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The COVID-19 crisis has already forced many companies to lay off employees, and others will be doing so in the days and weeks ahead.  Those companies must consider whether compliance with the Worker Adjustment and Retraining Notification Act (“WARN”) is necessary. 

If the legal issues relating to layoffs arising out of the COVID-19 crisis aren’t difficult enough, federal law governing certain layoffs and closures remains in effect during this unprecedented time (at least through the date of the posting of this alert).  Failure to comply with the law could create legal exposure because WARN’s requirements are mandatory and a failure to comply could prove costly.  The good news is that compliance with the law is not difficult by following through on a few simple steps.  And the WARN notice may not be much different than the notice that your companies are providing to laid-off employees.    

WARN Requirements

WARN requires certain employers to provide written notice to affected employees at least 60 days in advance of qualifying plant closings and mass layoffs – subject to the exceptions discussed below. If employees are represented by a labor union, notice must be provided to the workers’ representatives rather than the individual employees themselves. The primary purpose of the required notice is to aid displaced employees in finding alternative work and in adjusting to the loss of employment.

Notice must also be provided to the State dislocated worker unit and to the local government.  These notices allow state and local governments to provide resources and services to the laid off or terminated employees, and to prepare for fluctuations in the respective labor markets. 

Employers who find themselves on the wrong side of WARN’s notice requirements are potentially liable to each terminated or laid off employee for back pay and employee benefits for up to 60 days, which could be devastating to many companies.  In addition, there are also civil penalties of up to $500 per day if an employer fails to provide notice to the local government.

Obviously the speed of the COVID-19 outbreak has created practical difficulties that can make WARN compliance problematic or impossible, even for the most well-intentioned employer.  For example, with bars and gyms closed by Executive Order, employers couldn’t possibly provide the 60 days’ notice required by WARN before laying off or terminating employees. But the crisis has also likely created some exceptions to some of WARN’s requirements, as discussed below.  So how does a concerned employer navigate this maze?

Does WARN Apply to Your Company?

The first step is to determine whether WARN’s requirements apply.

A covered employer under WARN is any business enterprise that has 100 or more employees, excluding part-time employees (those who are employed for an average of fewer than 20 hours per week or who have been employed for fewer than 6 of the 12 months) or 100 or more employees (without any exclusions) who in the aggregate work at least 4,000 hours per week exclusive of hours of overtime.  Because this threshold is at the “business enterprise” level, employees across the entire entity, including those at different work locations, must be counted for purposes of coverage.

Subsidiaries which are wholly or partially owned by a parent company are treated as a separate employer or as a part of the parent or contracting company depending upon the degree of their independence from the parent.  Some of the factors to be considered in making this determination are (i) common ownership, (ii) common directors and/or officers, (iii) de facto exercise of control, (iv) unity of personnel policies emanating from a common source, and (v) the dependency of operations.”  This is a complex analysis that relies heavily on the facts and circumstances surrounding the particular entities. However, if two legally distinct entities share or overlap in ownership, management, control, and/or day-to-day operations, the entities could be aggregated for purposes of both coverage and liability, even if WARN would not otherwise apply to either.

If a company is a covered employer, it is generally required to provide 60 days’ notice (subject to the exceptions discussed below) prior to a “plant closing” or “mass layoff” which results in employment losses above a specified threshold.

An employment loss is “an employment termination (other than a discharge for cause, voluntary departure, or retirement), a layoff exceeding 6 months, or a reduction in hours of work of more than 50 percent during each month of any 6-month period.”

A plant closing occurs when an employer permanently or temporary shuts down a facility or operating unit within a single site of employment and lays off 50 or more full-time workers within 30 days.

A mass layoff is a reduction in force which is not the result of a plant closing, but results in an employment loss at a single site of employment within 30 days for 500 or more full time employees, or 50-499 full time employees if they make up at least 33% of total employees.

What Is Included In The Warn Notice?

If WARN applies, the notice to affected employees must include the following:

1.      a statement as to whether the planned action is expected to be permanent or temporary and, if the entire plant is to be closed, a statement to that effect;

2.      the expected date when the plant closing, or mass layoff, will commence and the expected date when the individual employee will be separated;

3.      an indication whether or not bumping rights exist;

4.      the name and telephone number of a company official to contact for further information.”

If an employer is providing less than 60 days’ notice pursuant to an exception (discussed in more detail below), the notice must also contain a statement of the reason for reducing the notice requirement.

Practically speaking, companies who are laying off employees should provide their employees with written notice of the layoff irrespective of any legal requirement to that effect under WARN.  The notice should include the mandatory WARN items listed above, as well as these items that are not necessarily required but are nonetheless important for the laid-off employees to know:

• A link to the Unemployment Compensation division website;
• Information about payment of Paid Time Off;
• Information about health insurance continuation;
• Reference to COBRA rights;
• Recall rights (if required by a union collective bargaining agreement).

By providing such a notice, companies can comply with WARN and at the same time, provide employees with valuable information about why they are being laid off, the expected length of time of the layoff and some of the benefits issues involved in the layoff.

Exceptions to the 60-day Notice Requirement

There are three exceptions to the 60-day notice requirement:

• a faltering company;
• unforeseen business circumstances; and
• natural disaster.  

The faltering company exception applies only to plant closings, not to mass layoffs, and may be invoked when a company is seeking new capital or business that would allow the employer to avoid or postpone a shutdown, even if only temporarily. The employer must reasonably believe that providing the full 60 days’ notice would jeopardize or prevent it from obtaining the necessary financing.

The unforeseen business circumstances exception applies when the closing or mass layoff is “caused by business circumstances that were not reasonably foreseeable at the time 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)”.  

The COVID-19 crisis would seem to be the type of unanticipated and dramatic event that is not reasonably foreseeable and therefore would fall under this exception to WARN’s 60-day notice requirement.  WARN also expressly suggests that “a government ordered closing of an employment site that occurs without prior notice also may be an unforeseeable business circumstance” which would seem to apply to the COVID-19 pandemic.

The final exception is for natural disasters, such as “when a plant closing or mass layoff is the direct result of a natural disaster such as a flood, earthquake, drought, storm, tidal wave, or similar effects of nature.”   Although this list of natural disasters doesn’t expressly include outbreaks of disease, or pandemics such as COVID-19, such an uncontrollable, rapid, and widespread emergency may very well be the type contemplated by this exception.

But even if these exceptions apply, they only would permit an employer to reduce the notice period, they do not eliminate the notice requirement all together.  Notice must be provided as soon as is practicable even if one of the exceptions applies.

If any of these requirements are not strictly met, the employer may be precluded from relying on any of the exceptions, and could be liable for the full amount of back pay and benefits to affected employees for up to 60 days.

Take-Aways

If an employer has 100 or more employees, and is anticipating laying off 50 or more employees, and is not sure whether the layoff will be for 6 months (or more) – even if the hope is for only a 2 or 3 month layoff – the WARN alarm should be ringing loudly. While there are numerous additional factors to be evaluated beyond those threshold questions, employers should consult knowledgeable legal counsel immediately to discuss the applicability of the WARN Act to their businesses, and the propriety of issuing notice if layoffs, closures, or reductions in force are being discussed, or may become a possibility in the future.  The lawyers at Pullman & Comley are ready to help.