WARN basics
The WARN Act protects workers by requiring employers to provide written notice at least 60 days in advance of covered plant closings or mass layoffs. The notice must be provided to affected workers (exempt and non-exempt), their labor union (if applicable), the state dislocated worker unit, and the appropriate unit of local government.
Generally, employers are covered by the Act if they have (i) 100 or more employees, not counting employees who have worked less than six months in the last 12 months or employees who work an average of less than 20 hours a week (collectively, “part-time employees”), or (ii) 100 or more employees, including part-time employees, who in the aggregate work at least 4,000 hours per week, exclusive of overtime hours.
Under the Act, a “plant closing” means the permanent or temporary shutdown of a single site of employment, or one or more facilities or operating units within a single site of employment, if the shutdown results in an employment loss at the single site of employment during any 30-day period for 50 or more employees, excluding part-time employees. Notably, a shutdown that halts production or work may be considered a covered plant closing even if a few employees remain.
If a reduction in force (often called a “RIF”) event does not constitute a plant closing, it may constitute a “mass layoff” under the WARN Act if, during any 30-day period, there is employment loss at a single site of employment affecting: (i) 500 or more employees (excluding part-time employees); or (ii) 50-499 employees, if that group makes up at least 33 percent of the employer’s active workforce (excluding part-time employees).
Employers naturally understand that “employment loss” includes termination of employment, subject to the exceptions defined in the Act. However, employers should not overlook the fact that “employment loss” also can occur when any layoff exceeds six months, or when an employee’s work hours are reduced by more than 50 percent during each month over a six-month period. This is an important point for employers to heed if they are considering staffing strategies that include modifying work schedules, placing employees on furlough or any other plan that might result in a reduction of work hours for its workforce.
The Act also contains a so-called aggregation rule, under which notice is required when a series of two or more reduction events – none of which individually constitutes a covered plant closing or mass layoff – occur within 90 days and, in the aggregate, satisfy the above-stated employment loss thresholds sufficiently to constitute a covered plant closing or mass layoff, with minimal exceptions. By its nature, the 90-day aggregation rule requires employers to be both backward-looking (i.e., consider all reduction events occurring in the prior 90 days) and forward-looking (i.e., consider all reduction events reasonably expected to occur in the subsequent 90 days). Accordingly, employers are well advised to form a comprehensive reduction in force plan from the outset, to the extent practicable. Even if a comprehensive plan is not feasible in an unpredictable business landscape, employers generally should not overlook reduction events occurring within the prior 90 days when none of the prior or current events alone constitute a plant closing or mass layoff under the Act.
Is there an exception to WARN requirements for the COVID-19 pandemic?
This is unsettled. The WARN Act provides for limited exceptions to the 60-day notice requirement, but there is no precedent for application in the wake of a pandemic. The Act sets forth two exceptions that should be considered.
The unforeseeable business circumstances exception
The “unforeseeable business circumstances” exception applies to plant closings and mass layoffs that were not reasonably foreseeable when the 60-day notice would have been due. Notably, the federal regulations for the WARN Act state: “[a]n 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.” Common examples are commercially related, such as the loss of a major contract or a strike at the employer’s supplier. Because this definition leaves much room for interpretation, it is highly litigated with inconsistent outcomes.
Anticipated litigation over this exception will undoubtedly hinge on whether the COVID-19 pandemic and its impact on business circumstances were “sudden” or “unexpected” to employers in the United States, given that the COVID-19 scare emerged earlier in other nations. The regulations suggest that two scenarios of particular relevance to COVID-19, including a “dramatic major economic downturn” and a “government ordered closing of an employment site that occurs without prior notice” (which is occurring with increasing regularity across the nation), may constitute “unforeseeable business circumstances.” The regulations also make clear that “the employer must exercise such commercially reasonable business judgment as would a similarly situated employer in predicting the demands of its particular market.” Thus, the test governing the “unforeseeable business circumstances” exception will not provide a “one size fits all” defense to all employers. Moreover, employers must be mindful that, even if the initial impact on business circumstances caused by COVID-19 is viewed as being unforeseeable, such changed business circumstances may no longer be considered unforeseeable as time passes, markets and industries adjust, and conditions normalize to any modified standards.
