Strasburger.com Labor & Employment Newsletter
PREPARED BY

Paul L. Myers
Paul L. Myers

2801 Network Boulevard
Suite 600
Frisco, Texas 75034
469.287.3903 Direct

paul.myers@
strasburger.com

Does The Economic Crisis Have You Thinking About Downsizing?


The economic crisis has many businesses thinking about downsizing their workforces. If that includes your business, we have a word of WARNing for you - as in the Worker Adjustment and Retraining Notification Act (WARN Act). 29 U.S.C. 2101, et seq. (2008). The WARN Act requires some employers to give 60 days' advance notice of certain layoffs. Knowing whether your layoff is covered and understanding the exceptions that may shorten or eliminate the notice required is key to avoiding liability under the WARN Act.

WHEN NOTICE MUST BE GIVEN

The WARN Act requires employers with 100 or more employees (on a business-enterprise wide basis) to provide 60 days' advance notice of plant closings or mass layoffs. A "plant closing" is not limited to industrial businesses and is defined as the shutdown of a single site of employment resulting in employment loss of 50 or more employees within a 30-day period. "Mass layoff" is defined as the employment loss at a single site of employment during a 30-day period for either: (i) 50 employees who constitute at least 33% of the workforce, or (ii) at least 500 employees.

According to a 2003 study by the United States Government Accountability Office (GAO), the issue of whether a layoff met these thresholds was the most frequently litigated issue in WARN Act cases. When determining whether a business has 100 or more employees, separate entities may be considered a single employer if there is common ownership and control.

A "single site of employment" can be a single location or a group of contiguous locations. Separate buildings in reasonable geographic proximity that are used for the same purpose and share the same staff and equipment are a single site. Both mass layoffs and plant closings are tied to "loss of employment," which is defined as i) termination, ii) a layoff exceeding six months, or iii) a 50% reduction in hours during a six-month period.

According to the GAO study, only 24% of the more than 8,000 closings and layoffs reviewed required a WARN Act notice:

WARN Act Notices

THREE EXCEPTIONS TO THE REQUIRED NOTICE

There are three exceptions that may shorten or entirely eliminate the notice required by the WARN Act. First, if the closing or mass layoff is caused by business circumstances that were not reasonably foreseeable at the time the notice would have been required, the employer may implement a plant closing or mass layoff on less than 60 days' notice. However, notice is not eliminated entirely and the employer must still provide as much notice as is practicable under the circumstances. The Department of Labor regulations cite "an unanticipated and dramatic major economic downturn" as a business circumstance that is not reasonably foreseeable. 20 C.F.R. 639.9 (2008).

The second exception allows an employer to shutdown a single site of employment without providing a 60-day notice, if at the time the notice would have been required, 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 in good faith reasonably believed that giving the required notice would have precluded the employer from obtaining the needed capital or business. Again, notice is not eliminated entirely and the employer must still provide as much notice as is practicable under the circumstances.

The third exception applies when the plant closing or mass layoff is a direct result of a natural disaster, such as a flood, earthquake, or drought. In that case, the advance notice requirement is eliminated entirely.

According to the GAO study, only 68% of the WARN Act notices provided were sent at least 60 days before the closing or layoff:

WARN Act Notices

PENALTIES FOR VIOLATIONS

An employer that violates the notice requirements of the WARN Act is liable for back pay and benefits (including health insurance) for each day of violation up to 60 days. The liability is reduced by: i) wages paid during the period of violation, ii) voluntary and unconditional payments not otherwise required by any legal obligation, or iii) any payments made on behalf of the employee for health insurance premiums or other employee benefits during the period of violation. A court may also award attorney fees. Punitive damages are not available under the WARN Act.

An employer that fails to provide notice to a unit of local government as required is also subject to a civil penalty (owed to the unit of local government) of $500 for each day of violation. However, that penalty can be avoided entirely if the employer satisfies its liability to the affected employees within three weeks after the closing or layoff.

There is a good faith defense to liability. The court can reduce the penalty owed if the employer shows that its failure to comply with WARN Act requirements was in good faith and the employer had reasonable grounds to believe its actions did not violate the WARN Act.

THE SALE OF A BUSINESS

A plant closing or mass layoff associated with the sale of a business (including some asset sales) can also trigger WARN Act liability. The DOL regulations apply a bright-line test based on the date and time of closing. If the plant closing or mass layoff occurs before the closing of the sale, the notice responsibility falls on the seller. If the plant closing or mass layoff occurs after the sale, the responsibility falls on the buyer.

CAUTION TO CREDITORS

In some limited circumstances, creditors have been found liable for the WARN Act violations of their borrower. Generally, those cases are limited to circumstances in which the creditor takes over and operates the borrower's assets as a business enterprise in the normal commercial sense.

CONCLUSION

The current economic crisis appears to fit within one of the exceptions to the 60-day WARN Act notice requirements. If your business is contemplating a downsizing that would ordinarily require WARN Act notice and was genuinely impacted by recent economic events, your business probably only needs to give as much notice as is practicable under the circumstances. However, your duty to provide notice is not eliminated entirely. Consulting legal counsel as soon as possible about your notice responsibilities will help reduce or eliminate WARN Act liability.



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