Continued Economic Headwinds Force Mass Layoffs, Bring State and Federal WARN Laws into Focus
Last month’s banking crisis continues to impact certain financial institutions—most notably the California-based lender First Republic Bank (First Republic). After reporting a 41% drop in deposits during the first quarter and seeing a 43% drop in its stock price, First Republic announced that it expects to slash its workforce by 20% to 25% this quarter. First Republic’s announcement is in line with a continuing trend of layoffs in various industries. A global manufacturing business just announced a reduction of 6,000 employees in a major restructuring of its workforce. Earlier this week, a multinational, mass media and entertainment conglomerate announced the second in a series of three layoffs, which are expected to affect 7,000 employees in all. Companies considering a layoff impacting a substantial number of employees should plan ahead to ensure compliance with federal and state laws governing mass layoffs.
Federal WARN Act
The Worker Adjustment and Retraining Notification Act (WARN Act), in effect since Feb. 4, 1989, aims to protect workers, their families and communities by requiring employers to provide 60 days’ written notice of a plant closing or mass layoff that results in a sufficient number of “employment losses.” The notices must be issued to affected employees, any applicable worker representatives, and certain state and local officials, and must contain certain information as specified in the statute, including such details as the anticipated termination date(s) and, in the case of the government notices, the number of affected employees and their job titles.
What does the WARN Act cover?
The WARN Act covers employers with 100 or more employees, not counting employees who have worked for the employer for less than six of the 12 months preceding the date of the WARN Act notice, and employees who work an average of less than 20 hours per workweek. Employees who are entitled to notice of a covered plant closing or mass layoff include all affected hourly and salaried workers, whether they are individual contributors or managers/supervisors. However, business partners are excluded from the notice requirements.
What is an “employment loss”?
An “employment loss” is defined as: (1) a termination, other than a discharge for cause, voluntary departure or retirement; (2) a layoff exceeding six months; or (3) a reduction in an employee’s hours of work exceeding 50% in each month of any six-month period.
What triggers the need to issue a WARN Act notice?
As referenced above, the WARN Act requires employers to provide notice of a covered plant closing or covered mass layoff. A covered plant closing occurs—and accordingly notice is required—if an employment site (or one or more facilities or operating units within an employment site) will be shut down and the shutdown will result in an employment loss for 50 or more employees.
Similarly, an employer must give notice if there will be a mass layoff which does not constitute a plant closing but will result in an employment loss at the employment site for 500 or more employees, or for between 50 and 499 employees if they make up at least 33% of the employer's active workforce.
In the case of both a plant closing and a mass layoff, employers must count the total terminations within a 30-day period, and if the thresholds are not met, then within a 90-day period, to assess whether a notice-triggering event has occurred or will occur.
The statute provides for certain limited exceptions to the notice obligations, such as for faltering businesses, unforeseeable business circumstances and natural disasters. In addition, courts have also made exceptions for a liquidating fiduciary in bankruptcy. Employers should note, however, that because of the protective nature of the legislation, these exceptions are generally construed narrowly.
What happens if an employer fails to provide the required WARN Act notice?
A covered employer that fails to provide the requisite notices is liable to each aggrieved employee for their pay and benefits for the period of the violation, up to 60 days. Further, an employer may be subject to a civil penalty not to exceed $500 for each day of the violation.
State “Mini-WARN Acts"
A number of states and localities have also enacted their own versions of the WARN Act, including California, Connecticut, Georgia, Illinois, Maine, New Hampshire, New Jersey, New York, the District of Columbia and the city of Philadelphia. These “mini-WARN Acts" can vary greatly in scope and effect, and in many cases, they impose greater obligations on employers than the federal WARN Act.
For example, California’s WARN Act applies to employers with 75 or more employees, thus affecting smaller employers than under the federal law. In addition, while it is also triggered when the employer conducts layoffs involving 50 or more employees within a 30-day period, there is no requirement that this must constitute 33% of the employer's active workforce.
As another example, New Jersey’s recently amended WARN Act requires 90 days' notice of terminations, rather than 60. Moreover, a noncomplying employer must pay affected employees one week of pay for each year of service and an additional four weeks of severance pay as a penalty.
Employers that don’t plan ahead for significant reductions in force risk violating federal and state WARN Act requirements and incurring damages and civil penalties, as well as legal fees at a time when they are presumably attempting to save costs. Plaintiffs’ class action lawyers are currently on high alert for news of significant reductions and often move quickly to identify potential plaintiffs and class representatives for class and/or representative action lawsuits. A thorough understanding of WARN Act obligations is critical for businesses in all parts of the country, and strict compliance with such laws will provide both employers and employees with greater certainty during uncertain times.
Armstrong Teasdale’s Employment and Labor practice consistently monitors workforce trends as well as emerging state and local requirements. If you have any questions specific to your organization, including relating to any potential reduction in force or mass layoff, please contact your regular Armstrong Teasdale lawyer or one of the authors listed below