23 Apr COVID-19 LAYOFFS MAY TRIGGER WARN ACT
The Worker Adjustment and Retraining Notification (WARN) Act requires covered employers to provide written notice at least 60 days prior to a “plant closing” or “mass layoff” if certain criteria are met. The purpose of the WARN Act is to ensure that state governments can provide assistance to workers, families, and communities affected by “mass layoffs” and “plant closings.” Notice prior to a “plant closing” or “mass layoff” ensures that workers and their families have time to seek alternative employment and/or seek skills training programs. If triggered, the WARN Act requires notice be provided to (1) each union representative of the affected employees or each affected nonunionized employee, and (2) the state and local government where the “mass layoff” or “plant closing” occurred.
Generally speaking, employers who employ 100 or more employees are covered by the WARN Act. Covered employers are required to provide WARN notice when there is a “plant closing” or “mass layoff.” The WARN Act defines a “plant closing” as (1) a permanent or temporary shutdown at a single site of employment, (2) during any 30-day period, and (3) where there is an “employment loss” of 50 or more employees. The WARN Act defines a “mass layoff” as a reduction in force (1) at a single site of employment, (2) during any 30-day period, and (3) where there is either an “employment loss” of 500 or more employees or 50-499 employees who make up 33% or more of the employer’s entire active workforce at the site of employment. Generally, the term “employment loss” within these definitions is satisfied by a furlough that exceeds 6-months or by a 50% reduction in hours for a 6-month period.
Many employers furloughed employees in late March or early April because of the COVID-19 pandemic. These furloughs were implemented without 60 days’ notice. This is not inherently problematic as the WARN Act contains an unforeseeable business circumstances (UCB) exception, which allows employers to provide less than 60 days’ notice if “mass layoffs” or “plant closings” arise out of business circumstances that were not reasonably foreseeable. Although helpful, it is important to recognize that this exception may not completely absolve you from future WARN Act notice requirements.
The reason for this is that many employers notified their employees that furloughs would be temporary in nature – certainly less than 6 months. However, as the COVID-19 pandemic has developed, and the impact on employers becomes more pronounced, it is conceivable that many employers could decide to transition employees from furlough status to that of a permanent layoff. At the point in time an employer could have reasonably foreseen such a transition would be necessary and layoffs would last more than 6 months, WARN notice obligations could become applicable. (Similar risks arise for employers who recall employees using PPP loan proceeds, but who may need to re-impose layoffs when those funds are depleted).
Compliance with the WARN Act is crucial because the risks of non-compliance are high. Any employer who violates the WARN Act is liable to each affected employee for an amount equal to back pay and benefits for the period of violation. This means that employers could be liable for back pay and benefits for a period of up to 60 days. Additionally, an employer who fails to provide notice to the appropriate local government could face a penalty of up to $500 per day. Moreover, the WARN Act allows courts to grant attorneys’ fees to the prevailing party in a lawsuit. The ability to seek attorneys’ fees provides attorneys with monetary motivation to seek out these types of lawsuits. These steep penalties incentivize full compliance with any and all WARN Act requirements.
It is important to clarify that the above analysis is only a generalization of the WARN Act. The WARN Act contains a number of exceptions and technicalities, which require every situation to be examined on a case-by-case basis. Additionally, some states have WARN-type laws, which may impose similar obligations on a broader range of employers (Michigan does not). Therefore, employers who may have WARN obligations are advised to work closely with their employment counsel to ensure technical compliance.