Reductions in Force: Federal Worker Adjustment and Retraining Notification Act (Federal WARN Act)
Reductions in force are something many businesses will have to consider at some point during their existence. Sometimes, changes in the economy, the loss of a major customer, or other external factors impact operational or financial performance, leading businesses to make difficult decisions to streamline costs and function with a smaller workforce. Other times, succession planning or an acquisition or merger may result in a business separating its relationship with employees, some of whom may not be hired by the successor business.
There are many legal issues to consider when conducting reductions in force, including whether an employment decision will trigger federal or state laws requiring advance notice of a mass layoff, plant closing, relocation, or similar event. This week’s legal update summarizes obligations under federal law. A future legal update will address similar obligations under California law. Employers with operations in California must ensure they review their obligations under both federal and state laws before taking action to reduce the size of their workforce.
The purpose of federal and state WARN Acts is to provide displaced workers and their communities with sufficient notice of a covered event so there will be time and resources available for readjustment and retraining. To accomplish this, the federal WARN Act requires covered employers to provide notice of a “plant closing” or “mass layoff” to affected employees, their representatives, and select government officials at least 60 days before a covered event.
Which Employers Are Covered by the Federal WARN Act?
The federal WARN Act applies to business enterprises, including nonprofit organizations, that employ either: (1) 100 or more employees (excluding part-time employees), or (2) 100 or more employees (including part-time employees) who, in the aggregate, work at least 4,000 hours per week (exclusive of overtime hours). Coverage under either of these two metrics will trigger federal WARN Act obligations for covered events. The number of employees is generally determined on the date the first notice must be given, except in certain instances where that number does not represent the business’s ordinary or average number of employees.
Part-time employees are defined as those employees who are employed for an average of fewer than 20 hours per week or who have been employed for fewer than six of the 12 months preceding the date on which notice is given.
Which Events Are Covered by the Federal WARN Act?
The federal WARN Act applies to “plant closings” and “mass layoffs.”
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” for 50 or more employees during the applicable time period. A mass layoff is a reduction in force that is not the result of a plant closing that results in an “employment loss” at a “single site of employment” during the applicable period for either: (1) 500 or more employees regardless of the percentage of the workforce that covers; or (2) at least 50 employees if the number of employees affected comprise at least 33% of the total employees at that site of employment.
What is The Period During Which the Number of Affected Employees is Calculated?
Typically, to determine if there has been a plant closing or mass layoff, employers must look 30 calendar days forward and backward to determine if actions taken and planned will reach the employee counts required for either type of event. However, where several employment losses occur within a 90-day period, each of which affects fewer than 50 employees but exceeds that amount when all events are calculated in the aggregate, federal WARN Act obligations may be triggered unless the employer can show the employment losses were the result of separate and distinct actions or causes rather than the employer’s attempt to circumvent WARN obligations. As a result, when analyzing obligations under federal law, employers should look at both the 30-day and 90-day time periods.
What is a “Single Site of Employment”?
An employer may have multiple sites of employment under common ownership or control, such as multiple retail establishments spread throughout the state. Typically, each of those locations is considered a separate “site of employment” for purposes of determining whether there has been a plant closing or mass layoff. However, there are instances in which separate locations owned by the same employer may constitute a single site of employment. This should be part of an employer’s analysis when meeting with legal counsel to determine whether one or more events trigger the federal WARN Act.
What is an “Employment Loss”?
Employment actions trigger the federal WARN Act when there is an employment loss. An employment loss is not limited to the complete separation of employment. It may also include a layoff exceeding six months or more than a 50% reduction in work hours during each month of any six-month period.
What if a Business is Sold, or Its Assets Are Sold, to Another Entity?
The federal WARN Act has provisions that apply to the sale of a business or its assets to a new business who continues its operations. There are elements to these provisions must be considered, including potential language to include 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 Federal WARN Act Notice Is Not Required?
Yes, there are exceptions for things such as faltering companies (plant closings only), unforeseen business circumstances, natural disasters, certain strikes and other reasons.
What Is an Employer’s Potential Liability for Failing to Provide Timely Notice?
Failure to comply with the federal 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 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.