The natural disaster exception
Another exception, the “natural disaster exception,” could apply in light of the COVID-19 pandemic. As its title plainly indicates, the exception applies when there is a form of natural disaster to prevent an employer from providing 60 days of notice to affected employees. The regulations state: “Floods, earthquakes, droughts, storms, tidal waves or tsunamis and similar effects of nature are natural disasters under this provision.” Although viruses and pandemics are not included in this list of examples, and COVID-19 is not the same as the natural disasters listed above, one might argue that COVID-19 nevertheless is a “similar effect of nature” given the reported threat it poses to an affected individual’s health and, in severe cases, life. Importantly, to invoke this exception, employers must show that the plant closing or mass layoff is a “direct result of a natural disaster.” The regulation also provides that, “[w]here a plant closing or mass layoff occurs as an indirect result of a natural disaster, the exception does not apply but the ‘unforeseeable business circumstance’ exception … may be applicable.”
Employers relying on these exceptions must take notice that, to the extent either exception is applicable, the employer is not excused from providing written notice of the plant closing or mass layoff. To the contrary, the employer still has an obligation to provide as much notice as is practicable, even if after the fact, which must include a brief statement of the reason for the reduced notice period in addition to the other notice elements required under the WARN Act.
It is unclear how the above issues will ultimately be resolved in a courtroom given the unprecedented circumstances that employers face throughout the nation, and penalties for failure to comply may be steep. An employer who violates WARN notice provisions is liable to each aggrieved employee for an amount including back pay and benefits for the period of violation, up to 60 days. Moreover, an employer who fails to provide notice as required by WARN to a unit of local government is subject to a civil penalty of up to $500 for each day of violation. Thus, employers should consult legal counsel before making any decisions in reliance on either exception.
What if my company plans to conduct layoffs that are only temporary, but not permanent?
Layoffs of less than six months in duration, regardless of the number of affected employees, do not constitute a mass layoff and will not trigger the WARN Act. Of course, employers might find it difficult to predict the duration of a layoff given the uncertainty of the duration of the COVID-19 pandemic. If a layoff is initially expected to last for less than six months, employers must continually revisit their plans during the layoff period to determine whether, with the passage of time, they have developed any clarity for the long-term future of the affected employees. If, at that later time, the employer determines that an extension of the layoff beyond six months or permanent termination of employment is necessary, the employer should immediately issue appropriate WARN notice at that time. Failure to remain vigilant and provide proper WARN notice could subject the employer to the above-mentioned penalties.
Should my company be concerned about state laws, too?
Employers must also be cognizant that certain states have “mini-WARN” laws with differing thresholds and obligations imparted to the employer. At this time, states with mini-WARN laws include: Alabama, California, Connecticut, Georgia, Hawaii, Illinois, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New York, Ohio, Oregon, Tennessee, Washington, and Wisconsin.
Notably, on March 17, 2020, California Governor Gavin Newsom issued Executive Order N-31-20, which temporarily suspends California’s mini-WARN law in light of the COVID-19 pandemic. For more information, please visit employmentlawwatch.com.
Does the Families First Coronavirus Response Act have any impact on an employer’s WARN obligations?
Employers should always contemplate the effects of a mass layoff in relation to other laws. For example, the newly passed H.R. 6201, the Families First Coronavirus Response Act, may be triggered if a mass reduction in force brings an employer to fewer than 500 employees. More details on the Act can be found at employmentlawwatch.com. reedsmith.com.
Navigating this current business climate is no easy task for employers, regardless of size or industry. Employers should be deliberate in their efforts to reduce their workforce as a means of controlling costs during a turbulent business environment, and mindful of any obligations that such decisions might trigger under the federal WARN Act or applicable state law. Carefully comprised reduction plans can aid employers in avoiding such obligations under WARN.
The Reed Smith COVID-19 Labor & Employment Task Force will continue to publish additional guidance for employers in addressing the many challenges related to the COVID-19 pandemic. Of course, please feel free to contact the Reed Smith COVID-19 Labor & Employment Task Force with any questions.
Our Reed Smith Coronavirus team includes multidisciplinary lawyers from Asia, EME and the United States who stand ready to advise you on the issues above or others you may face related to COVID-19.
For more information on the legal and business implications of COVID-19, visit the Coronavirus (COVID-19) Resource Center - Need-To-Know Business & Legal Issues or contact us at COVID-19@reedsmith.com
Client Alert 2020-128
