Michelle M. Cain

Michelle M. Cain Partner

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The WARN Act and COVID-19 Layoffs

Among the many issues facing employers during the current coronavirus pandemic and its economic impact are those relating to closings and mass layoffs.  Employers faced with changes to the workforce due to the pandemic or state executive orders requiring temporary cessation of business should consider the notice requirements of both the federal Worker Adjustment and Retraining Notification Act, as well as state versions of the WARN Act.

Federal WARN Act

 The federal WARN Act requires employers with 100 or more full-time employees to provide written notice to employees sixty days before engaging in a plant closing or mass layoff.   A plant closing occurs when a facility is permanently or temporarily shut down and results in an employment loss for 50 or more full-time employees during a 30-day period.  A mass layoff occurs when an employer lays off 50 or more full-time employees at a single site of employment in any 30-day period and those employees constitute at least 33% of the work force at that site, or if 500 employees are laid off.

An employment loss does not occur, however, unless employees are laid off for six months or more.  If employees’ layoff does not last six months or more, notice is not required.  If, however, a layoff that was initially expected to be less than six months actually lasts beyond six months, it will be treated as an employment loss for affected employees, unless the employer can demonstrate that the extension beyond six months was caused by a business circumstance that was not reasonably foreseeable at the time of the layoff and the employer provides notice as soon as it becomes reasonably foreseeable that the layoffs will extend beyond six months.

Additionally, the WARN Act provides for reduction of the notice period in certain circumstances, two of which may be applicable to COVID-19-related layoffs.

First, the WARN Act provides that notice may be reduced if the layoff is the result of business circumstances that were not reasonably foreseeable as of the time that notice would have been required. According to the WARN Act’s regulations, the test for determining when business circumstances are not reasonably foreseeable focuses on the employer’s business judgment.  The employer “must exercise such commercially reasonable business judgment as would a similarly situated employer in predicting the demands of its particular market.”  20 C.F.R. § 639.9(b)(2).  In the past, the “unforeseen business circumstances” provision has been applied for the cancellation of contracts, revocation of business licenses, and product recalls.  The regulations also provide that a government ordered closing of a facility without prior notice “may” be an unforeseeable business circumstance, but at least one court has held that not all government ordered closings are covered by this exception.  For mass layoffs caused by the coronavirus pandemic or executive orders ordering the shutdown of businesses, the unforeseen business circumstance exception may provide a viable defense to WARN Act claims.  Employers should keep in mind, however, that the longer the current crisis continues, the less likely layoffs due to the pandemic will be considered “unforeseeable.”

The second exception which may apply is the WARN Act’s exception for natural disasters.  The statute gives as examples floods, earthquakes, or droughts.  The regulations give additional examples of storms, tidal waves or tsunamis or “similar effects of nature.”  29 C.F.R. § 639.9(c)(1).  The regulations provide that an employer must demonstrate that a mass layoff or closing was the direct result of the disaster, and if it is merely an indirect result, the unforeseen business circumstance exception may apply. Whether the “natural disaster” exception will be applicable to COVID-19 related layoffs is not clear at this time.

Neither of these two provision in the WARN Act, even if applicable, excuse an employer from providing notice; they simply reduce the notification period.  If an employer intends to rely on either the unforeseen business circumstances or the natural disaster exception, it must provide as much notice as is practicable and provide employees with a statement of the basis for reducing the notice period.

Employers should also be aware that if they choose to reduce employees’ hours to adjust to the pandemic or resulting economic downturn, notice may be required if employees’ hours are reduced by more than 50% during each month of any 6-month period.  Additionally, notice may be required if smaller layoffs that do not trigger the notice requirement occur during a rolling 90-day period, if, when taken together, they amount to a mass layoff of 50 employees and 33% of the workforce, or 500 or more employees.

State WARN Acts

Multiple states also have their own plant closing/mass layoff statutes similar to the federal WARN Act.  These include California, Connecticut, D.C., Georgia, Hawaii, Illinois, Iowa, Maine, New Hampshire, New Jersey, New York, Tennessee, Vermont and Wisconsin.  Many of these statutes have more stringent notice requirements than the federal WARN Act.  For example, New York requires 90 days notice if either 25 employees constituting 33% of the workforce or 250 employees are laid off in a 30-day period.  California requires notice in a mass layoff if 50 or more employees are laid off, regardless of the percentage of the workforce impacted.

Illinois’ WARN Act also has lower thresholds for notice requirements than the federal WARN Act.  In Illinois, an employer is one who employs 75 employees (rather than 100 under the federal WARN Act).  Although the requirements for notice in plant closings are the same (50 full time employees at a single site of employment), for a mass layoffs, an employment loss occurs if 25 or more full-time employees constituting 33% of the workforce, or 250 full time employees are laid off in any 30-day period.   Illinois’ statute also contains provisions for unforeseen business circumstances and natural disasters.

The WARN Act and state statutes contain specific requirements for both the content and recipients of required notices.  Employers affected by COVID-19 or government-ordered shutdowns should be aware of the notice requirements of both the federal and state WARN Acts when making decisions about their workforce.

The St. Louis employment attorneys at McMahon Berger have been representing employers across the country in labor and employment matters for over sixty years, and are available to discuss these issues and others. As always, the foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation as every situation must be evaluated on its own facts. The choice of a lawyer is an important decision and should not be based solely on advertisements.

 

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