What Every Employer Should Know About WARN

Enacted in response to a trend in the mid ’80s of plant closings and layoffs, the Worker Adjustment and Retraining Notification Act, ("WARN"), 29 U.S.C. §§ 2101-09 (1988), requires large employers to provide employees with a minimum of 60-days written notice of an "employment loss" caused by either a "plant closing" or a "mass layoff." The required notice protects workers and their families by providing them with transition time to adjust to the prospective loss of employment, to seek and obtain alternative jobs, and if necessary, to enter skill training or retraining that will allow them to successfully compete in the job market. Employers often confuse WARN for a mandatory severance pay statute. However, there are several elements of WARN of which every employer should be aware.

Who is Covered?

In general, employers are covered by WARN if they have 100 or more employees, not counting employees who have worked less than six months in the last 12 months and not counting employees who worked an average of less than 20 hours per week. While non-profit employers are covered by WARN, regular federal, state and local government entities which provide public services are exempt.

What is an "employment loss"?

Under WARN, an employment loss may be one of three things: 1) an employment termination, other than discharge for cause, voluntary departure, or retirement, 2) a layoff exceeding six months, or 3) a reduction in hours of work of more than 50% during each month of any six-month period. Generally, an employee does not experience an employment loss when he or she is transferred to a new location, or reassigned to an employer-sponsored program, such as retraining or job search activities.

What is considered a "plant closing" or "mass lay-off"?

A "plant closing" occurs when a facility or operating unit is shut down for more than six months, or when 50 or more employees experience an employment loss during any 30-day period at the single site of employment. Calculation of the number of jobs lost does not include part-time employees, or any employee who works fewer than 20 hours per week. An employment action that results in the effective cessation of production or the work performed by a unit, even if a few employees remain, is still considered a shutdown, and requires WARN notification. However, WARN notice is not necessary when the employees affected were hired on a temporary basis with the understanding that their employment was limited to the duration of the facility or project. Contrarily, a temporary shutdown is considered a "plant closing," and therefore triggers the notice requirement if there are a sufficient number of terminations, layoffs exceeding six months, or a reduction in the hours of work of more than 50% during each month of any six-month period.

A "mass layoff" occurs when a layoff of six months or longer affects 500 or more workers or affects 33% or more of the employer’s workforce if between 50 and 499 workers are laid off. The number of affected workers is the total number laid off during a 30-day period. WARN does allow leeway if an employer miscalculates the length of a layoff. If an employer fails to give notice at the beginning of a layoff because the employer did not expect the layoff to extend longer than six months, and if the extension of the layoff is because of some unforeseeable business circumstance, the employer is only obligated to give notice when it becomes reasonably foreseeable that the layoff will be extended.

Employers should note that the 30-day period for both "plant closings" and "mass layoffs" prevents staggering the closings in an attempt to avoid giving notice. In certain situations employment loss over a 90-day period may be covered by WARN. If, in any 90-day period, there is enough of a loss of employment, the employer will be obligated to demonstrate that the employment losses are the result of separate and distinct actions and causes and are not an attempt by the employer to evade the requirements of the act.

Employers should also note that WARN notice does not apply if the layoff or closing is the result of a strike or lockout not intended to evade the requirements of the act. Similarly, the hiring of permanent replacements for economic strikes also does not require notice to those replaced.

What notice is required?

Generally, under WARN, employers must give 60-days notice to each of the affected employees or if they are represented, to their union representative, and to the state dislocated workers unit, as well as the chief elected official of the local government unit in which the plant closing or mass layoff will occur. Regulations by the Department of Labor prescribe the form and content of each notice, but generally it must be specific and based on the best information available to the employer at the time.

Under WARN there are three situations in which the 60-day notice period may be reduced. However, an employer relying on any of these exceptions must still give as much notice as practicable, and provide a brief statement of the reason for reducing the notice period, in addition to other elements of the proper notice.

First, the "unforeseeable business circumstance" exception allows less than the 60-day notice if the plant closing or mass layoff is caused by business circumstances that were not reasonably foreseeable as of the time notice would have been required. For example, an important client’s sudden and unexpected termination of a major contract with the employer, a strike at a major supplier of the employer, a government ordered closing, or an unanticipated dramatic economic downturn would all fit this WARN exception.

Second, the "faltering company" exception applies to an employer that was actively seeking capital or business which, if obtained, would have enabled the employer to avoid or postpone the shutdown. This employer must have reasonably and in good faith believed that giving the notice required would have precluded the employer from obtaining the needed capital or business. Note that the "faltering company" exception applies only to closings, and not to mass layoffs in the same situation.

Finally, the "natural disaster" exception applies to both plant closings and mass layoffs due to any form of natural disaster. Floods, earthquakes, droughts, or tornadoes are examples of disasters that would shorten the notice period under this exception.

What is the Sale of Business Provision?

WARN contains a special provision addressing plant closings and mass layoffs that may result from the sale of a business. Under this part of the act the seller is responsible for giving notice up to and including the effective date of the sale, after which WARN notification is the buyer’s responsibility. Additionally, the provision deems any non-part-time employee of the business being sold an employee of the purchaser immediately after the effective date of the sale.

What are the potential penalties?

An employer who violates the WARN provision is liable to each employee for an amount equal to back pay and benefits for the period of the violation, but no more than 60 days. This payment may be reduced by any wages paid by the employer to the employee for the period of the violation, and any voluntary unconditional payments made by the employer to the employee. An employer may be required to pay a civil fine of up to $500 per day for each day of violation to the local government unit which should have received notice. However, this fine may be avoided if the employer satisfies the liability to each employee within three weeks after the closing or layoff.

The foregoing gives a very limited description of a very complicated statute. If you think that your employer may have a WARN-type situation pending, or if you would like a more detailed analysis, contact the Reed Smith attorney with whom you normally work.