Studies show that as many as 98% of CEOs are anticipating a global recession in the next 12-18 months, which means that companies have already started focusing on cutting costs and redistributing resources to best position themselves to survive. One of the largest cost centers on any company’s balance sheet is its workforce. As such, layoffs or other reductions-in-force (RIF) have already started to hit, and will likely continue. What’s different this time around? Because of the ups and downs in the market, and phenomena like the “great resignation” and remote work on a scale never seen before, there is a greater likelihood that more employers will find themselves potentially triggering the Worker Adjustment and Retraining Notification Act of 1988 (WARN Act) (and analogous state laws, known as state “mini-WARN acts”) statutes. These statutes impose notice and information obligations, which can be tricky to keep track of, and carry potentially heavy penalties for noncompliance.
What to do? Employers who see a layoff on the horizon — and even those who may have already undertaken layoffs — should revisit the requirements of WARN (and state mini-WARNs) now, and keep the following “WARN-ings” and practice tips in mind as they work with counsel.
What is WARN and what WARN-ings should companies watch out for?
In short, WARN requires employers to give advanced notice to affected employees in the event of a covered mass layoff or plant closing. Under the federal WARN, employers must provide 60 days’ notice of termination to the impacted employees, union representatives (if applicable), and certain government authorities. Under some state mini-WARN acts, 90 days’ notice is required.
Which employers are covered?
Under the federal WARN Act, covered employers are employers with:
- 100 or more employees, excluding part-time employees and those with less than 6 months of service in the last 12 months, or
- 100 or more employees, including part-time employees, who collectively work more than 4,000 hours per week, excluding overtime.
WARN-ing: State mini-WARN acts often have lower thresholds for covered employers.
When is notice required?
Under WARN, covered employers need to provide notice if a triggering event–a “mass layoff” or “plant closing”–occurs.
Mass layoff: A mass layoff is a reduction in force that (i) does not result from a plant closing, and (ii) results in an employment loss at the single site of employment during any 30-day period for:
- at least 50-499 covered employees if they represent at least 33% of the total active workforce, or
- 500 or more covered employees.
Plant closing: A plant closing is the permanent or temporary shutdown of a single place of employment or one or more facilities/operating units resulting in an employment loss during a 30-day period for 50 or more covered employees.
How should employers calculate the time frame to determine when WARN notice is required?
WARN always requires aggregating the employment losses that occur over a 30-day period.
WARN also requires aggregation of the employment losses that occur over a 90-day period that did not, on their own, trigger WARN notice, unless the employer can show that the layoffs were the result of separate and distinct causes and are not an attempt to evade WARN.
WARN-ing: Therefore, employers should look ahead and behind 90 days and add up layoffs that have occurred and any planned layoffs to determine whether separate layoffs may trigger notice requirements under WARN.
I have a remote workforce. Will WARN apply?
A mass layoff requires a triggering event at a “single site” of employment. Does that mean that remote employees in various physical locations do not count for WARN purposes? Not necessarily.
The WARN statute predates remote work and Department of Labor guidance and case law in this regard is limited. However, remote workers with a nexus to a physical worksite of the company may be able to argue that the worksite (rather than their home) is their single site of employment for WARN purposes.
WARN-ing: This is not a “one size fits all” decision. Companies should work with employment counsel to develop a tailored approach based on the size of the company’s remote workforce and risk tolerance.
Are there any exceptions to providing WARN notice?
Under WARN, there are three limited exceptions to the full 60-day notice requirement. The most commonly used exception is the unforeseeable business circumstances exception. This exception applies when the closing or mass layoff is caused by business circumstances that were not reasonably foreseeable at the time that 60-day notice would have been required (i.e., a business circumstance that is caused by some sudden, dramatic, and unexpected action or conditions outside the employer’s control, like the unexpected cancellation of a major customer order).
Companies may be tempted to rely on the unforeseeable business circumstance exception during an economic downturn. However, employers cannot rely on this exception carte blanche, as it is narrowly defined and only applies to certain unforeseeable circumstances. In measuring the foreseeability of a business circumstance, an employer must exercise such commercially reasonable business judgment as would a similarly situated employer in predicting the demands of its particular market. In addition, the employer bears the burden of proof that it properly invoked the exception—and an employer’s miscalculated reliance on the unforeseeable business circumstance exception (and failure to comply with WARN) can subject the employer to WARN damages.
Even when an exception applies, notice must be provided as soon as is practicable, and the employer must provide a statement of the reason for reducing the notice requirement in its WARN-related notices.
