INSIGHT: Don’t Fear the Math—Analyzing Layoffs, Plant Closings Under the WARN Act

March 18, 2020, 8:00 AM

For those who have viewed the Worker Adjustment and Retraining Notification (WARN) Act as no more than bean counting, this is your wake-up call.

If, as I did, you too went to law school in part because it was also your understanding there would be no math, fear not. This is manageable math as long as you do your homework in studying the statute, the regulations, and the case law and provided that you practice charting out the numbers of employees and days of advance notice required.

Today, it is commonplace that the WARN Act requires 60 days’ advance notice of major layoffs and closings. Review of the application of the WARN Act and its state counterparts informs analysis of every relocation, layoff, sub-contracting, or offshoring. But, that review often tends to be mechanistic rather than creative.

That is a shame because the presence of numbers does not exclude interpretative math. Numbers, like words, must be interpreted. G.K. Chesterton saw that in his 1908 mystery novel The Man Who Was Thursday: “It may be conceded to the mathematicians that four is twice two. But two is not twice one; two is two thousand times one.”

For example, the WARN Act defines “employer” as any business that employs 100 or more. Swell. But, that number can sometimes include employees of affiliated companies and excludes part-time employees (i.e., those employed for an average of fewer than 20 hours per week or for fewer than six of the 12 months preceding the date on which notice is required).

First Alarm: State Laws Changing Formulas

WARN Act compliance requires not only analysis of the federal law but also applicable state law. New Jersey’s new law (NJ WARN) is a perfect illustration of that extra layer. It takes effect July 19, and will require 90 days’ notice, not the mere 60 days required under federal law.

NJ WARN is triggered by a termination of 50 Garden State employees. In further contrast to federal law, that number includes part-time employees, regardless of hire date. Furthermore, NJ WARN will no longer be site-dependent; employers must aggregate all terminations across the entire state.

Second Alarm: State Laws Adding Severance

NJ WARN requires severance pay of one week for each year of employment. Further, if the full 90 days’ notice is not provided, that severance obligation is increased by four more weeks of pay. NJ WARN also steals a page from the federal Fair Labor Standards Act: no waivers of rights to severance without its department of labor or court approval.

New Jersey is not alone in requiring severance. The Maine Severance Pay Act requires employers who close or engage in a mass layoff include severance pay at the rate of one week’s pay for each year of employment. Failure to pay required severance in Maine is a civil violation and potentially a fine of up to $1,000 per violation.

Third Alarm: Payment in Lieu of Notice

The WARN Act provides that “the amount of an employer’s liability under subdivision (a) is reduced by ... any voluntary and unconditional payments made by the employer to the employee that were not required to satisfy any legal obligation.” This creates the option to pay in lieu of notice as long as that is pay and benefits: i.e., full payroll status.

Doing that to comply with state law is more adventurous. NJ WARN, for example, does not specifically provide any alternatives to its updated notice and severance obligations. NJ courts may or may not see fit to follow the federal case law that permits the pay in lieu of notice option.

Fourth Alarm: Circuit Conflicts

Currently, the federal circuits are split on when an “employment loss” occurs under the WARN Act. Illinois miners have a pending certiorari petition at the U.S. Supreme Court in Leeper v. Hamilton Cty. Coal LLC seeking resolution of that dispute.

The WARN Act’s definition of “mass layoff” (more than 33% of full-time employees at that location and lasting longer than six months) is the source of this circuit conflict. The Seventh Circuit in Leeper held that this occurs when employees prospectively lack a reasonable expectation of recall.

Meanwhile, the Eighth Circuit requires that a “permanent cessation” must be permanent in-fact, requiring a retrospective analysis.

Fifth Alarm: WARN Obligations Continue Despite Bankruptcy

There are three exceptions spelled out in the WARN Act regulations that sometimes (but not always) apply:

  • the “faltering company” exception;
  • the “unforeseeable business circumstances” exception; and
  • the “natural disaster” exception.

Too often, even in bankruptcy cases, none of those limited exceptions will fit and, thus, there will be liability under the WARN Act.

In Czyzewski v. Jevic Holding Corp. (2017), the Supreme Court held that, in bankruptcy, damages for failure to give WARN Act notices qualify as claims for “unpaid wages” (and thus receive priority over many other types of debt). This is because the affected employees would have earned wages for an additional period of time had they been given proper notice of the layoff.

Rise and shine! There is more work to be done on the WARN Act than simple counting!

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Kate De La Cruz is an attorney in the Employment practice group with McDermott Will & Emery. She specializes in employment law with experience in litigation and transactions focused on civil rights.

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