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WARN Obligations In Light of COVID-19

March 27, 2020


Numerous states are issuing orders requiring all non-life sustaining businesses to cease operations in order to limit the spread of COVID-19. In response to those orders, some businesses are considering workforce reductions. As those reductions may implicate an employer’s obligations under the Federal Worker Adjustment and Retraining Notification (“WARN”) Act, the employer should consider its notice obligations before making any reductions to its workforce.

The Federal Worker Adjustment and Retraining Notification Act

The WARN Act applies to employers with 100 or more employees nationwide, excluding part-time employees, or 100 or more employees who in the aggregate work at least 4,000 hours per week (exclusive of overtime). The Act requires employers to provide written notice to employees sixty days prior to any “plant closing” or “mass layoff.”

Both “plant closing” [1] and “mass layoff” [2] are triggered, in part, by an “employment loss.” An “employment loss” occurs where there is: (1) a layoff that exceeds 6 months; (2) a reduction in work hours of more than 50% during each month of a 6-month period; or (3) an employment termination that is not a discharge for cause, voluntary departure, or retirement.

Duration

If the business intends for its reduction to only last for the duration of the applicable government order and the business believes that such order will last less than six months, notice may not be required. Nonetheless, a legal analysis should be done to ensure that the workforce reduction is handled appropriately, particularly because the WARN Act contains significant penalties for compliance failures.

If a layoff that was originally intended to last less than 6 months is extended beyond 6 months, the temporary layoff may be converted into an “employment loss” under the WARN Act. Under most circumstances, the date of such an “employment loss” is imputed retroactively to the date of the temporary layoff’s commencement, even though the layoff was intended to be only temporary on the original layoff date. In that case, the employer may need to promptly give an appropriate notice under the WARN Act.

Unforeseeable Business Circumstances Exception

WARN provides an exception where there are unforeseeable business circumstances. Specifically, that exception applies where some sudden, dramatic, and unexpected action or condition outside the employer’s control causes the layoffs. Among the regulation’s examples of what may constitute as an “unforeseeable business circumstances” are “an unanticipated and dramatic economic downturn” or a “government ordered closing of an employment site that occurs without prior notice.” While no ruling or guidance exists classifying the COVID-19 pandemic, combined with the required closure of businesses and significant economic downturn, as an unforeseeable business circumstance, the pandemic appears to meet these criteria provided they have a direct, unforeseen, negative impact on an employer’s business.

Penalties

A failure to comply with WARN’s notice requirements garners significant penalties for employers. Specifically, employers may be liable to each aggrieved employee who suffers an employment loss for back pay for each day of violation at the final rate (or average over the last three years) received by the employee, as well as for benefits under the employee benefits plan, including the cost of medical expenses incurred during the employment loss which would have otherwise been covered (up to $500 maximum per day).

Mini-WARN Acts

In addition to complying with the WARN Act, a business must also investigate whether its actions are in compliance with any applicable state or local laws (referred to as “mini-WARN” acts). Those mini-WARN acts may apply to employers and require advanced notice beyond that required by the federal WARN Act.

Conclusion

If, in response to the COVID-19 pandemic, an employer is considering an action that may result in at least 50 employees laid off for more than six months or is experiencing an hours reduction of more than 50 percent in each month of the next six-month period, the employer should consider whether the federal WARN Act or a state mini-WARN Act applies. If either will apply, the employer may be required to provide notice to applicable employees and government officials.

If you have any questions or concerns about the WARN Act and its implications for your business and employees, Montgomery McCracken’s attorneys are available to assist. Visit the firm’s Coronavirus (COVID-19) Resource Center for more information and updates on this constantly evolving situation.

[1] A “plant closing” is 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 any part-time employees.

[2] A “mass layoff” means a reduction in workforce which (1) is not the result of a plant closing and (2) results in an employment loss at a single site of employment during any 30-day period for at least 50 full-time employees (who constitute at least 33 percent of employees).