Uncle Sam Wants to WARN Employers About a Layoff Law

If your business finds that it must lay off a large number of employees, make sure you are in compliance with a federal law that requires some employers to provide advance notification. This little-known law is called the Federal Worker Adjustment Retraining and Notification Act (WARN).

Under the law, employers who are covered must give 60 days notice of a plant closing or mass layoff. This notice must be given both to employees and to state and local governments. Failing to do so can result in civil penalties and employees can sue for as much as 60 days' pay and benefits, plus attorneys' fees. Employers should take note that this type of lawsuit is becoming more common. Even employers who seek to follow the letter of the law in providing notices, pay, and benefits may find themselves in court.

Take a look at what happened after a South Carolina golf ball manufacturer closed its plant.

Facts of the Case

Employees of Dunlop Sports Group Americas Inc. showed up for work on the last day of October to discover the plant had already ceased operations. They were told that they should no longer report for work, but they would receive full pay and benefits for the next 60 days. In accordance with the WARN Act, they were given written notices listing these details, and explaining that the plant had closed because it had been sold. Included in the written notice was the stipulation that payment and benefits would cease for employees who went to work for the successor company during the 60 day period.

Dunlop fulfilled its obligations to all of its 350 employees except for 22 individuals who were hired by the successor during the 60 days. When they began working for the successor, Dunlop ceased paying them. Those 22 employees filed suit in federal court, claiming that Dunlop should have continued paying them through the end of the 60 day period. They also claimed that they suffered the job loss beginning on the date of the notice of the plant shutdown, which was Oct. 31. Therefore, the employees argued that Dunlop should have provided notice of the plant shutdown 60 days prior to Oct. 31.

The United States Fourth Circuit Court of Appeals disagreed. The judge explained that, contrary to claim of the plaintiffs, the date of employment loss wasn't necessarily the same as the date of the plant shutdown. "The WARN Act's required notice must precede the date when employment loss resulting from the shutdown occurs, not the date when the shutdown itself occurs."

The continuation of pay and benefits for 60 days after the notice of shutdown indicated an employment relationship, not an employment loss, even though the employees weren't required to report to work. The court went on to state that "In the WARN Act Congress sought to protect employees' expectations of wages and benefits, not their expectation of performing work." [Long v. Dunlop Sports Group Ams., Inc., No. 06-2143 (4th Circuit, Oct. 29, 2007)]

What the Act Requires

The WARN Act is aimed at giving employees time to find new jobs or get retraining. Consult with your human resources adviser or employment attorney if you think you are affected. Here are some basic details.

• In general, employers are covered by WARN if they have 100 or more employees, not counting employees who have worked less than six months in the last 12 months and not counting employees who work an average of less than 20 hours a week.
• Private, for-profit employers and private, not-for-profit employers are covered, as are public and quasi-public entities which operate in a commercial context and are separately organized from the regular government. (Regular federal, state, and local government entities that provide public services aren't covered.)
• What triggers a notice? In the case of a plant closing, a covered employer must give notice if an employment site (or one or more facilities or operating units within it) will be shut down, and the shutdown will result in an employment loss for 50 or more employees during any 30-day period. (This doesn't include employees who have worked less than six months in the last 12 months or employees who work an average of less than 20 hours a week for that employer.) These latter groups, however, are entitled to notice.
• In the case of a mass layoff, a covered employer must give notice if a large number of employees are being let go in an event that doesn't result from a plant closing, but which results in an employment loss at the site during any 30-day period for 500 or more employees, or for 50 to 499 employees if they make up at least 33 percent of the employer's active workforce. (Again, this doesn't count employees who have worked less than six months in the last 12 months or work an average of less than 20 hours a week for that employer.) However, these employees are entitled to notice.
• Employees entitled to notice under WARN include hourly and salaried workers, as well as managerial and supervisory employees. Business partners aren't included.
• You can't stagger layoffs to avoid the law. Courts try to determine an employer's thinking when the layoffs occurred.
• The WARN notice must include the date of the layoffs, whether they are temporary or permanent, and a company contact. It's also a good idea to include information on eligibility for severance pay and to explain the reasons for the layoffs including how the company tried to avoid them.
• There are other rules involved in certain situations, such as the sale of a business. This article doesn't cover all facets of the law. For more information, click here to read a WARN fact sheet from the U.S. Department of Labor.

[NOTE: Information and guidance in this article is intended to provide interesting and helpful information on the subjects covered. It isn't intended to provide a legal service for readers' individual needs. For legal guidance in your specific situations, always consult with an attorney who is familiar with employment law and labor issues.]