In the face of a growing pandemic and related economic downturn, many employers are being forced to consider workforce changes. In some cases, states are even ordering the closure of businesses. There are legal concerns with any termination or layoff and more so with larger terminations and layoffs. If your company is large enough and the reduction in force (RIF) is large enough, the federal WARN Act requires 60 days’ notice to employees and others. State mini-WARN Acts may impose additional requirements. There are also some exceptions to this 60-day notice requirement that may apply in the COVID-19 crisis.
The federal Worker Adjustment and Retraining Notification Act (WARN Act), 29 U.S.C. Section 2101-2109, requires employers with 100 or more employees to give at least 60 days’ notice before conducting a “plant closing” or mass layoff (discussed in more detail below).
Does the WARN Act apply to your company?
The WARN Act applies to employers that have: (a) 100 or more full-time employees (employees who work an average of 20 or more hours per week); or (b) 100 or more employees, including part-time employees who, in the aggregate, work at least 4,000 hours per week. How employees are counted can be tricky. You should consult legal counsel. Also, keep in mind that your state may have its own mini-WARN statute with different application.
When is the WARN Act triggered?
The WARN Act’s 60-day notice requirement is triggered if, within a 90-day period (typically), there is (a) a “plant closing”; or (b) a mass layoff.
Don’t be fooled by the term “plant closing.” It does not literally mean a plant. It could be any kind of business. A “plant closing” is the permanent or temporary shutdown of a single employment site, operating unit or facility, in which at least 50 employees experience an “employment loss” (a termination or a 6-month layoff as defined below). Even if a skeleton crew is kept on, a plant closing may occur if an operating unit is shut down.
A mass layoff is a RIF in which at least 500 employees at a single job site experience an “employment loss” (termination or 6-month layoff), or in which 50 to 499 employees lose their jobs if they make up at least one-third of the employer’s work force.
Also, keep in mind that your state may have its own mini-WARN statute with different triggers.
What counts as an “employment loss”?
The WARN Act requires 60 days’ advance notification of certain large scale “employment losses.” An “employment loss” is defined as:
- An employment termination, other than a discharge for cause, voluntary departure or retirement;
- A layoff exceeding 6 consecutive months; or
- A reduction in hours of more than 50% during each month of any 6-month period.
Keep in mind, that the WARN Act has a 90-day look back and look-forward provision. So even if you terminate smaller groups of employees in a series of terminations, the WARN Act could be eventually triggered. You must aggregate the number of employees affected by plant closings or mass layoffs in a 90-day period by looking 90 days back and 90 days ahead from the expected date the employment losses will occur to take into account both planned and completed employment losses. The math can be tricky.
What must a company due if the WARN Act is triggered?
If the WARN Act requirements are triggered, the employer must give written notice at least 60 days in advance of the plant closing or mass layoff to:
- The union representative of each affected employee (if applicable);
- Each affected employee not represented by a union;
- The state dislocated worker unit or office;
- The chief elected official of the unit of local government where the layoff or plant closing will occur; and
- The federal government if foreign nationals working on certain visas are laid off. Consult immigration experts whenever foreign nationals on visas are affected by a reduction in force.
29 U.S.C. § 2102(a); 20 C.F.R. § 639.6.
Also, keep in mind that your state may have its own mini-WARN statute with additional notice requirements.
What happens if a company does not comply with the WARN Act?
An employer that violates the WARN Act's notice requirements is liable to each qualifying employee for:
- Back pay for each day of the violation, at the higher of the average regular rate received during the last three years of employment or the final regular rate received;
- Benefits under an employee benefit plan, including the cost of medical expenses incurred during the employment loss that would have been covered if the closure or layoff had not occurred; and
- Attorney fees.
An employer that fails to provide the requisite notice to the unit of local government is subject to a civil penalty of up to $500 for each day of violation, unless the employer satisfies its liability to employees by paying them within three weeks after the closing or layoff. 29 U.S.C. § 2104.
Does the WARN Act apply if a company is ordered to shut down due to the COVID-19 pandemic?
There is a good argument that the WARN Act would not apply in such a situation because the employer would have no choice and no opportunity to give the required notice. The WARN Act applies only if the employer takes action to cause a triggering employment loss. If the government mandates a business closure due to COVID-19 and employees are not able to work remotely, the employment loss may not be considered initiated by the employer and the WARN Act likely would not apply. However, an employer should still give as much notice as possible. See also the discussions, below, of the unforeseeable business circumstances and natural disaster exceptions to the Warn Act’s notification requirements.
Are there any exceptions to the WARN Act?
Yes. The length of the 60-day notice period can be reduced in three exceptional circumstances involving:
- A faltering company
- An unforeseeable business circumstances
- A natural disaster
Does the unforeseeable business circumstances exception apply to the COVID-19 pandemic?
