminated and it was difficult to convince our individuals to invest in domestic manufacturing.

HR.com: What did you do first when you realized you were facing Chapter 11?

DM: When we realized that a Chapter 11 filing was imminent, our HR team set in motion a variety of initiatives to service our employees, their families and surrounding communities as best we could with our limited resources. We recognized that the our company´s bankruptcy and resulting liquidation would have a severe impact on our employees, their families and surrounding communities. The anticipated layoff would be the largest to ever occur within the state of North Carolina, the principal site of our manufacturing and warehousing operations.

Our HR team engaged in detailed "brainstorming sessions" where we identified the critical issues that had to be addressed. One of our primary concerns was to ensure that the various state and municipal government agencies would not be overwhelmed by the enormity of mass separations and would have the resources to assist employees in their time of need. We had to balance the confidentiality of the anticipated bankruptcy filing against the possibility that we would not file bankruptcy. We were actively pursuing options that would not have resulted in significant closings, including re-financing and/or the sale of the company.

HR.com: What were the most critical issues?

DM: We identified four critical areas: First, we had to ensure that if we had to file for bankruptcy and separate our employees, our company would be certified for benefits under the federal Trade Adjustment Assistance Act (TAA). TAA certification was very critical, especially in light of a new amendment effective August 1st providing displaced workers with healthcare subsidies for medical insurance; second, we focused on ensuring that the pension and other benefits for our employees and current retirees´ would be protected; and third, we initiated contact with federal, state and private agencies to ensure support services would be available for educational assistance, retraining, medical benefits and overall support from the public and private sectors.

HR.com: What could you do about the pension issue?

DM: We have been working with the Pension Benefit Guaranty Corporation (PBGC) to assume control of the company´s defined benefit pension plans and provide benefits to current and future retirees. If successful, under a new provision in the Trade Adjustment Act, individuals receiving pension benefits through the PBGC would be eligible for medical subsidies of 65% of their medical costs for up to 10 years.

HR.com: There are enough issues to write a book. Let''s zoom in on one key issue.

DM: You´re right. Of all the issues, the most challenging involved health care. As a self-insured company we had to overcome our financial condition to find ways to provide medical coverage for employees affected by the bankruptcy filing as well as for the small number of employees continuing to work during the wind down process.

I previously mentioned benefits available to displaced employees affected by foreign competition. This law, known as the federal Trade Adjustment Assistance Act (TAA) was recently amended so as to provide government subsidies of 65% of an employee''s medical benefits, provided that states had in place "qualified" medical plans for the TAA subsidy. Our challenge was that neither North Carolina nor Virginia, the two states with our largest employee population had "qualified" plans. We worked with Governor Easley of North Carolina and Governor Warner of Virginia to qualify medical plans in each respective state to provide medical options for displaced workers. Our greatest triumph was working with state and federal officials to ensure that medical plans would be qualified, thereby allowing our displaced employees to have the opportunity for the subsidy.

HR.com: How long did it take to get your facilities certified as TAA eligible?

DM: We started the certification process about four months prior to the bankruptcy filing and alerted federal and state government officials of the potential filing and the reasons so as to expedite the approval process. We had done our homework and made sure that our applications were thorough, complete and met all standards. We presented our case in an effective manner. Individual applications had to be filed for each location and I am proud to relate that every one of our applications was approved. Normally under the law the government has 40 days to certify applications. Due to our "pre-work" and the cooperation of the U.S. Department of Labor we were able to gain certification sooner.

HR.com: This doesn´t strike me as the kind of thing a typical HR person would be able to tackle.

DM: You´re right. We had a great team within our HR department. We had individuals dedicated to working with federal officials; another group was charged with the responsibility of working with various state agencies; and another group was assigned the task of working with medical insurers. It truly was a team effort.

HR.com: Is there anything you did to make the discussions with the governments go more smoothly?

DM: We had regular communications with all levels of government. Especially helpful were governor Michael Easley of North Carolina, Senator Elisabeth Dole and Con. Robin Hayes. We briefed these officials before, during and after the bankruptcy filing and they became true partners.

Advising governmental officials in advance was a debatable tactic. We feared that a premature disclosure could impair our ability to fund the business and "drive-off" customers. However, we were very discrete in how and to whom we communicated information; but the bottom line was that we decided to err on the side of communications. Not to communicate in advance would have done a tremendous disservice to our employees and surrounding communities. Local communities would not have had the infrastructure in place to help our employees when they needed it the most.

HR.com: Who else did you partner with?

DM: We partnered with various charitable organizations as the United Way and local charitable foundations. Also, we had regular contact with the rapid response teams of state Employment Security Commissions. This was essential to provide critical financial, job search and social counseling for our employees. We brought these groups up to speed well before the actual filing date to make sure that, if we had to file for bankruptcy and displace employees, each had sufficient staff on hand to service our employees when they needed it. Without advance partnering, North Carolina would not be able to have the infrastructure to service almost they were going to get 5,000 employees in a timely manner.

HR.com: Are there other lessons you want to share?

DM: Yes. It is essential not to be overwhelmed by the enormity of the tasks ahead and develop a strategic plan. Maintain flexibility and expect surprises. Key elements in the plan include establishing communication initiatives and effective partnering with federal and local officials.

HR.com: What happens now?

DM: We are winding down operations and most of our HR staff will depart at the end of October. I anticipate that one or two individuals will continue beyond October to address outstanding benefit issues. I am very proud to have associated myself with such an outstanding group of individuals. Each team member is a true professional and consistently placed the welfare of their fellow workers above their own.

HR.com: Thanks for sharing your story. You did some great work to mitigate the damage.

 Don Mallo is currently Vice President of Human Resources for the Pillowtex Corporation, a leading global manufacturer and marketer of home textiles with over 8,000 employees and 20 retail stores and 16 manufacturing facilities throughout North America. He is a member of the executive operating committee and reports to and provides business, legal and HR counsel to the Chairman/CEO. He has extensive experience in mergers and acquisitions and been the lead executive in developing an overall due diligence plan from an HR and legal perspective. He is an expert in employment law, and been very successful in developing organizational skills and improving employee morale and corporate communications, a major challenge within the Textile industry.

Don has over twenty years experience as the top HR executive within Fortune 500 companies and with his law degree, has held positions of General Counsel and legal counsel. He has been a member of Executive Operating Committees and provided strategic counsel to CEO''s and Division Presidents on HR issues and general business strategy. He has a long record of accomplishments - from developing long-term incentive compensation programs to developing organizational development plans that enabled his organization to recruit and retain exceptional talent. Don has built HR organizations from the ground up in a variety of industries and is experienced in both retail and manufacturing operations. He is recognized as a business-focused executive who recognizes the importance of partnering with business units and providing outstanding customer service to internal clients.

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