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Federal and State WARN Acts Should Guide Approach to Layoffs

Jan. 11, 2023, 9:00 AM

After a significant number of Twitter employees were abruptly laid off, the social media giant’s compliance with the Worker Adjustment and Retraining Notification Act and its state equivalent was called into question as former employees filed a class action lawsuit against the company.

Job cuts announced by Salesforce and Amazon this month further demonstrate the legal ramifications of layoffs.

Noncompliance with federal and state WARN Acts comes with potentially significant costs to employers: government-imposed civil penalties, and civil actions brought by affected employees for back pay and benefits for the period of violation.

How Employers Can Prepare

There are a few things employers can do to minimize such costs. First, they should be aware of the timing of layoffs. In determining whether the number of employees laid off passes the threshold to trigger federal WARN Act requirements—i.e., a minimum of 50 employees constituting at least one-third of the workforce or with an entire worksite closed down, or 500 employees regardless of the size of workforce—the WARN Act aggregates all layoffs within a 30-day period, and in some cases, a 90-day period.

Accordingly, when evaluating whether WARN notices will be required, employers must look beyond a single batch of layoffs.

Employers should also understand state law requirements and how those differ from federal law. For example, the California WARN Act applies in various situations not covered by federal law, such as laying off between 50 and 499 employees but less than one-third of the full-time workforce at a single site of employment. The New York WARN Act requires 90 calendar days’ advance notice, while the federal counterpart requires only 60.

Finally, apart from providing the requisite notice to laid-off employees, employers should serve written notice on the statutorily designated state and local officials. Under federal law, this includes the entity that will carry out rapid response services in the state, which helps the employer avoid future layoffs and provides a range of services to support laid-off employees.

Federal law also requires the employer to serve notice on the chief elected official of the local government, such as the city’s mayor. Here too, employers should know the difference between state and local requirements. If there are any ongoing WARN Act lawsuits, the employer may also be required to inform affected employees of such proceedings when proffering a severance package.

What Employees Should Know

On the other hand, there are costs to affected employees if they are not aware of their rights in the face of potential WARN Act violations. While severance payment is not legally mandated, companies often offer laid-off employees severance packages that require release of a wide range of claims, including those under the federal and state WARN Acts.

Courts have held that severance payments are deemed valid consideration for such release, even if the amount is what the employee would have been entitled to in the first place. In other words, if the severance offer is an amount that should have been paid to the employee regardless of the existence of a separation agreement, once the employee signs voluntarily, their right to bring claims covered by the agreement will be waived. If there has indeed been a WARN Act violation, accepting the severance package could very well mean giving up legal recourse.

What an employee signed upon hiring may also affect their options in the event of WARN Act violations. Companies often include an arbitration clause or agreement in the offer letter or new-hire paperwork. Depending on the language of such agreements, WARN Act lawsuits, or class actions in general (the form WARN Act lawsuits usually take), may be prohibited.

For instance, a Texas federal judge granted Tesla’s motion to compel laid-off workers to arbitrate claims in October 2022. Twitter is also making a similar argument in court in its recent legal saga amid mass layoffs.

Given its genesis and flexibility, arbitration has often been described as employer-friendly. The private nature of arbitration further takes away the possibility of publicizing employees’ claims, and in turn, their leverage in settlement negotiations if ever pursued. For these reasons, employees should consider seeking legal advice as they review their separation agreements or evaluate course of action after an unexpected layoff.

In this economic downturn, job cuts continue to rise across industries. Lawsuits brought by aggrieved employees spotlight potential legal consequences for employers that did not implement layoffs in compliance with the law. This obscures the price that impacted employees often pay as they navigate this legal landscape without proper guidance or counsel. Unwarned-of layoffs are undoubtedly concerning—so are the costs to both sides.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Author Information

Ting Cheung is a litigation fellow at Sanford Heisler Sharp. Her practice is focused on employment discrimination, retaliation and wrongful termination.

Elena Schiefele is a litigation fellow at Sanford Heisler Sharp. Her practice is focused on employment discrimination, retaliation, and wrongful termination.