United States: California's Warn Act: A Primer After NAASCO

Recently, a California Court of Appeal in Int'l Bhd. of Boilermakers v. NAASCO Holdings Inc., ruled that the California Worker Adjustment and Retraining Notification Act ("CAL-WARN") covers temporary layoffs therefore, WARN Notices must be provided even in the event of a temporary layoff where the employee will return to work in a few weeks. The Court declined to provide a requisite duration for a temporary layoff to trigger WARN obligations but ruled that a four-to-five week layoff would trigger the notice requirement.

CAL-WARN, found at Labor Code § 1400 et seq., is in many respects similar to the federal WARN Act ("WARN") after which it is patterned, but there are significant differences.

Like WARN, CAL-WARN generally requires covered employers to provide at least 60 days prior notice of a mass layoff, relocation, or termination (plant closing) of a covered establishment both to all affected employees and to appropriate governmental officials.

Under the CAL-WARN statute, a "covered establishment" is "any industrial or commercial facility" that employs, or within the past 12-months has employed, at least 75 persons, and specifically includes the parent corporation of a covered subsidiary. In determining whether the company employs 75 people, all employees employed for at least six months during the previous 12-month period are counted, including both full- and part-time employees. The federal law, by contrast, applies only to employers employing at least 100 people and specifically excludes part-time employees in the employee count. Both the federal and state laws exclude new hires who have been employed for less than six months. Where state law is silent, federal regulations provide guidance as to what constitutes a single site of employment for determining a covered establishment.

A "mass layoff" is a layoff of at least 50 employees during any 30-day period due to lack of work or lack of funds, under CAL-WARN. This is different than under WARN, where the layoff must impact 500 employees, unless a layoff of 50 or more employees constitutes at least 33% of the workforce in a 30-day period. Federal law considers all employment losses taking place over 30-days to be covered, but contrary to California law, employment losses taking place over 90-days are covered unless the employer successfully asserts the affirmative defense that the employment losses are separate and distinct actions and not an attempt to evade WARN. There is no "layoff" within the meaning of the CAL-WARN where, under an asset purchase agreement, employees are transferred to a new employer to perform the same work at the same rate of pay with the same benefits.

A "relocation" is removal of "all or substantially all" of the employer's industrial or commercial operations at a covered establishment to a different location at least 100 miles away. There does not have to be any loss of employment for a relocation to require notice; therefore, notice is required even if the employment continues at the new worksite. Under WARN, notice is only required if there is an actual loss of employment, under certain specific circumstances.

For CAL-WARN, a "termination" is the cessation or substantial cessation of industrial or commercial operations in a covered establishment. Terminations resulting from the employer's sale of the business where the buyer retains existing employees in their jobs after the sale are excluded from notice requirements.

The California statute incorporates the federal WARN Act's notice requirements for qualifying events therefore requiring that the 60-day notice be in writing; that it specify the separation date and reason for the layoff, relocation or termination; and that it be based on the best information then available to the employer. No particular form is required for the notice. To notify employees, any reasonable method of delivery designed to ensure receipt of notice at least 60-days before the plant closing is acceptable (e.g., first class mail, personal delivery with optional signed receipt). When notifying employees directly, insertion of notice into pay envelopes is a viable option.

In addition to providing notice to the affected worker, which is required under both the federal and state law, California law requires notice be provided to the Economic Development Department (Workforce Services Division), the local Workforce Investment Board, and the chief elected official of each city and county government within which the termination, relocation, or mass layoff occurs. All notices submitted to the government officials must be in writing and contain eight specific categories of information specified by the statute, including the name and address of the employment site where the plant closing or mass layoff will occur; the name and phone number of a company official to contact for further information; a statement as to whether the planned action is expected to be permanent or temporary; the expected date of the first separation; the job titles of positions to be affected and the number of affected employees in each job classification; and information regarding impacted unions.

CAL-WARN does not apply to layoffs of seasonal employees or resulting from completion of a particular project in certain industries such as broadcasting and on certain construction jobs. Also, notice is excused where the layoff, relocation, or termination is necessitated by a "physical calamity or act of war." Additionally, under both the federal and state laws, notice of a relocation or termination, but not mass layoff, is excused where the employer can prove that at the time notice was required, the employer was actively seeking capital or business that would have enabled it to avoid or postpone the relocation or termination, and the employer reasonably and in good faith believed that giving the 60 days' notice would preclude it from obtaining the needed capital or business. Federal WARN provides an exception for unforeseen business circumstances, enabling employers to avoid liability for layoffs attributable to unanticipated sudden economic downturns. However, CAL-WARN does not contain a similar exception.

Under both the federal and state laws, an employer who fails to give the requisite notice before ordering a mass layoff, relocation, or termination is liable to each affected employee for back pay at the average regular rate of compensation received by the employee during the last three years of his or her employment or the employee's final rate of pay, whichever is higher, and the value of the cost of any benefits to which the employee would have been entitled had his or her employment continued. The employer's liability for pay and benefits is limited to a maximum of 60 days or one-half the number of days the employee was employed, if less. Attorneys' fees are also available under both laws.

An employer can reduce its liability by paying wages to the employee during the period of the violation or making any other voluntary and unconditional payments that were not required to satisfy any legal obligation. An employer who fails to give the requisite notice is also subject to a "civil penalty" of not more than $500 for each day of the violation (no matter how many employees are involved). An employer can avoid imposition of the civil penalty by paying all affected employees the back pay and lost benefits due them within three weeks after ordering the mass layoff, relocation, or termination. The court may reduce the amount of the penalty if it determines that an employer conducted "a reasonable investigation in good faith." Also, in California, an employer violating CAL-WARN may be liable for penalties under PAGA.

Employers should seek counsel during layoffs to determine WARN and CAL-WARN exposure and comply with the requisite obligations. Your Lewis Brisbois attorneys are available to assist with all of your labor and employment law needs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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