WARN-ing: Not all state mini-WARN acts recognize this exception.
What are WARN violations and penalties?
An employer that violates the WARN notice requirement is liable to each affected employee for an amount equal to back pay and benefits for the period of violation up to 60 days. Damages are offset against wages during the notice period and unconditional payments provided to employees.
In addition, if an employer fails to provide the required notice to a unit of local government, the employer is subject to a civil penalty not to exceed $500 for each day of violation. If the employer satisfies the liability (i.e. required back pay) to each affected employee within three weeks the layoff, the civil penalty can be avoided. Courts, in their discretion, can allow the prevailing party reasonable attorney’s fees.
Can my company provide employees pay instead of the required WARN notice?
The WARN Act does not specifically recognize the concept of pay in lieu of notice (and neither do the regulations). However, since WARN provides that the maximum employer liability for damages, including back pay and benefits, is for the period of violation up to 60 days, providing employees with full pay and certain benefits for the 60-day period effectively precludes any relief.
WARN-ing: Since pay in lieu of notice includes various forms of compensation, including equity, this can be exceptionally difficult to calculate, and employers should take care to ensure calculations are defensible.
What should I know about state mini-WARN acts?
Several states have their own “mini-WARN” laws that create WARN-like obligations. In these states, employers must comply with both the applicable state mini-WARN and the federal WARN requirements. Below, we highlight typical differences between federal WARN requirements and state mini-WARN requirements that employers should look out for.
- State mini-WARNs often have lower thresholds for covered employers. For example, the California and Illinois mini-WARN acts apply to worksites employing 75 or more full and part-time employees. New York’s mini-WARN act applies to worksites with 50 or more employees.
- State mini-WARNs often have lower thresholds for covered terminations / employment losses. For instance, Illinois and New York require only 25 employees to be laid off to trigger notice if they comprise at least 33% of the workforce at that site. And California’s WARN notice requirements are triggered by a plant closure affecting any number of employees, as well as a layoff of 50 or more employees within a 30-day period (regardless of the percentage of the workforce impacted).
- Some state mini-WARNs have longer notice periods than federal WARN. For example, in New York and Maine, employers are required to provide 90-days’ advance notice to affected employees. When New Jersey’s recent overhaul of its mini-WARN (under Senate Bill 3170) takes effect (90 days after termination of Governor Murphy’s Executive Order No. 103 creating a COVID-19 state of emergency), New Jersey will become the third jurisdiction with a 90-day advanced notice requirement.
- Additional penalties for non-compliance may apply under state mini-WARN acts. When New Jersey’s Senate Bill 3170 takes effect, affected employees will be entitled to one week of severance pay for each year of service–regardless of their full or part-time status. And if employers fail to give the required notice, employers will be required to give affected employees four additional weeks of severance pay.
What practice tips should employers considering a layoff keep top-of-mind?
Tip: Budget enough time for a layoff
Companies sometimes think that layoffs of US employees can be completed on a short time-frame because US employees are largely “at will.” However, employers need to tackle substantial informational diligence, document preparation, and planning to successfully complete a layoff, particularly if WARN is triggered. Employers also need to prepare their RIF selection criteria and adverse impact analysis well in advance to build in time for adjustments. And the preparation of termination paperwork, internal and external messaging, severance packages, and final paychecks in compliance with applicable law can be a lengthy process. Employers should budget at least a few weeks for a smaller layoff, and several months for a larger layoff that may trigger WARN.
Tip: Be sure to understand and comply with local law requirements
As noted above, state mini-WARN laws differ from the federal WARN Act in a variety of ways. In addition, the final pay rules, specific release provisions, and required notices also vary from state to state. While a one-size fits all approach to layoffs may be tempting, failure to comply with local law requirements will expose the company to unnecessary risk.
Tip: Involve legal counsel early on
Employers should involve legal counsel early on in the process. Counsel can help employers determine if the WARN Act or state mini-WARN Acts are triggered or if they can be avoided, and develop a layoff strategy and guide employers through each step of a layoff, including:
- developing a business case for the layoffs
- ensuring selection criteria are appropriate
- conducting a privileged adverse impact analysis and addressing any issues raised
- preparing required notifications
- developing a severance package (and potentially an ERISA severance plan)
- completing required disclosures under the Older Workers Benefit Protection Act
- preparing termination notices and separation agreements that comply with state law in each location
- complying with final pay timing requirements in each state
- helping employers address any individual employee issues that arise.
For help navigating layoffs, furloughs, or other reduction in force or cost-cutting measures, contact your Baker McKenzie employment attorney.