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Before your clients say these words, make sure they know the WARN Act
It is early 2009 and the United States remains mired in a recession. In an effort to cut costs, businesses are reducing staffing through buyouts, retirements, and layoffs (reductions in force, or RIFs). Such efforts have resulted in a surge in job losses: In December 2008 the U.S. economy shed 524,000 jobs, and the unemployment rate rose to 7.6%. From December 2007 through December 2008, the total number of mass layoff events (defined as one employer having at least 50 unemployment claims in a five-week period) was a staggering 21,137. Put more starkly, at least 1,056,850 persons have lost their job as part of a mass layoff event in the past year.
Each mass layoff event or RIF has the potential to trigger the Worker Adjustment and Retraining Notification Act (WARN Act). The WARN Act is a federal statute requiring employers to provide notice of impending job losses to various persons and governmental entities, who can then take a pro-active approach to job losses. The WARN Act does not, however, apply in all circumstances, and determining whether it does can be difficult. Because of the heavy penalties imposed by non-compliance " including months of back pay and attorneys' fees " it is important to know whether the WARN Act applies and, if so, how to apply it.
This article begins with a primer on the WARN Act, providing definitions and compliance tips gleaned from years of practice. It then moves into more difficult material, including when certain exceptions might apply. Finally, the article concludes with a reminder that the WARN Act is a notice statute, not a make-work law. In total, this article provides attorneys and human resources professionals with a basic knowledge of the WARN Act and, most importantly, the ability to spot issues.
The WARN Act " An Introduction and Examples
An employer with 100 or more employees that is planning a plant closing or mass layoff must provide at least 60 calendar days written notice of such impending job losses. This sentence appears simple on the surface, but in fact is deeply complex and must be explored.
The WARN Act's definition of employee is broad " anyone who has worked for the employer more than six months in the last 12 months, and employees who work an average of 20 hours or more a week, qualify as employees under WARN. All other persons are excluded. Employer is defined as any private, for-profit company and private, nonprofit companies with 100 or more employees.
The notice is a letter that informs certain persons of the upcoming employment losses. This written notice must be sent to the State Dislocated Worker Unit, the chief elected official of the local government where the plant closing or mass layoff is to occur, the union, if there is one, and, if not, to each individually affected employee.
The notices to the State Dislocated Worker Unit and to the chief local elected official must contain: (1) a statement whether the planned action is expected to be permanent or temporary and, whether the entire plant is closing; (2) name and address of the site where the plant closing or mass layoff will occur; (3) an indication whether or not bumping rights exist; (4) the name and telephone number of a company point of contact; (5) expected date of the first separation, and the anticipated schedule for later separations; (6) job titles of affected positions, and the number of affected employees in each job title; (7) the name, address, and chief local elected official of each union representing affected employees (if any).
Notifying the proper chief local elected official can be difficult. For example, in one location where I counseled a client conducting a RIF, traveling one mile in any direction seemed to result in going into a different borough, township, village or city. Who is to receive the notice? There, I studied a map I bought at a local convenience store and determined exactly where the plant was located and, therefore, exactly who to notify. Absolutely do not rely on mailing addresses, as these are often based on convenience, not actual geography. Finally, if the location remains unclear, send the notice to multiple officials. (If you are worried that the press will learn of the job losses based on the extra notice, don't be " the press is going to find out anyway.)
Notice to a union must list: (1) the name and address of the site where the plant closing or mass layoff will occur, and the name and telephone number of a company contact person; 2) a statement whether the planned action is expected to be permanent or temporary and whether the entire plant is to be closed; (3) the expected date of the first separation and the anticipated schedule for later separations, and; (4) the job titles of affected positions and the names of the workers currently holding affected jobs.
If there is no union, notice must be sent to individually affected employees. The notice must be written in plain, easily understood language and must contain the following: (1) statements of whether the planned action is expected to be permanent or temporary, and whether the entire plant is to be closed; (2) the expected date when the plant closing or mass layoff will commence and when the individual employee will be separated; (3) a statement of whether seniority rights exist; and (4) the name and telephone number of a company official to contact for further information.
These four items are the minimum amount of information the notice to employees must contain. In my experience, it is helpful to include additional, relevant information. That information can include how to obtain unemployment benefits, the address of the local unemployment office, if special unemployment benefits are available, potential transfer opportunities, severance, and, if the planned action is temporary, the estimated duration (if known).
Providing this information can ease the blow of being laid off. While the WARN Act leaves service of process wide open, I counsel you to send the notice to employees via registered mail and regular, first-class mail. I have had clients complain about the cost of registration and postage, but I recommend this because: (1) employees often ignore mail from their employers (other than paychecks); (2) employees may work shifts that make it difficult to get to the post office, and; (3) it should not be difficult for employees to receive notice of their impending job loss.
