Why Employers Need to Heed Federal and State Layoff Laws

Layoffs in technology and other industries appear on the rise. Facebook parent Meta announced more than 11,000 layoffs and Twitter indicated it has cut nearly half its workforce.

This follows reductions in force in recent months by companies such as Lyft, Netflix, Shopify, and Coinbase. As layoffs will likely continue, employers should become familiar with the federal WARN Act and related state laws that sometimes apply to certain facility closings, layoffs, and relocations.

Failure to comply with the state and federal laws can result in steep penalties for employers, including compensation for lost wages and benefits.

WARN Scope

The Worker Adjustment and Retraining Notification Act is a federal law designed to give affected employees advance, written notice of relatively large-scale facility closings and mass layoffs where multiple employees are involuntarily terminated. Many states have what are generally known as mini-WARN laws that sometimes track the federal law closely.

The federal WARN Act generally covers employers of 100 or more employees, entity-wide. Covered employers that decide to conduct a “plant closing” or “mass layoff,” as defined in the law and detailed regulations, generally must provide “affected employees” who involuntarily lose employment with 60 calendar days advance and detailed written notice of the action, as well as comparable written notice to the appropriate state and local employee governmental units that assist displaced employees.

Trigger Events

A “plant closing” WARN trigger event may include less than a full facility closing and cover the cessation of operation of an entire single site of employment (typically one geographic location), or one or more facilities or operating units within a single site of employment (such as a department, production line, or line of business) that results in involuntary employment loss.

A loss could be employment termination or layoff exceeding six months, or a 50% or more reduction in hours in the prior six months, for 50 or more employees at a single site of employment.

Certain short-term and part-time employees as defined are excluded from the headcount for purposes of determining trigger event coverage.

A “mass layoff” WARN trigger event is a reduction in force—not a plant closing—that results in an involuntary employment loss for 500 or more employees, or 50 or more employees who constitute at least one-third of the workforce, at the single site of employment.

Time Frame

A 30- or 90-day window of time is used for the trigger event headcount. The normal window is 30 days, but a 90-day window applies to multiple events, each of which involves a group termination action, that is less than the number required for the plant closing or mass layoff trigger event. The windows for headcount are applied both front and back in time from the date of the first employee termination in what might be a covered trigger event.

Employers are often concerned that 60-day notice may cause a rash of quitting, injury or disability claims, and/or loss of business in situations when the employer is trying to avoid the trigger event headcount thresholds. Sometimes employers face last-minute business decisions.

Exceptions

Strategies are available potentially to make the law inapplicable to the employment action being taken. These include immediate hiring freezes and reliance on normal attrition to avoid the trigger event, reductions in force in installments that avoid the trigger event coverage thresholds, offers of transfer to other employment sites, and/or ceasing affected employees work, and continuing all pay and benefits to the employees to cover the 60-day notice period.

The federal WARN Act has several exceptions to its regular application for what might be called special circumstances. Special exemptions from all or part of the 60-day advance notice requirement exist for:

• Temporary project employees who were informed at the time of hire that the employment was for the duration of the project
• Certain strike and lock out situations related to collective bargaining
• “Faltering company” situations when the employer has been actively seeking business or capital to avoid a “plant closing” “
• Unforeseeable business circumstances” with the employer required to apply commercially reasonable business judgment
• “Natural disasters” when the disaster has as its direct result the plant closing or mass layoff

Unfortunately for employers dealing with the real world of employment and business decisions, decision-making often does not fit neatly into the exception boxes. Likewise, ESG considerations that are becoming more prevalent in business decision-making are not expressly recognized in the federal WARN law or its regulations.

Such considerations may be relevant as fact or argument in determining the reasonableness of an employer’s commercial judgment and/or actions when a claimed exemption is under scrutiny in court or in the court of public opinion. And for some if not all these exceptions, at least in court litigation, the employer asserting the exception bears the burden of proof that the exception is applicable.

Some of these exceptions came into play during the Covid-19 pandemic, as employers faced government actions and repeatedly considered health department advice, often essentially forced to shut down operations with little advance notice. They now may again be coming into play as social media employers such as Meta/Facebook and Twitter face advertiser spending pull backs, and other employers, such as technology companies and automobile manufacturers, manage computer chip shortages, economic changes, and shipping delays.

Penalties

Liability and/or penalties for failure to give a required written notice to affected employees under the federal WARN Act include compensation for lost wages and benefits for up to 60 days of the notice period, and daily penalties of $500 per day for each failure to give notice to the appropriate governmental units.

In addition, the employer can be liable for attorneys’ fees and costs of the side proving a violation of the act. Under the various state mini-WARN laws, there may be additional types of civil liability and penalties, such as liability for medical expenses that were incurred during a lapse in insurance coverage caused by the violation of state law.

State mini-WARN law language, exceptions, trigger events, and notice requirements often differ from the federal law. Employers operating in states with state mini-WARN laws may want to become aware of those laws and assure compliance with both federal and state requirements.

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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David Phippen brings more than 30 years of experience to his role as senior counsel in Constangy’s Metro DC office. He represents clients in labor and employment matters, with emphasis on traditional labor relations, wage and hour law, administrative proceedings, restrictive covenants, and alternative dispute resolution.