PEO Horizon: A Publication of PEO7.com

IN THIS ISSUE: Employers’ Liability Under WARN – The Worker Adjustment and Retraining Notification Act


This is a quarterly newsletter. To unsubscribe, please visit the last line of this email. Each issue covers one specific area of employer liabilities with suggestions to control that liability. You are not to rely on this publication as legal advice and must seek competent legal assistance.

Introduction

 

In New York 6,500 former employees of a company in the midst of bankruptcy proceedings successfully recovered millions of dollars in WARN back pay and benefits from a group of investment companies that together owned or controlled the majority of the company stock.  In Montana, former employees of lumber company and its wholly-owned subsidiary brought an action against former employers for violating the notification requirements of WARN. The court in this case also awarded attorney fees and damages to employees despite the fact that it amounted to double recovery by the employees. In Tennessee a hosiery factory that lost its main client, laid off 500 workers and was found to violate WARN. In other WARN cases the courts have also sanctioned uncooperative employers and employers who have purposely timed company layoffs to evade the WARN requirements.  They have also awarded prejudgment interest to prevailing employees, and at least one court calculated and awarded sixty calendar days of back pay to prevailing employees, rather than sixty working days of back pay and benefits.

 

The Purpose of the WARN Act

 

On August 4, 1988, congress passed the Worker Adjustment and Retraining Notification (WARN) Act, the first federal legislation requiring larger employers to provide advance notice of plant closings and long-term or permanent layoffs. The overarching aim of the WARN act is to provide protection to workers, families and communities by requiring employers to provide notification 60 calendar days in advance of plant closings and mass layoffs. Advance notice provides workers and their families some transition time to adjust to the prospective loss of employment, to seek and obtain alternative jobs and, if necessary, to enter skill training or retraining that will allow these workers to successfully compete in the job market.

 

 

An unusual feature of the WARN Act, as compared to most federal labor statutes, is its complete reliance on enforcement in the federal courts through private civil lawsuits. As a result, a large number of enforcement issues have been left to the courts for resolution.


 

What Type of Employer Does the WARN Act cover?

 

Employers with 100 or more full-time employees are barred from ordering a plant closing or mass layoff until the end of a 60-day period after the employer serves written notice of such an order to any and all union representatives of the affected employees as of the time of the notice or, if there is no such representative at that time, to each affected employee.   In addition to applying only to employers of more than 100 persons, WARN applies only to "business enterprises." A "business enterprise" includes any employer which provides services, as well as any employer which manufactures a product. Federal, state, and local government employers are excluded from WARN coverage.

Mass Layoffs and Plant Closings

 

Under the Act, a reduction in force which constitutes a mass layoff (in other words, not the result of a plant closing) which results in an employment loss at the single site of employment during any 30 day period for at least 33 percent of the employees (excluding any part-time employees); and at least 50 employees or at least 500 employees (excluding any part-time employees) constitutes a violation. A "plant closing" for the purposes of WARN involves an employment loss of at least fifty employees in any thirty-day period, excluding part-time employees. There is no 33% threshold in the WARN definition of plant closing. As a result, every layoff affecting fifty or more employees resulting from the shutdown of a facility or operating unit within the employment site can potentially meet the WARN definition of a plant closing.



Single Employer Required

 

Single employer status is key to WARN act violations since punishing a company that is somewhat connected (by common ownership) but ultimately uninvolved with its operations, finances, decision-making, etc. is not intended to bear the brunt of a WARN act violation. An employer may have one or more sites of employment under common ownership or control. An example would be a major auto maker which has dozens of automobile plants throughout the country. Each plant would be considered a site of employment, but there is only one employer, the auto maker.   The courts will look at a variety of factors to determine the true relationship between any un-integrated companies such as the auto maker, including evidence of common ownership, common management, and centralized control of labor relations and interrelation of operations.
Common ownership is the least important factor, and the remaining three factors are used as guidelines only.  And remember the anecdote from above:  the controlling stockholders of a company in bankruptcy were held accountable for the WARN violations of the company they controlled despite not meeting many of these requirements.

 



Affected Employees

 

By definition, affected employees can be located only at the workplace where the employment loss has occurred.  Once the employer is found to fall within the requirements covered by the WARN act, liability question turns to whether or not an "employment loss" occurred within the definitions of "plant closing" or "mass layoff" as spelled out above.

The Exceptions


As with almost every type of law or regulation the WARN act also contains several exceptions or exemptions to its notice requirements in recognition of economic and business changes that might be outside of the control of the employer. The exceptions are never strictly construed in favor of the employers.  They may include the sale of business, employee transfers, a faltering company, such as the hosiery company mentioned above (but who was held liable for the violation nonetheless), unforeseeable business circumstances, natural disasters, temporary facilities or projects, and strikes and lockouts.

 

WARN is one of many labor statutes that can harm a company. A PEO is best situated to advise its clients about various labor laws affecting them. To find more about labor laws and to find the right PEO for your company, please visit www.PEO7.com.

 


 

ABOUT THE AUTHOR: David Sheehan is a licensed attorney and a member of the State Bar of California.

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