In my practice I have seen attorneys draft employee WARN notices that become a de facto severance agreement, adding extraneous information and unnecessary formality. It is important to keep the notice simple. (Now is not the time to show off your SAT words and Latin terms should be kept to a dull roar.) The notice must clearly convey information about the impending layoff; it is neither a termination letter nor a COBRA notice, so don't turn it into either.
An employment loss is one of three things: (1) a layoff of more than six months; (2) a termination (excluding terminations for cause, voluntary terminations or retirement); or (3) the reduction of work hours of more than 50 percent during each month of any six-month period. A plant closing is an action resulting in an employment loss within a 30 day period for at least 50 or more employees at a single site of employment or one or more facilities or operating units, within a single site of employment. A mass layoff is a layoff at a single site of employment where at least 33 percent of the workforce and at least 50 employees are laid off for a period of six months or more.
The WARN Act has a 90-day look back, or aggregation, provision that captures individual events that did not, on their own, trigger the WARN Act. This is a trap for the unwary. Under this provision, it is assumed that any layoffs in the prior 90 days are related to the current layoff, and it is the employer's burden to show that the prior terminations are unrelated. Therefore, when small numbers of employees are terminated over a period of greater than 90 days, employers must aggregate each layoff to see whether the WARN Act is triggered and, if it is, take steps to comply.
There are substantial penalties for failure to comply. Failure to provide appropriate notice can result in penalties of up to 60 days' worth of back pay and benefits for each aggrieved employee, minus any actual payments made (if any). Failure to provide notice to a unit of local government is subject to a civil penalty not to exceed $500 for each day of violation. Additionally " and this is where WARN really bares its teeth " the prevailing party can be awarded attorneys' fees.
When WARN Act Obligations are Excused
There are three situations in which the Act's 60-day notice requirement is excused: (1) faltering company; (2) unforeseeable business circumstances, and; (3) natural disaster.
The faltering company exception is narrowly construed, and covers situations where a company has sought (but failed to obtain) new capital or business in order to stay open and where giving notice would ruin the opportunity to get the new capital or business. This exception applies only to plant closings.
The unforeseeable business circumstances exception applies to closings and layoffs that are caused by business circumstances that were not reasonably foreseeable at the time notice would otherwise have been required. The unforeseen circumstances must be sudden and unexpected, and outside the employer's control, such as the loss of a major contract or an unanticipated and dramatic major economic downturn.
Finally, the natural disaster exception applies where a closing or layoff is the direct result of a natural disaster, such as a flood, earthquake, drought or storm.
If an employer provides less than 60-days notice of a closing or layoff by relying on one of these three exceptions, the employer bears the burden of proof that the exception applies. In my practice, I have yet to encounter a situation where one of these exceptions applies. Other than the natural disaster exception, the others are so narrowly tailored that meeting their criteria is difficult. Note that, even if one of these exceptions does apply, the employer also must give as much notice as is practicable.
When WARN Act Obligations Do Not Arise
There are two situations where WARN does not apply. First, there is no need to provide notice if closing a temporary facility, or if the closing or mass layoff is the result of the completion of a project. This exemption applies only if the workers were hired with the understanding that their employment was limited to the duration of the project. An employer cannot label an ongoing project "temporary" in order to evade its obligations under WARN. As a practical point, I recommend that companies hiring employees for a limited duration make sure that this is communicated in writing.
Second, an employer need not provide notice to strikers or locked out workers when the strike or lockout is equivalent to a plant closing or mass layoff. Non-striking employees who lose their jobs because of a strike and workers who are not part of the locked out bargaining unit(s) who lose their jobs must receive notice. An employer does not need to give notice when permanently replacing a person who is an "economic striker" as defined under the National Labor Relations Act.
Compliance Through Closure
On occasion I have had clients ask whether they can simply shut down their plant, and pay employees their two months salary and benefits pursuant to the WARN Act. Each time, the client is surprised when I answer "yes".
Remember, the WARN Act's purpose is to provide notice and pay while undergoing an employment transition; it is not a "make work" statue. This point was made clear in Long v. Dunlop Sports Group Americas Inc. In Long, the employer shut down its South Carolina facility, provided the proper WARN Act notices, told employees not to report to work, and continued to provide pay and benefits during the next 60 days. The notice stated that displaced employees would receive pay and benefits for 60 days, unless they took a job with the plant's purchaser, at which point pay and benefits would end.
