United States: Downsizing? Ensure Compliance With The WARN Act And State Equivalents

Businesses may, at some point, find it necessary to significantly reduce their workforce or even close an entire facility. Those businesses risk significant liability if they are unaware of and/or do not comply with applicable federal and state "mass layoff" or "plant closing" laws.

Federal WARN Act Basics

The federal Worker Adjustment and Retraining Notification (WARN) Act requires employers to provide 60 days' advance notice of terminations to employees (as well as their union(s), if applicable, and government officials) when a "covered action" – either a plant closing or a mass layoff – occurs. A "plant closing" happens when there is a shut-down of a single site of employment or "operating unit" that results in an employment loss for 50 or more employees (excluding part-time employees) during any 30-day period. A "mass layoff" happens if: (1) there is an employment loss of at least 33% of the workforce (so long as at least 50 employees are affected) within a 30-day period at a single site of employment, or (2) 500 or more employees at a single site of employment lose their jobs during a 30-day period.

One of the trickier aspects of managing the closing or sale of a business or facility is knowing whether you must also account for a state law that provides similar – or greater – protections than the federal WARN Act. We take a look at some of these laws below.

Keep Your Guard Up in the Garden State

The New Jersey Millville Dallas Airmotive Plant Job Loss Notification Act (NJ WARN) shares many similarities with the federal WARN Act, including the basic employee threshold requirements and covered events. There are, however, several key differences. For example, the federal WARN Act exempts from coverage employment losses that result from a "sale of business." The NJ WARN Act contains no such language, and, unfortunately, case law and other guidance interpreting the NJ WARN Act is sparse, leaving uncertainty as to whether reliance on the sale-of-business exception would be recognized under state law. Nor does the NJ WARN Act contain exemptions for faltering business, unforeseen circumstances, or strikes/lockouts that are included in the federal WARN Act.

Another important element of the NJ WARN Act, not present in the federal law, is that while employment losses may be avoided where an employer offers transfer to a position with equivalent status, benefits and pay, within a reasonable distance (say 50 miles) of the previous job location, that offer must also be for a job within New Jersey. Thus, a job transfer offer, even one mile away, that is out of state would still be considered an employment loss.

Both laws also contain different rules for the content and recipients of the required notice(s).

These differences become particularly important when employers consider the potential penalties associated with the laws. An employer that violates the federal WARN Act can be liable to each aggrieved employee for an amount including back pay and benefits for the period of violation, up to 60 calendar days. The NJ WARN Act goes further, providing a special penalty of one week's severance pay for each year of employment the employee has, regardless of whether the notification is one day late or 60 days late. In addition to this penalty, aggrieved employees can file suit, and if they are successful, they are entitled to an award of costs, reasonable attorneys' fees and compensatory damages. However, any back pay provided due to a violation of the federal WARN statute will be credited toward meeting these severance requirements.

Only in New York ...

The New York State Worker Adjustment and Retraining Notification Act (New York WARN Act) presents its own unique challenges, a few of which are addressed below.

Although generally similar to the federal WARN Act, New York's version has lower thresholds and requires more notice than the federal law does. Unlike the federal WARN Act, which applies to employers with 100 or more full-time employees (or 100 or more employees who in the aggregate work at least 4,000 hours per week), New York's version applies to employers with just 50 or more full-time employees, or 50 or more employees who work in the aggregate at least 2,000 hours per week.

Further, although the federal WARN Act covers layoffs of 50 or more employees who make up 33% or more of the facility where the layoff will occur (or, alternatively, layoffs of 500 or more employees at a single facility), the New York WARN Act covers layoffs of 25 or more employees who make up 33% or more of the facility where the layoff will occur, or, alternatively, layoffs of 250 or more employees at a single facility. Similarly, a "plant closing" under the New York WARN Act requires employment losses for only 25 or more full-time employees, whereas federal law is triggered with employment losses for 50 or more full-time employees. The New York WARN Act adds an additional triggering event not present in federal law: a "relocation," meaning the "removal of all or substantially all of the industrial or commercial operations of an employer to a different location fifty miles or more away."

In addition to lower thresholds for WARN coverage and different triggering events, the New York WARN Act requires 90 days' advance notice (rather than 60 under federal law) of a plant closing, mass layoff, relocation or covered reduction in work hours.

The New York WARN Act also differs from federal law in its treatment of certain exclusions, as well as the potential penalties applicable to employers (and the remedies available to employees).

New Englanders Catch a Break

Although employers in New Jersey and New York have special "mini-WARN" laws to consider in their home states, employers in Massachusetts and Connecticut can breathe a little easier.

In Massachusetts, employers who receive funding from a "quasi-public agency" must agree to "voluntary standards of corporate behavior," which require them to provide at least 90 days' notice or equivalent benefits to employees in the event of a plant closing or partial closing. The "Massachusetts Plant Closing Law" requires employers that do not receive funding from a quasi-public agency to "promptly report" planned plant closings or partial closings. Because the program providing benefits to affected employees under that law is unfunded, the law is generally not unenforced.

Employers in Connecticut have the simplest plant closing requirements of all. Since no state-level "mini-WARN" law exists, Connecticut employers must concern themselves only with the federal WARN Act.

The above describes just some of the important differences between the federal and state WARN-type laws. The number and intricacies of those differences preclude a full description here. The lesson for employers is to plan ahead – if you see a potential downsizing coming, do not wait to prepare for it and to seek legal advice.

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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.