What is the WARN Act and Why Does it Matter?

Introduction

The WARN Act, formally known as the Worker Adjustment and Retraining Notification Act (the “Act”) was passed by the United States Congress in 1988 to protect workers and communities from unexpected mass layoffs.  The Act requires large employers to provide a certain amount of advanced notice to employees and local governments prior to a mass layoff to help prevent the harm caused by such an action.

Notice Required

The general rule under the Act is that employers must give employees and state and local governments at least 60-days advanced notice prior to a mass layoff.  There are 3 statutory exceptions to the rule:

  1. If the employer was actively seeking capital or business, which if obtained, would have enabled the employer to avoid shutdown, and the employer reasonably believed that giving the required notice would have precluded the employer from obtaining the needed relief of capital or business.
  2. If the mass layoff was caused by business circumstances that were not reasonably foreseeable at the time the notice would have been required.
  3. If there was a natural disaster, such as a flood, earthquake, or draught that made notice unfeasible.

To exercise one of the three exceptions to the general rule, the employer must give as much notice to the employees and the government as is practicable, with a brief statement about why it was not practical to give a 60-day notice.

To give notice, the employer must generally mail the 60-day advanced notice to the last known address of the employee, include the notice in the employee’s paycheck, or give other reasonable notice designed to ensure receipt by the employee.

Employer and Employee

The Act applies only to large employers with 100 or more full-time employees, or employers with 100 or more employees that in the aggregate work at least 4,000 hours per week.  The Act does not apply to employers who operate temporary facilities or engage in project work, and the Act does not apply where a closing or layoff occurs as the result of a labor strike. 

An employee does not qualify as a full-time employee unless they work more than 20 hours per week, and they have been employed with the employer for at least 6 months during the preceding 12-month period.

Mass Layoff Defined

A “Mass Layoff” exists under the Act if during any 30-day period there is a loss of employment by at least 33% of full-time employees and loss of employment by at least 50 full time employees, or if at least 500 full-time employees lose their employment.  To qualify as a “mass layoff,” the layoff cannot be the result of discharge for cause, a mass voluntary departure, or a mass retirement.  Any layoff for 6 months or less is not a “mass layoff.”  A reduction of less than 50% in the hours of the workforce during each month of a 6-month period does not qualify as a “mass layoff.”  A relocation or consolidation by the employer does not qualify as a “mass-layoff” where the employer offers to transfer the employee to the new site of employment and the new site is within a reasonable commuting distance, or the employee accepts employment at the new site regardless of distance.

Extended Layoff Period

A layoff that lasts more than 6 months is treated as loss of employment for which notice is required unless the extended layoff period is caused by business circumstances that were not reasonably foreseeable at the time of the layoff, and notice is given at the time it becomes reasonably foreseeable that the extended layoff period beyond 6 months will be required.

Enforcement

An employer that violates the provisions of the Act is liable to each aggrieved employee for back pay for each day of violation for a maximum of 60 days minus any wages or other benefits paid to or on behalf of the employee during the violation period.  Back pay is calculated as the higher of the average regular rate of pay for the prior 3 years or the final regular rate of pay at the time of layoff.  Regular rate of pay includes the cost of medical expenses incurred during the employment loss which would have been covered but for the termination of benefits.  The offending employer is also liable for a payment of $500 for each day of the violation unless the employer pays the amount owed to each employee within 3 weeks from the date of the mass layoff.  The courts have discretion to award attorney fees to the prevailing party in a suit to enforce the provisions of the Act.

Statute of Limitations

There is uncertainty as to what the statute of limitations is for bringing an action under the Act.  Various state and federal courts have held that statutes of limitations from 6-months to 6-years apply.

Good Faith Defense

An employer that violates the Act may have the amount of liability to employees reduced if they are able to prove to the satisfaction of the court that the violation was in “good faith” and that the employer had a reasonable basis for believing that they were not in violation of the Act.  This requires a showing of subjective intent on the part of the employer that they intended to comply with the Act, and a further showing of objective evidence that the employer attempted to comply with the Act.  A showing of subjective intent requires the employer to demonstrate that it attempted to ascertain and follow the dictates of the Act, and that it had a reasonable basis for believing its conduct complied with the Act.  An employer’s ignorance of the Act is not a good faith defense.

Conclusion

Employees subject to a mass layoff should immediately contact an attorney to discuss their rights.  Uncertainty about the applicable statute of limitations means that employees who experience a mass layoff may be prohibited by the courts from bringing a lawsuit where they sit on their rights for any extended time period.  Further, employers who engage in violations of the Act often craft severance packages designed to get the employee to waive their rights to bring a suit against the employer for violations of the Act.  These employers generally seek waivers from employees in exchange for payment of a minimal sum without giving the employees sufficient time to think through their options, and at the exact point in time when the employees are most vulnerable.  Importantly, the WARN Act exists to protect employees and communities from the negative effects of a mass layoff, but those rights are of little use where an employee fails to exercise them. 

If you have been subject to a mass layoff, contact Hutchings Law Group today for a consultation.

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