During the 60-day period, 22 employees were hired by the purchasing company, at which point the former employer stopped providing wages and benefits to them. Those 22 employees sued the former employer for the remainder of their money and benefits as required under WARN.
The employees lost at both the trial and appeals courts. In both instances, the courts found that the employees had not experienced job losses on the date they received the WARN notices, but that the job loss, if any, would occur when their benefits ended. The courts' decisions emphasized that employees have the rights to notice and compensation, but not to perform work. The Fourth Circuit added that nothing in the WARN Act suggests Congress sought to protect an individual's ability to continue performing work during the 60-day notice period, and that Dunlop's decision to pay for 60 days work without requiring 60-days labor "entirely accords with the language, purpose, and structure of the WARN Act[.]"
As the WARN Act is designed to convey necessary information to important persons, so is this article. The reader should now have a basic understanding of the WARN Act and be aware of its common pitfalls. And finally, remember that before conducting a RIF, perform a WARN Act analysis to determine whether it applies " a little analysis now might prevent a lot of expense (including the opposing party's attorneys' fees) later.
1. Mass Layoffs in December and Annual Total for 2008, news, Bureau of Labor Statistics, U.S. Department of Labor, Jan. 28, 2009.
2. The percentage of unemployed persons rose to 7.6 percent in January, 2009 from 7.2 percent in December 2008. Since December 2007 to December 2008, the number of unemployed persons in the United States has increased to 3.6 million, with approximately 1.8 million of those unemployed losing their jobs in the past three months. Id.
3. 29 U.S.C. § § 2101-2109.
4. 29 U.S.C. § 2101(a)(1), (2), and (3).
5. 29 U.S.C. § 2101(a)(8).
6. 29 U.S.C. §2101(a)(1); 20 C.F.R. § 639.3(a).
7. 29 U.S.C. § 2102.
8. 29 U.S.C. § 2102(a)(1); 20 C.F.R. § 639.6.
9. 29 U.S.C. § 2102; 20 C.F.R. § 639.7(e).
10. 29 U.S.C. § 2102; 20 C.F.R. § 639.7(c).
11. 29 U.S.C. § 2102; 20 C.F.R. § 639.7(d).
12. 20 C.F.R. § 639.7(d).
13. 20 C.F.R. § 639.8. The regulations permit "any reasonable method of delivery." Id. Notice may be placed in pay envelopes, provided that such notice is extraordinary; placing the WARN notice on a document normally delivered with employees' paychecks is insufficient. Id.
14. 29 U.S.C. § 2101(a)(6); 20 C.F.R. § 639.3(f).
15. 29 U.S.C. § 2101(a)(2); 20 C.F.R. § 639.3(b).
16. 29 U.S.C. § (a)(3); 20 C.F.R. § 639.3(c).
17. 29 U.S.C. § 2102(d); 20 C.F.R. 639.5(a)(ii).
18. 29 U.S.C. § 2104(a)(1), (2).
19. 29 U.S.C. § 2104(a)(3).
20. 29 U.S.C. § 2104(a) & (b).
21. 29 U.S.C. § 2102(b)(1); 20 C.F.R. § 639.9(a).
22. 29 U.S.C. § 2102(b)(2)(A); 20 C.F.R. §639.9(b).
23. 29 U.S.C. § 2102(b)(2)(B); 20 C.F.R. § 639.9(c).
24. 29 U.S.C. § 2102(b)(3).
25. 29 U.S.C. § 2103(1); 20 C.F.R. § 639.5(c).
26. 29 U.S.C. § 2103(2); 20 C.F.R. § 639.5(d).
27. 506 F.3d 299 (4th Cir. 2007).
28. Id. at 300-301.
29. Id. at 301.
30. Id. at 301-302.
31. Id. at 303.
32. "[N]othing in the [WARN] Act suggests that Congress sought to protect an individual's ability to continue performing labor during the 60-day period[.]" Id. at 303.
33. Id. at 303.
DAVID R. KEENE II, practices labor and employment law at Baker Donelson Bearman Caldwell & Berkowitz PC in the firm’s Washington, D.C. and Tri-Cities, Tennessee/Virginia offices. Keene’s practice includes reductions in force, collective bargaining, grievance and interest arbitration, and employment-related litigation. He has lectured and written extensively on labor and employment law issues. Keene earned a bachelor’s degree from George Mason University in 1994, and a law degree from The Columbus School of Law, The Catholic University of America in 1997, where he was an Executive Board member of The Catholic University of America Law Review. He is licensed to practice law in the District of Columbia, Pennsylvania, Tennessee and Virginia. The information contained herein is strictly informational and is not to be construed as legal advice.