The daily headlines evidence the job losses American workers are suffering. Many companies are cutting back operations and some have ceased to exist. The recent demise of Wall Street titans and the disappearance, at least in some parts of the country, of staples such as the local Bennigan’s and Starbucks reminds us of the difficult times in which we live. In the unfortunate event of a reduction in force, employers need to be sure to comply with the Worker Adjustment and Retraining Notification (WARN) Act, which requires at least 60 days’ advance notice of a plant closing or mass layoff. Failure to provide the required notice can expose an employer to claims for back pay and benefits and to punitive damages.

The purpose of the WARN Act is to provide advance notice of a plant closing or a mass layoff so that dislocated workers may have the opportunity to retrain or relocate before they incur employment loss. Specifically, employers of 100 or more employees must give this notice to affected employees, unions, local government taxing units, and the state dislocated worker unit.

The WARN Act defines a plant closing as the permanent or temporary shutdown of a single site of employment (or of one or more facilities or operating units within a single site) if the shutdown results in an employment loss during any 30-day period for 50 or more full-time employees. A mass layoff means a reduction in force that is not the result of a plant closing and that results in an employment loss at the single site during any 30-day period for (1) at least 33 percent of the full-time employees and (2) at least 50 full-time employees. Where 500 or more employees (excluding part-timers) are affected, the 33 percent requirement does not apply.

The regulations define an employment loss to mean (1) an employment termination other than a discharge for cause, voluntary departure, or retirement, (2) a layoff exceeding six months, or (3) a reduction in the hours of work of individual employees of more than 50 percent during each month of any six-month period. Employees who voluntarily leave employment or who are terminated for cause do not suffer an employment loss for purposes of WARN and are not considered when determining whether a plant closing or mass layoff has occurred.

Employers covered under the WARN Act must provide notice at least 60 calendar days prior to the planned plant closing or mass layoff. Employers must provide notice to each representative of the affected employees or, if there is no such representative, to each affected employee. Notice also must be served to the state dislocated worker unit and to the chief elected official of the unit of local government within which a closing or layoff is to occur. The required contents of these notices to the state dislocated worker unit and to affected employees are specified in WARN and its regulations. The notice provided must be specific and in writing.

Notice may be served by any reasonable method of delivery as long as the notice is received at least 60 days before the separation. In the case of notification directly to affected employees, insertion of notice in pay envelopes is a viable option.

The WARN Act provides three circumstances under which the notification period may be reduced to less than 60 days. Shorter notice may be justified by (1) the faltering company exception, (2) the unforeseeable business circumstances exception, which is caused by business circumstances that were not reasonably foreseeable 60 days out, and (3) the natural disaster exception. The employer is required to provide a brief statement of the reason for reducing the notice period, and the employer must give as much notice as is practicable.

The faltering company exception applies to plant closings but not to mass layoffs. To qualify for reduced notice under this exception, an employer must meet the following requirements:

An employer must have been actively seeking capital or business at the time that the 60 day notice would have been required. The employer may have been seeking financing or refinancing by trying to obtain loans or through the issuance of stocks, bonds, or other methods of internally generating financing, or the employer may have been seeking additional money, credit, or business through any other commercially reasonable method.
There must have been a realistic opportunity to obtain the financing or business sought.
The financing or business sought must have been sufficient, if obtained, to have enabled the employer to avoid or postpone the shutdown.
The employer reasonably and in good faith must have believed that giving the required notice would have precluded the employer from obtaining the needed capital or business. The employer must be able to objectively demonstrate that it reasonably thought that a potential customer or source of financing would have been unwilling to provide the new business or capital if notice had been given.

The actions of an employer relying on the faltering business exception will be viewed in a company-wide context. Thus, a company with access to capital markets or with cash reserves may not avail itself of this exception by looking solely at the financial condition of the facility, operating unit, or site to be closed.

The unforeseeable business circumstances exception applies to plant closings and mass layoffs caused by business circumstances that were not reasonably foreseeable at the time the 60 day notice would have been required. Reasonably unforeseeable business circumstances are caused by sudden, dramatic, and unexpected actions or conditions outside the employer’s control. The regulations list the following possible circumstances that are not reasonably foreseeable: a principal client’s sudden and unexpected termination of a major contract; a strike at a major supplier; an unanticipated, major economic downturn; or a government-ordered closing of an employment site that occurs without prior notice.

To qualify for a natural disaster exception, an employer must be able to demonstrate that its plant closing or mass layoff is a direct result of a natural disaster.
If an employer fails to meet the requirements of the WARN Act, it may be liable to employees for back wages and for benefits for up to 60 days and to the local government for punitive damages up to $500 per day that notice was delinquent. A court may also award the prevailing party reasonable attorney fees.

In addition to the federal WARN Act, many states and U.S. territories have their own versions of the WARN Act, which may contain different requirements and lower thresholds for triggering the notice requirement. Before laying off a large number of employees, employers should consult the federal and state laws such as the WARN Act that require prior notice to employees, unions, and government officials. Employers should also consider other statutes, such as the Age Discrimination in Employment Act, which requires specific terms and notices to create a valid release of a worker’s potential claims under the federal age discrimination statute.

A version of this article first appeared in Construction Labor Report, volume 54, number 2669 (April 30, 2008), published by the Bureau of National Affairs, Inc., 800-372-1033, www.bna.com. Reproduced with permission.

For more information, contact Glenn M. Rissman.