June 18, 2014

Layoffs and Downsizing


WARN applies to any business enterprise employing one hundred or more full-time employees, or one hundred or more employees, including part-time employees, who in the aggregate work at least four thousand hours per week exclusive of overtime. The 100 employee threshold is calculated by totaling all employees at all of the employer's locations – not just the project or facility where the layoffs will take place. Furthermore, workers on leave of absence, or on temporary layoff who have a reasonable expectation of returning must be counted.

WARN applies to "business enterprises". These are defined to include public, quasi-public, and nonprofit entities. Furthermore, independent contractors and subsidiaries may be considered to be part of the parent company if they show too much dependence on the parent.

A "plant closing" is defined as a temporary or permanent shutdown of a single site of employment, or one or more operating units within the site, during a thirty-day period that results in an employment loss for fifty or more full-time employees. It is not necessary that the entire business, or the entire site, be shut down. A "mass layoff" is defined as a reduction in the employer's workforce that is not the result of a plant closing but which produces an employment loss at a single site of employment during any thirty day period involving fifty or more full-time employees (if they account for at least thirty-three percent of the full-time workforce at the site) or at least five hundred full time employees, regardless of their percentage of the workforce.

Not all separations of employment count for WARN purposes. The technical term is "employment loss" and is defined as an employment termination other than a discharge for cause, voluntary departure, or retirement. A layoff exceeding six months, or a reduction in work hours by more than fifty percent during each month in a six month period are also considered and employment loss. When one company buys out another, no employment loss occurs if the employees continue to work in their same position after the purchase. Transfers between sites are not considered employment losses.

Sixty days before a plant closing or mass layoff an employer must notify its employees, unions, and local and state government officials about the impending reduction in force. These notices are highly specific and require a large degree of prior planning and workforce analysis. If the employer fails to provide the required sixty-day notice it will be subject to substantial fines and penalties.

The Act allows affected employees, their unions, or the local government to sue individually or in a class action on behalf of others similarly situated. An employer who violates WARN must pay back pay and benefits for each affected employee for every day of the violation up to sixty days. The benefits include contributions to the employer's pension plan and maintenance of any health and welfare plans applicable to the laid off workers. In addition they will owe the local government five hundred dollars a day, unless the individual worker fines are paid within three weeks.

WARN's applicability to construction is broader than might be expected. A construction job site qualifies as a single job site under the statute!

There are only two exceptions to WARN that eliminate notice requirements – the "temporary employment" or "temporary site of employment" exception and a strike or lockout. The "temporary sites of employment" exception can be especially important in the construction industry. Such a location is defined as a location at which employees are informed that they are being hired for that temporary site only and that employment will end when that site closes. If employees travel with a contractor from site to site it could be construed that the temporary site exception will not apply.

Prudent contractors on large job sites will take care to prepare to argue that it is a temporary site of employment. This should be done when the employees are hired, and can be accomplished through personnel manuals or through direct written agreements with the employees. The employees should be required to acknowledge the single job site status of the location. This can be made a part of the acknowledgement of the employee handbook or personnel manual that should be handed out to each new employee. Note that if the employee in fact routinely travels from job to job this will not be effective. However, if such precautions are not undertaken, the contractor employer should be prepared to prepare and present the sixty-day notices required by the statute when large layoffs occur.

A trap may occur in the sale of all or part of a business. The selling employer must give sixty days' notice of WARN events which occur up to and including the date of the sale. After that, the purchasing employer is responsible for WARN notices and penalties. The Act states that "any person who is an employee of the seller (other than a part-time employee) as of the effective date of the sale shall be considered an employee of the purchaser immediately after the effective date of the sale." Although the sale of the business itself is not a WARN event and does not trigger the Act's notice requirements, significant layoffs associated with the sale will require the notice.

There are three very limited exceptions to WARN that reduce but do not eliminate notice requirements. Even in those cases the employer is required to give as much notice as practicable and provide a brief statement setting forth the facts explaining why the shortened notice was necessary. The exceptions are the "faltering company" exception, the "unforeseeable business circumstances" exception, and the "natural disaster" exception. The regulations implementing these exceptions follow predictable guidelines, although the "faltering company" exception requires detailed proof of attempts to secure financing if the business continues.

Any employer with over 100 workers is wise to investigate WARN requirements when contemplating a layoff, reduction in force, or full or partial sale of the business.

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations. For more information on this topic, please contact marketing@jordanramis.com or call (888) 598-7070.


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