Reductions in Force: California Worker Adjustment and Retraining Notification Act (Cal-WARN Act)

As summarized last week, most businesses will have to consider a reduction in force at some point during their existence. Among other legal issues to consider, employers must determine whether a reduction will trigger laws requiring advance notice of a mass layoff, plant closing, relocation, or similar event.

Last week’s legal update summarized employer obligations under federal law. In some states, that may be the only applicable law when it comes to providing special notice to employees and government officials. In California, however, employers must also consider whether their planned action implicates California’s “mini” Worker Adjustment and Retraining Notification (“Cal-WARN”) Act, Labor Code section 1400 et seq.

Because the statutory schemes under federal and state WARN Acts vary, an action may be a covered event under one law but not the other or may qualify under neither or both.

Which Employers Are Covered by the Cal-WARN Act?

Cal-WARN applies to actions taken by any person or business entity that owns or operates a “covered establishment,” which includes any industrial or commercial facility or part thereof that employs, or has employed within the preceding 12 months, 75 or more persons. An “employee” includes any person employed by an employer for at least six months of the 12 months preceding the date on which notice is required. It does not apply to employees who are employed in seasonal employment where the employees were hired with the understanding that their employment was seasonal and temporary.

Which Events Are Covered by Cal-WARN?

Cal-WARN applies to “mass layoffs,” “relocations,” and “terminations.”

A “mass layoff” is a layoff during any 30-day period of 50 or more employees at a covered establishment. A “layoff” is a separation from a position for lack of funds or lack of work.

A “relocation” is the removal of all or substantially all of the industrial or commercial operations in a covered establishment to a different location 100 miles or more away.  Relocation does not require an employment loss.

A “termination” is the cessation or substantial cessation of industrial or commercial operations in a covered establishment.

Cal-WARN does not apply where the closing or layoff is the result of the completion of a particular project or undertaking under certain Industrial Welfare Commission (IWC) Wage Orders relating to the broadcasting and motion picture industries, nor does it apply to certain on-site occupations in the construction, drilling, logging, and mining industries. Cal-WARN also does not apply where employees are hired with the understanding that their employment will be limited to the duration of that project or undertaking.

What is The Period During Which the Number of Affected Employees is Calculated?

Unlike the federal WARN Act, where employers may need to consider a 90-day period, Cal-WARN only requires employers to look 30 calendar days forward and backward to determine if actions taken and planned will reach the employee counts required for a mass layoff, relocation, or termination.

What if a Business is Sold, or Its Assets Are Sold, to Another Entity?

In MacIsaac v. Waste Mgmt. Collection & Recycling, Inc. (2005) 134 Cal.App.4th 1076, a California appellate court confirmed there is no layoff under Cal-WARN where employees are immediately transferred from the seller to the buyer pursuant to an asset purchase agreement and the employees perform the same work for the buyer as they had for the seller at the same rates of pay with the same benefits. In this instance, employees are separated from their employer, not their positions, and therefore do not experience a layoff. The details of each specific transaction should be reviewed by legal counsel to determine its implications on Cal-WARN and whether language should be included in the sales agreement.

To Whom Must Notice Be Given?

Written notice must be given to affected employees, their collective bargaining representative (if applicable), the State’s dislocated worker unit, and local government officials. In California, the State dislocated worker unit is part of the California Employment Development Department. It has resources to assist employers in identifying local government officials for each location.

How Much Notice Must Be Provided?

Employers must provide 60 calendar days’ notice and the notice must include specific information regarding the timing and nature of the separation.

Are There Exceptions Where Cal-WARN Notice Is Not Required?

Yes, there are exceptions for things such as faltering companies (relocations and terminations only), physical calamity or act of war, and other reasons.

What Is an Employer’s Potential Liability for Failing to Provide Timely Notice?

Failure to comply with the Cal-WARN Act may result in liability to each affected employee for an amount equal to back pay and benefits for the period of the violation, up to 60 calendar days but no more than half the number of days the employee was employed by the employer. The employee may also recover penalties, attorneys’ fees, and costs, if successful.

Conclusion

Reductions in force are never easy. However, early planning can benefit both employers and employees so that systems are in place to comply with all legal obligations and to ensure resources are in place for separated employees.

This legal update and any use of its information does not create an attorney-client relationship. Nothing contained on this website should be considered legal advice for any specific employer or employment situation. Consult legal counsel before taking any action as a result of information contained herein.