WARN Act and COVID-19

Given the unprecedented effects of COVID-19, many businesses have or are considering lay-offs, furloughs, and/or closures.  Depending on the size of the employer and lay-offs, an employer may have obligations under the federal Worker Adjustment and Retraining Notification Act (WARN Act).  Employers should be aware of the obligations imposed by the WARN Act, and exemptions that may be applicable to layoffs and closures resulting from COVID-19.

What is the Warn Act?

The Warn Act requires covered employers to provide a specified notice of employment termination sixty (60) days prior to the date of a “plant closing” or “mass layoff” that results in an “employment loss” for a sufficient number of employees.  29 U.S.C. § 2101(a)(1).

What Companies are Covered by the Warn Act?

The WARN Act applies to any business enterprise that employs: 100 or more employees, excluding part-timers (i.e., who are employed for an average of fewer than 20 hours per week or have been employed for fewer that 6 of the 12 months preceding the date on which notice is required) or 100 or more employees who in the aggregate work at least 4,000 hours per week (exclusive of overtime). 29 U.S.C. § 2101(a)(1).  The relevant date on which employer status is determined and employees are to be counted is the date that the first notice should have been given.

When does the Warn Act apply?

The Warn Act applies to “plant closings” and “mass layoffs.”  The plant closing and mass layoff rules do not apply: (1) When the government forces the layoff or (2) when there is a closure of temporary facilities or completion of an activity and the workers were hired only for the duration of the activity.

The definition of “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 during any 30-day period for 50 or more employees excluding any part-time employees.”  29 U.S.C. § 2101(a)(2).

The definition of “Mass Layoff” is “a reduction in force which . . . results in an employment loss at the single site of employment during any 30-day period for (i)(I) at least 33 percent of the employees (excluding any part-time employees); and (II) at least 50 employees (excluding any part-time employees); or (ii) at least 500 employees (excluding any part-time employees).”  29 U.S.C. § 2101(3).

WARN Act notice requirements do not arise unless there is a mass layoff or plant closing at a “single site of employment.” The Department of Labor’s regulations define a “single site of employment” using a “geographical” test that looks at the workplace’s physical layout so that separate offices can be a single site if they are in “reasonable proximity” and share the same staff and equipment.  20 C.F.R. § 639.3(i)(3).

The Aggregation Rule.

When trying to determine whether there has been or will be a sufficient number of employees suffering an employment loss, entities facing economic crises must beware of the WARN Act 90-day “Aggregation Rule.”  Under this Rule, during any 90-day period, if two or more groups of employees at a single site of employment suffer employment losses and the aggregate number of layoffs or terminations exceeds the minimum number required for a mass layoff or plant closing, even though each set of layoffs or terminations involve less than the minimum number when examined separately, a “mass layoff” or “plant closing” will be deemed to have occurred, unless the employer demonstrates that the employment losses are the result of separate and distinct actions and are not an attempt to evade the requirements of the Act.  29 U.S.C. § 2102(d).

Which Employees will be Counted When Determining When a Plant Closing or Mass Layoff has occurred?

Only the laid-off “full time” employees will be counted when determining whether a “plant closing” or “mass layoff” has occurred so as to trigger an employer’s obligation to provide advance notice under the WARN Act.  Employees who work less than 20 hours per week or who had not worked during six of the 12 months preceding the plant closing date are not “full time employees” under the Act, but are classified as “part-time employees “or” new employees,” and are not counted for purposes of determining whether a “plant closing” or “mass layoff” occurred.

What are the Penalties for Failure to Comply with the WARN Act?

Failure to provide employees with the required notice can expose a liable entity to fines and civil liability consisting of back pay and benefits for the period of violation and a civil penalty of up to $500 per day for failure to give sixty-60 days’ notice to the local government (but there is no such penalty if, within three weeks of the termination, the employer pays the affected employees the amounts due to them under WARN).  29 U.S.C. § 2104.

Are there Exceptions to the Requirements of the WARN Act?

Sixty-days’ notice generally must be provided under the federal Worker Adjustment and Retraining Act (WARN).  However, there are three statutory exceptions to the 60 day notification requirement for: (1) “a faltering company,” (2) “unforeseeable business circumstances,” or (3) “a natural disaster.”  29 U.S.C. § 2102(b).

The “faltering business” exception only applies if the employer was actively seeking capital or business which, if obtained, would have enabled the employer to avoid or postpone the shutdown and the employer reasonably and in good faith believed that giving the notice would preclude the employer from obtaining the needed capital or business.  29 U.S.C. § 2102(b)(1).  The regulations impose many restrictions on the use of this narrow exception, including that the employer must be able to identify specific actions to obtain the capital or business, that there must have been a “realistic opportunity” to obtain the capital or business, the capital or business sought must have been enough to avoid the plant closing for a “reasonable period of time,” and that the employer must have “reasonably and in good faith” believed that the required notice would preclude the employer from obtaining the capital or business sought

The test to determine when business circumstances are not reasonably foreseeable focuses on whether the shutdown was caused by some drastic, unexpected action outside the control of the employer, such as the unexpected termination of a contract with the employer; the strike at a supplier or government ordered closing.  20 C.F.R. § 639.9(b)(2).

Under the natural disaster exception, no notice is required if the plant closing or mass layoff is the result of “any form of natural disaster, such as a flood, earthquake, or the drought currently ravaging the farmlands of the United States.” 29 U.S.C. § 2102(b)(2)(B). While the term “natural disaster” is typically viewed as a calamity such as a flood, tornado, earthquake or the like, there is a general catchall in the applicable regulations for “similar effects of nature.” 20 C.F.R. § 639.9(c).