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Mass Layoffs in Pandemic Have Sparked Few Worker Notice Suits

May 18, 2020, 9:41 AM

Workers who’ve lost their jobs in the coronavirus pandemic have brought just a handful of federal class actions accusing companies of failing to provide early notice of mass layoffs.

Only four lawsuits have been filed alleging violations of the Worker Adjustment and Retraining Notification Act related to virus-driven layoffs, according to a Bloomberg Law analysis. They include cases against restaurant chain Hooters Inc., rental car giant Hertz Corp., and Silicon Valley tech firm Velodyne Lidar Inc.

The WARN Act is designed to give workers time to prepare and look for other jobs. It generally requires at least a 60-day notice in advance of significant layoffs or plant closures.

The dearth of WARN Act litigation, despite tens of millions of layoffs in the pandemic, can be explained by structural limitations and exceptions in the law’s coverage, attorneys said. The law’s six-month threshold is likely a chief reason for so few lawsuits targeting Covid-19 layoffs thus far.

“Employees and employers don’t know yet whether furloughs will be temporary or permanent,” said Hagood Tighe, co-leader of management-side firm Fisher & Phillips’ wage and hour practice group. “Many employees are still waiting for recall notices and many employers are hoping to bring people back to work. It’s early in this process.”

Temporary or Permanent?

The law applies only to companies that have enough employees and layoffs to trigger its protections—50 or more workers must be laid off at a single site, as long as that represents at least a third of that location’s workforce, or 500 workers. Businesses with smaller staffs at each location, such as some restaurants, wouldn’t have to adhere to the law, while larger employers may find ways to spread layoffs across multiple sites to avoid compliance.

Uncertainty over whether current furloughs are temporary may factor into the low number of suits. If a layoff isn’t permanent, it must exceed six months for the WARN Act to come into play. The law also provides a defense for employers based on “unforeseen business circumstances,” which businesses already have raised during the pandemic.

Most workers received little or no advanced warning for layoffs during March, according to a Bloomberg News analysis of more than 26,000 WARN Act notices available as of April 15 from a dozen states. Companies invoked the unforeseen business circumstances exception more than 1,000 times in Illinois and New York, which publish information about the cause of a layoff or closure, the analysis found.

Although many employers may want to be safe and send notices even if they hope to rehire workers within six months, some businesses could be motivated to wait, especially if they don’t want their laid-off workforce to find other jobs, lawyers said.

More than 20 states—including California, New York, and Pennsylvania—have enacted their own “mini-WARN” laws that have similar time periods. One notable exception is California’s WARN Act, which imposes the notice requirement after mass layoffs regardless of duration.

But even California workers haven’t alleged violations of the state’s layoff warning law related to coronavirus job losses, according to a Bloomberg Law docket analysis. One lawsuit was brought under both federal and California law. That highlights other limitations in the WARN Act and state analogs that have also minimized the number of lawsuits filed.

Limiting the WARN Universe

The WARN Act’s scope of coverage confines the share of layoffs that trigger its notice requirements, thus tamping down the number of lawsuits against businesses, attorneys said. For example, a company must have at least 100 full-time workers to be covered by the federal law.

“That’s really going to exclude a lot of small, individually owned businesses from anything to do with WARN,” said Joshua Ditelberg, co-leader of management-side Seyfarth Shaw’s workforce restructuring practice group.

Roughly 10 states use different thresholds—50 or 75 workers in some states—but that still leaves many businesses that aren’t covered by state or federal WARN laws, Ditelberg said.

The 50-layoff minimum per site is also a significant limitation in the WARN Act, attorneys said. In addition, new hires who are let go aren’t counted as part of a mass layoff under the WARN Act.

The law requires full-time workers to have been with the company for at least six months of the previous year to be counted, meaning turnover can reduce exposure to lawsuits, lawyers said.

Lawsuit Surge Still to Come?

The sheer enormity of job loss numbers leaves open the possibility for WARN Act litigation to pick up in the months to come.

“These are not slam-dunk lawsuits, particularly when employers have a defense as compelling at first blush as Covid-19,” said Jack Raisner of the plaintiff-side firm Raisner Roupinian. “You’re probably going to need to show some underlying fragility of the company that should have made them aware. So there’s not mass WARN liability.”

Strong, healthy businesses that follow the advice of their lawyers and bounce back when they reopen are going to withstand WARN liability, said Raisner, who’s also an employment law professor at St. John’s University. Companies that were already compromised and didn’t heed the law will be susceptible to lawsuits, he said.

Another factor that complicates the outlook for future WARN Act lawsuits is how strong a defense the unforeseeable business exception will be for employers as time goes on, lawyers said.

Rather than being a one-time event, the pandemic and the subsequent government reaction has created prolonged uncertainty for many companies, said David Kresser of Fisher & Phillips, who counsels companies on the WARN Act.

But whether that exception can excuse an employer from giving the full notice will be a case-by-case determination, said Michael Scimone, an attorney with plaintiff-side firm Outten & Golden.

“The extent that a company could foresee layoffs down the road due to the impact of the virus could complicate, if not eliminate, the unforeseen business circumstances exception,” Scimone said. “It depends on the nature of each business.”

Velodyne, Hooters Lawsuits

Scimone represents the plaintiff in one of the few WARN Act lawsuits linked to the pandemic. He declined to discuss his client’s case against Velodyne Lidar.

Velodyne laid off production engineer Benjamin Siers and about 140 of his colleagues in March with just one day’s notice, according to Siers’ class action. The company claimed Covid-19 prompted the move, but it had already started transferring production jobs overseas and planned to continue doing so prior to the outbreak, the lawsuit said.

A Velodyne spokesman declined to comment.

Former employees of Portfolio Recovery Associates made similar allegations in their WARN Act lawsuit, claiming the debt collection company used the pandemic as a pretext to layoff without notice its entire staff at its under-performing Las Vegas regional office.

Mark Hutchings, who represents the workers, said evidence that the company had planned to close the office for months shows that it wasn’t just reacting to unforeseen business circumstances.

A Portfolio Recovery Associates spokeswoman declined to comment on the ongoing litigation.

Hooters Inc. and Hertz Corp. were hit with more straight-forward WARN Act class actions alleging they should have anticipated that the pandemic would spur layoffs.

The companies and the attorneys representing the plaintiffs in both cases didn’t respond to requests for comment.

To contact the reporter on this story: Robert Iafolla in Washington at riafolla@bloomberglaw.com

To contact the editors responsible for this story: Jay-Anne B. Casuga at jcasuga@bloomberglaw.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com

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