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Virus-Driven Mass Worker Layoffs Could Soon Require Notice (1)

March 18, 2020, 6:40 PMUpdated: March 18, 2020, 11:11 PM

The 60-day window of time that federal law requires of many employers to provide notice of “mass layoffs” is testing new bounds as industries such as restaurants, retailers, and airlines prepare to shed workers as part of shutdowns caused by the novel coronavirus.

Apple Inc. and Nike Inc. are among a growing number of retailers that have closed stores, while some grocery chains have reduced operating hours and restaurants have shuttered or turned to “to-go” models. Airlines also have dramatically reduced traveling capacity, with Delta Air Lines Inc. and several European carriers announcing layoffs.

Federal officials have predicted that unemployment could reach as high as 20% percent because of the outbreak, without significant government stimulus.

Many employers facing economic strain amid the global Covid-19 pandemic must comply with federal and state laws that require at least 60 days’ notice to workers before a plant closure or “mass layoff” that will last more than six months. If an employer can prove the layoffs were due to an “unforeseen business circumstance” or natural disaster, then they could argue they are exempt from sending notices ahead of time.

Violations of the federal Worker Adjustment and Retraining Notification Act, or the WARN Act, could result in stiff fines, including back pay, benefits, and a civil penalty of $500 per day. Social distancing measures taken to tamp down the spread of the novel coronavirus have forced business owners to consider whether they can afford to keep paying staff while they are either empty or closed.

This could reasonably be an unforeseen event and reasonable argument against complying with the notice. The natural disaster exception would be difficult for companies to argue, because it requires direct impact to a business, such as a flood or fire, not something indirect. But both exceptions are limited and it’s unclear whether companies can raise them based on the coronavirus, some attorneys say.

California already lifted its own state law governing the layoff notice, given the national emergency. Its terms were among the strictest in the country of the handful of states that have their own WARN Acts.

Moving forward, a business’ argument that the pandemic was “unforeseen” gets weaker and that window will close, said Jack Raisner, law professor at the Tobin College of Business at St. John’s University. He said it’s especially tricky for some industries, such as U.S. airlines, given that the virus’ spread led to travel bans around the world.

As companies lay off workers, he said employees could ask why they weren’t given more notice when the dangers of the virus were apparent to the world.

“That 60-day marker is starting to disappear,” Raisner said. “Every day we go forward, that defense gets harder to make.”

‘Untested Waters’

The WARN Act applies to companies with 100 or more employees. It defines a “mass layoff” as the termination of more than 50 workers in a 30-day period at a single site, affecting more than 33% of an employer’s workers, or the discharge of at least 500 employees. A plant closure is the shutdown of a site that includes the loss of 50 or more workers.

Management attorneys say, by and large, that businesses forced to temporarily lay off their staff have a good argument that they couldn’t have seen the pandemic coming 60 days ago.

That unforeseen circumstances defense is limited, however. It requires an employer to provide “as much notice as is practicable,” or to give specific notice once it’s in a position to evaluate the impact of the pandemic. This includes a statement explaining the failure to provide more extensive notice, which could be tied to the unforeseeable nature of the outbreak and its aftermath.

If an employer can’t conduct business because of the virus’ spread, it can lay off people now on a short-term basis, versus complying with the 60-day required notice, said Eric Keller, a Paul Hastings partner in Washington. He said there is enough from a pragmatic standpoint to defend that action, but applying the law to the current crisis requires navigating “untested waters.”

“Usually you have a degree of control in the reduction of your workforce,” Keller said. “There are bans on bars and restaurants and school systems are closing. Two weeks ago we weren’t anywhere near a position we are in today.”

Raisner said the notice requirement doesn’t mandate an employer to shut down after 60 days. The notice period could be extended. The purpose of the law is to notify workers as soon as possible about the economic reality the company is facing, he said.

“The notice allows employees to plan for their own safety just like the employer is,” he said. “They are not bound to fire everybody. Not many will jump ship once they get the WARN notice. They can do whatever they need to do. That’s the purpose of the law. A layoff shouldn’t be last minute to leave employees hanging.”

The current situation gives rise to unusual circumstances, where there is public understanding of an “inevitability that there will be shutdowns,” Raisner said. Usually in court there is a balancing act of how much notice could be reasonably expected from an employer.

WARN notification is required only if the mass layoff or closing is anticipated to last more than six months. It’s unclear how long this pandemic will last, but health officials are suggesting that it could extend until mid-September.

Anthony Byergo, an attorney with Ogletree, Deakins, Nash, Smoak & Stewart in Seattle, said it borders on “ludicrous” to suggest that the unforeseen business circumstance or national disaster exceptions wouldn’t apply in the case of coronavirus layoffs.

“The states are ordering many businesses to shut down completely or significantly limit service, eliminating all large gatherings, and ordering everyone who can to work from home and limit all social contact,” Byergo said. “Does anyone actually think the courts are going to turn around and say that an employer should have predicted this and had to give 60-day notice?”

Natural Disaster Defense

But Kerry Notestine, a Littler Mendelson shareholder in Houston, said it’s less clear if the natural disaster defense would work for employers. He said the intent of that exception is if a business is directly destroyed by an event such as a flood or hurricane. WARN Act regulations say that the disaster must be a direct cause of the layoff, and it’s possible that a pandemic would be considered indirect, he said.

For example, in Houston where a massive hurricane floods a restaurant, that would be a direct cause. But if people stopped going to restaurants because they were flooded in, that would be indirect.

“An employer would have to show there was direct cause,” Notestine said. “They need to assert the pandemic as a reason for the furlough or shorter layoff in order to use the defense.”

Even if the government bans restaurants from opening, that closure wasn’t caused by the coronavirus itself, St. John’s Raisner explained. He said the virus indirectly caused a domino to fall and lead to the closure.

“The coronavirus itself isn’t like a tsunami wave or an earthquake or a fire that comes in and destroys a business,” Raisner said.

Laws Vary in States

Several states have “mini-WARN Act” laws, including Alabama, California, Connecticut, Georgia, Hawaii, Illinois, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New York, Ohio, Oregon, Pennsylvania, Tennessee, Washington, and Wisconsin. They can impose stricter penalties than the federal law and could also trigger worker lawsuits against employers.

California, for example, doesn’t have an “unforeseen business circumstances” defense, which employment attorneys say is the strongest exception businesses have during the current outbreak. Governor Gavin Newsom (D) suspended the state’s 60-day notice requirement on employers with at least 75 workers, after local businesses reportedly urged the government for some relief.

Employers in the state must provide notice as early as they reasonably can if the layoffs are caused by Covid-19. The suspension of the usual WARN requirements will continue as long as the state is under a declared emergency.

The intention of the laws is meant to protect workers, and prevent large layoffs if a company knew that it could give proper notice to workers.

New Jersey lawmakers recently updated the state’s mass layoff law, increasing the notice period to 90 days from 60. The changes take effect in July.Democratic state lawmakers had advocated the bill after Toys R Us closed its corporate headquarters and a distribution center in New Jersey in 2018, which the lawmakers said eliminated about 2,000 jobs.

—with assistance from Chris Marr and Hassan Kanu

(Updated with additional reporting throughout.)

To contact the reporter on this story: Erin Mulvaney in Washington at emulvaney@bloomberglaw.com

To contact the editors responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com

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