United States: Employment Law Commentary: MacIsaac v. Waste Management Collection & Recycling: The First Decision Applying The California WARN Act

In our March 2001, November 2002, and September 2005 Employment Law Commentary, we reported in depth about employment laws relating to workplace reductions, including the Worker Adjustment and Retraining Notification Act.¹ Last month, the California Court of Appeal provided much-needed guidance and good news to employers by publishing the first judicial interpretation of the California Worker Adjustment and Retraining Notification Act ("Cal-WARN," Cal. Lab. Code §1400 et seq.). In Stanley MacIsaac v. Waste Management Collection and Recycling, Inc., A108559 (Cal. Ct. of Appeal, 1st Dist., Dec. 12, 2005), the court held that when employees are transferred from one employer to another to perform the same work at the same rate of pay and with the same benefits, the 60-day statutory notice requirement of Cal-WARN is not triggered because there is no "mass layoff."

The Federal WARN Act ("Fed-WARN") was enacted in 1988 to provide protection to employees, their families and communities, by requiring employers to provide notice sixty days in advance of covered plant closings and mass layoffs. Fifteen years later, the California Legislature created an additional obligation for California employers to consider when conducting layoffs and plant closings in the form of Cal-WARN. Although similar to the companion federal law in many respects, Cal-WARN extended its coverage to apply to businesses with as few as 75 employees and to layoffs of 50 or more employees regardless of the size of the business. In contrast, Fed-WARN applies to businesses employing 100 or more full-time employees and to layoffs of 50 or more full-time employees if the layoff affects 33% of the workforce at a single site or 500 or more people at a single site, during a 30-day period. While the federal statute was accompanied by extensive regulations and guidance from the U.S. Department of Labor, the California Legislature passed Cal-WARN with little legislative history, leaving practitioners and employers with little practical guidance. No regulations have been issued to date by either the Labor Commissioner or the Employment Development Department.

Cal-WARN took effect on January 1, 2003, and prohibits an employer from ordering a "mass layoff" unless the employer provides 60 days’ notice to the affected employees and various government entities. An employer who fails to give the required 60-day notice is liable to each employee for back pay and the value of the costs of any benefits the employee lost. (Cal. Lab. Code §1402.) An employer may also be subject to a civil penalty of $500 for each day of the employer’s violation and attorneys’ fees for any plaintiff successfully bringing a claim for violation of Cal-WARN. (Cal. Lab. Code §§1403 and 1404.)

In MacIsaac v. Waste Management, the plaintiff was a former employee of Empire Waste Management, Inc. ("Empire Waste"). Prior to February 1, 2003, Empire Waste had a contract to provide refuse collection, disposal, and recycling services to the City of Santa Rosa (the "City") through December 31, 2006. In 2002, the City awarded the post-2006 contract to the North Bay Disposal Corporation ("North Bay").

After being awarded the post-2006 contract, North Bay offered to purchase the remaining years of Empire Waste’s contract with the City. Empire Waste agreed to sell its remaining contract and, as part of the purchase agreement, North Bay agreed to buy equipment, including garbage trucks, and hire one mechanic and 41 garbage truck drivers to drive the same routes, use the same equipment, work the same hours at the same pay and date of hire for seniority benefits, and receive benefits equivalent to those received from Empire Waste (the "Transferred Employees"). On January 31, 2003, Empire Waste removed 42 employees from its payroll, and North Bay added the 41 Transferred Employees to its payroll. The Transferred Employees suffered no loss of pay or benefits, and none of them lost their jobs at North Bay within 30. In February 2003, Empire Waste laid off 20 employees as a corporate-wide reduction in force.

Plaintiff, Stanley MacIsaac, was employed by Empire Waste and received an offer of employment from North Bay as one of the Transferred Employees, which he rejected. He filed suit alleging that Empire Waste had violated Section 1401(a) of Cal-WARN when it failed to give employees 60 days’ notice before it transferred 42 employees and later laid off 20 employees.

The trial court granted Empire Waste’s motion for summary judgment. On appeal, the Court of Appeal affirmed the trial court’s decision and found that Empire Waste had no notice obligation under CAL-WARN because the Transferred Employees "were not separated from their position for lack of funds or lack of work within the meaning of Cal-WARN," and therefore were not laid off. The Court agreed that because the Empire Waste employees had continued to work in the same positions with the same duties and benefits after the sale of the contract to North Bay, they had not been "separated from their positions" so as to trigger the notification obligations. The Court’s determining factor was that Cal-WARN’s notification requirements apply when an employee has been separated from "a position," not necessarily when an employee is separated from an "employer."

Although not required to do so, the Court of Appeal also examined the federal statute in comparison with Cal-WARN. The intent of the two acts is similar, with Cal-WARN intending to supplement the federal statute by providing communities a chance to prepare for the impact of large layoffs that would not trigger notification under Fed-WARN. However, there are also significant differences in the language of the two acts which the Court illuminated for employers when considering a reduction in force.

The federal WARN statute defines a "mass layoff" as an "employment loss at [a] single site of employment." (29 U.S.C. § 2101(a)(3)(B).) In comparison, Cal-WARN requires that employees "be separate[d] from a position" before a "mass layoff" will be deemed to have occurred. (Cal. Labor Code §1400(c), (d), §1401(a).)

In MacIsaac, the plaintiff tried to argue that since the California Legislature did not use the explicit language of the federal statute, the Legislature did not intend to require an actual loss of employment to trigger notification. However, the Court dismissed the differences in the language of the two statutes and determined that the California Legislature did not need to specifically state that notice was required only in instances of employment loss because the requirement of an employment loss (separation from a position) was built into the definition of "layoff" and "mass layoff."

Another critical difference between the federal and California WARN acts is that the federal statute contains an explicit "sales exception" that exempts a "sale of part or all of an employer’s business" from the definition of an "employment loss." While Cal-WARN does not have an explicit sales exception, the Court found this "omission" irrelevant for this case because none of the Transferred Employees were ever separated from their positions.

Employers can certainly regard MacIsaac as a helpful decision construing California’s WARN Act, but they should also not overestimate the breadth of its application. The Court found that Cal-WARN does not apply to a seamless transfer of employees to the same positions with a new employer. However, the Court was quick to point out that its holding was limited to the situation before it, and that a different result might be required if employees are rehired at significantly lower wages, different benefits, or inferior conditions that would rebut the inference of continuity of employment. Still, this is a helpful decision for employers, removing at least some of the ambiguity in the California statute.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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