Companies Test Layoff Notice Requirements in WARN Act
On May 4, 2023, former employees filed a class action lawsuit against weight management company Jenny Craig for alleged violations of federal and state WARN Acts. The federal Worker Adjustment and Retraining Notification Act requires certain employers to give at least 60 days’ written notice of mass layoffs or plant closures. Employees are entitled to pay during the notice period.
Jenny Craig sent WARN Act notices to some employees on April 25 but told them it might not be able to pay them for the full 60 days. The company then announced on May 2 it would shut down completely on May 5. Employees were told they’d receive pay through their last day of work plus all paid time off that had been accrued and unused.
Jenny Craig is just the latest company caught up in WARN Act lawsuits. The little-known 1988 law began making headlines amid layoffs related to the pandemic and downsizing by tech companies. Employers can reduce litigation risks by developing best practices for complying with the WARN Act and similar state laws.
When Is the WARN Act Triggered?
The WARN Act is designed to provide employees, their families, and their communities with a buffer against the economic effects of mass layoffs. Organizations with 100 or more full-time employees, excluding federal, state, local, or tribal governments, are covered by the Act. Full-time employees are those who work more than 20 hours a week and have been on the job for six months or more.
The Act protects managerial, supervisory, salaried and hourly workers, part-time workers, and workers on temporary leave with a reasonable expectation of being recalled. It does not protect striking workers, workers locked out due to a labor dispute, or temporary workers.
The WARN Act is triggered when an employer:
permanently lays off 50 or more workers at a single site if those workers constitute at least 33% of the workers at that site;
lays off 500 or more workers at a single site within a 30-day period;
closes a plant or operating unit temporarily or permanently affecting 50 or more workers;
reduces the hours of 50 or more workers by 50% or more for six months or more; or
announces a temporary layoff of less than six months, then extends it to more than six months
When determining whether a plant closing or layoff meets the WARN Act threshold, employers do not count part-time workers or workers who are terminated for cause, resign, or retire. Workers who are offered the option to transfer to another site are not counted in some cases.
Employers must generally provide notice if a series of small layoffs over a 90-day period total an amount that would trigger the WARN Act. To avoid this requirement, the employer must show that the layoffs resulted from separate actions and not an attempt to evade the WARN Act.
What Are the Exceptions to the WARN Act?
The WARN Act has received scant attention because its basic requirements are relatively straightforward. Most of the litigation has involved employers attempting to justify noncompliance using one of the Act’s three exceptions:
faltering company
unforeseeable business circumstances
natural disaster
Several cases arose during the COVID-19 pandemic as employers sought to apply the natural disaster exception. In Easom v. US Well Services, Inc., the U.S. District Court for the Southern District of Texas concluded that the pandemic qualified as a natural disaster but granted the plaintiff’s motion for an interlocutory appeal. The Fifth Circuit held that the statute’s language suggests Congress intended to limit the exception to “hydrological, geological and meteorological events.” The employer appealed to the Supreme Court, which declined to hear the case.
Six circuit courts have held that an event must be probable for business circumstances to be foreseeable. For example, in Varela v. AE Liquidation, Inc., the Third Circuit upheld the lower court’s ruling that the collapse of the sale of the company constituted an unforeseeable business circumstance.
What State Laws Apply?
Ten states and the U.S. Virgin Islands have versions of the WARN Act that provide more expansive protections than the federal law. Some large cities even have a “mini WARN Act.” Most of these laws have lower thresholds for the employer’s size or the number of workers laid off. For example, California’s WARN Act applies to any facility that has employed 75 or more people within the preceding year, layoffs of 50 or more workers within a 30-day period, and any facility closing.
New Jersey and New York require 90-day notice periods. Amendments to New Jersey’s WARN Act went into effect April 10, 2023, adding part-time employees to the calculation of covered employers and expanding the scope of layoffs triggering the Act. The new law also requires one week of separation pay per year of service. On June 21, 2023, New York amended its WARN Act to include remote workers “based” in a particular site when determining whether notice is required.
Employers should study the federal WARN Act and applicable state and local laws before implementing a layoff. Mergers and acquisitions could also create liability under the WARN Act. Employers should also use caution before attempting to use one of the Act’s affirmative defenses, particularly the natural disaster exception. While each case is fact-specific, employers should develop policies and procedures to minimize risk.
Keep in the Know About Law and New Developments
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