It might. The WARN Act allows employers to order a plant closing or mass layoff before the conclusion of the 60-day warning period where the closing or layoff “is caused by business circumstances that were not reasonably foreseeable as of the time that notice would have been required.” 29 U.S.C. § 2102(b)(2)(A). Even where the exception applies, the employer must still “give as much notice as is practicable and at that time shall give a brief statement of the basis for reducing the notification period.” 29 U.S.C. § 2102(b)(3); 20 C.F.R. § 639.9. The WARN Act regulations expressly recognize that “an unanticipated and dramatic major economic downturn might be considered a business circumstance that is not reasonably foreseeable.” “An ‘important indicator of a business circumstance that is not reasonably foreseeable is that the circumstance is caused by some sudden, dramatic, and unexpected action or condition outside the employer’s control.’” Gross v. Hale-Halsell Co., 554 F.3d 870, 875 (10th Cir. 2009) (quoting 20 C.F.R. § 639.9(b)(1)).
Examples of potentially qualifying circumstances include a “principal client’s sudden and unexpected termination of a major contract with the employer, a strike at a major supplier of the employer, and an unanticipated and dramatic major economic downturn might.” 20 C.F.R. § 639.9(b)(1). “A government ordered closing of an employment site that occurs without prior notice also may be an unforeseeable business circumstance.” Id.
If an employer’s initial layoff is less than 6 months, but extends to beyond six months, there is a special notice reduction rule for extensions of layoffs that are the result of a business circumstance (including a change in price or cost) that was not reasonably foreseeable at the time the initial layoff commenced. If that special rule applies, the employer can provide shortened notice at the time the need for the extension became reasonably foreseeable and avoid WARN Act liability altogether. 20 C.F.R. § 639.4(b). See also 29 U.S.C. § 2102(c).
Does the natural disaster exception apply to the COVID-19 pandemic?
It may, depending on the particular circumstances. The WARN Act also does not require 60-days’ notice for employment losses that are the direct result of “natural disasters,” which is defined as “floods, earthquakes, droughts, storms, tidal waves or tsunamis, and similar effects of nature.” In such instances, the employer is required to provide as much notice as is practicable, containing as much of the required information as is available in the circumstances of the disaster, whether in advance or after the fact. There is a strong argument that the COVID-19 pandemic qualifies as a “natural disaster” if it forces a plant closing or mass layoff.
If the WARN Act does not apply, are there other laws that may apply?
Maybe. A few states have mini-WARN statutes that provide additional requirements on employers. Utah, Idaho, Neada, and Montana do not have mini-WARN statutes.
What if the WARN Act does not apply but my company will be terminating or laying off some employees?
There are several issues you must address in such a RIF. First, you need to ensure that the process is not discriminatory and does not have a discriminatory impact, if avoidable. You should also take measures to minimize the risk of a claim of discrimination from one of the terminated employees. You should form a committee to choose who is selected for layoff and ensure that the workers selected are selected based on objective criteria and not for discriminatory reasons. It is best if your committee is made up of several individuals, and that the committee members are diverse in terms of age, gender, race, and other factors. Once the employees are selected, you need to analyze the group for discriminatory impact. For example, is the group disproportionately female or over age 40? It is important to work with your outside or in-house legal counsel to analyze these issues.
Second, you should determine if any of the affected employees have engaged in any activities protected under state or federal law, such as complaining about alleged harassment or discrimination, notifying OSHA of a perceived health or safety violation, or filing a workers’ compensation claim, to name only a few. If any of potentially affected employees have engaged in any such activities, you should consult with legal counsel before making any final determinations.
Third, you will need to determine if any of the employees who are being considered for the RIF have employment agreements that may impact their terminations. Look for guaranteed terms of employment, requirements that employees only be terminated for cause, provisions for specific severance, and the like. Similarly, if any potentially affected employees are covered by a collective bargaining agreement, you should review the provisions of the agreement relating to termination or lay-offs of covered employees.
Fourth, you will need to determine if the terminated employees are entitled to any other pay and benefits such as a company severance plan or a pay out of accrued time off. State laws vary in terms of whether you are required to pay out accrued time off. State laws may also mandate when you must pay terminated employees any earned and unpaid compensation and other amounts. Check with employment counsel in your state.
Depending on the circumstances, a number of additional measures may be appropriate to minimize potential liability. You should consult with employment counsel to determine if additional measures should be taken, and to come up with an appropriate action and communication plan for handling the terminations.
If you have questions or would like assistance with a potential reduction in force, or other employment issues, please contact Christina Jepson at CJepson@parsonsbehle.com.