For the first time since the early days of the COVID-19 pandemic, employers are implementing a new wave of layoffs, particularly in the tech world, and it is anticipated that there are more to come as recession worries loom. Employers have pointed to over-hiring during the past two years as one reason for the current correction, and are now reducing headcounts to reflect market cooling. The layoffs and job cuts across the board resurface important employment law considerations that may have laid dormant since the early days of 2020, including the WARN Act and state mini-WARN acts. This blog provides a brief refresher on how the WARN Act applies to plant closings and mass layoffs, and what, if anything has changed since 2020.
What is the WARN Act and When is it Triggered?
The Worker Adjustment and Retraining Notification Act (“WARN”) is a federal law that requires employers to provide advance notice and planning mechanisms to their workforce and communities in the event of a qualified “plant closing” or “mass layoff.” The United States Department of Labor issued guidelines for employers to navigate WARN requirements. Under the WARN Act, employers with 100 or more full time workers (total) must provide written notice at least sixty (60) calendar days in advance of covered plant closings and mass layoffs. Certain states have analogous state laws, referred to as mini-WARN acts. We blogged about the WARN Act, other WARN-triggering events, and state mini-WARN acts here back in 2020.
A plant closing or mass layoff that triggers WARN are generally defined as follows:
- Plant Closing: The permanent or temporary shutdown of a single site of employment, or one or more facilities or operating units within a single site of employment, if the shutdown results in an employment loss at the single site of employment during any 30-day period for 50 or more employees excluding any part-time employees.
- Mass Layoffs: (1) A layoff of 500 or more workers (not counting part-time workers) at a single site of employment during a 30-day period; or (2) layoffs of 50-499 workers (not counting part-time workers), when these layoffs constitute at least 33% of the employer’s total active workforce (not counting part-time workers) at the single site of employment.
WARN applies to employment losses that occur over a 30-day period. However, WARN also applies when an employer conducts a series of smaller, but related layoffs within 90 days that collectively reach the WARN thresholds outlined above over 90 days. Notice is not required under the 90-day rule if an employer can show that the different layoffs occurred because of separate and distinct actions and were not staggered to evade WARN.
How have WARN Laws Have Changed since 2020?
A number of states and cities, including California, New Jersey, and the City of Philadelphia temporarily suspended or amended their respective mini-WARN acts during the COVID-19 pandemic. For example, in New Jersey, Governor Murphy signed an executive order delaying the implementation of the amendments to New Jersey’s mini-WARN Act to exclude layoffs that occurred in response to a national emergency. That order remains in effect and continues to place on hold sweeping changes to the law that, among other things, would now require employers to provide 90 days’ advance notice instead of 60 days and provide a certain amount of severance pay to employees beyond the notice pay. Employers should keep a close eye on the expiration of the state of emergency in New Jersey, and prepare to comply with the revised law. Other states such as New York, Vermont and New Hampshire maintained their respective mini-WARN Act requirements, but issued statements and guidance signaling to employers that mini-WARN laws account for unexpected circumstances such as the sudden onset of the COVID-19 pandemic. California was more explicit – it temporarily suspended the state’s 60-day notice requirement during the early days of the COVID-19 pandemic, so long as employers satisfied the remaining WARN conditions. In the past year, however, most states have signaled that they are back to “business as usual” with respect to enforcement of their mini-WARN acts, including California, which reinstated its 60-day notice requirement.
Could the Unforeseen Business Circumstances Exception Apply During this Economic Downturn?
The federal WARN Act also includes an exception to its 60-day notification requirement where “unforeseen business circumstances” exist that are caused by an “unanticipated and dramatic major economic downturn” that was not “reasonably foreseeable.” Many employers undoubtedly relied on this exception during the first year of the pandemic.
Whether the “unforeseen business circumstances” exception applies to plant closings and mass layoffs in this current economic climate remains a fact-specific inquiry. WARN case law in the wake of the 2008 financial crisis may shed light on how employers should analyze the exception in this anticipated downturn.
A seminal Eighth Circuit case, United Steel Workers v. United States Steel Corp., is instructive. During the first three quarters of 2008, employer U.S. Steel was operating at near full capacity at its iron ore plant in Minnesota. In its initial response to the 2008 financial crisis, U.S. Steel employed other mitigation tactics to reduce its costs, which had previously worked during periods of financial instability. By late 2008, the economic crisis deepened and U.S. Steel laid off 313 union workers. U.S. Steel finalized the plan to implement the layoffs on only a few days’ notice. The union workers argued that the general economic downturn was well-known by early October 2008 – when U.S. Steel should have provided the requisite 60 days’ notice of an employment loss – and that U.S. Steel failed to identify an event after that early October 2008 date that qualified as an unforeseen business circumstance. U.S. Steel countered that although the economic crisis began earlier, the sharply reduced demand for steel was not evident until late November 2008, when it became clear that its operational approach to previous economic downturns was insufficient to combat dire circumstances.
The test for determining whether business circumstances are not reasonably foreseeable (which is narrowly construed), focuses on an employer’s business judgment. An employer “must exercise commercially reasonable business judgment as would a similarly situated employer in predicting the demands of a particular market.” The U.S. Steel Court had to answer the question of when it became foreseeable to U.S. Steel that the economic downturn would impact its business to such a dire extent. Although evidence demonstrated that U.S. Steel was aware that the economic downturn would reduce demand for its products in early October 2008, knowledge of an economic downturn alone did not bar the application of the unforeseen business circumstances exception. Rather, the Court considered whether a “similarly situated employer in the exercise of commercially reasonable business judgment would have foreseen the plunging demand for steel.” The Court ultimately held that U.S. Steel had acted with “commercially reasonable business judgment” by first attempting to weather the downturn as it had in the past, before the unprecedented impact on the steel industry became apparent. U.S. Steel therefore met its burden of proving that the conditions giving rise to the unforeseen business circumstances exception applied.
U.S. Steel reminds employers that whether the unforeseen business circumstances exception applies is a highly fact specific inquiry, and it does not excuse an employer from otherwise complying with WARN. An economic downturn or market cooling is but one part of the analysis, as is an employer’s business judgment compared to other similarly situated employers.
Further, employers should make sure not to confuse the unforeseen business circumstances exception with WARN’s exception for natural disasters. The Fifth Circuit Court of Appeals’ recent decision in Easom v. U.S. Well Services Inc. should give employers some pause in attempting to apply this separate exception. There, the Court found that the COVID-19 pandemic was not a “natural disaster” within the meaning of the WARN statute, because Congress could have included “disease, pandemic or virus” in the text of the law and chose not to, justifying the inference “that those terms were deliberately excluded.”
Regardless of the exception an employer seeks to rely upon, recent WARN cases confirm that employers are still required to provide notice to employees as soon as practicable.
How Do Employers Account for Newly Remote Workers under WARN?
Workforces across the country have undeniably changed since the beginning of the pandemic, most notably in the significant shift to remote and hybrid working arrangements. At first glance, the WARN Act’s language concerning layoffs at a “single site of employment” may lead employers to believe they are off the hook from notifying remote or virtual workers of a WARN event who are working at a location other than the impacted “single site of employment”. But employers should remain mindful of WARN’s definition of a “single of site of employment,” which notes the following:
For workers whose primary duties require travel from point to point, who are outstationed, or whose primary duties involve work outside any of the employer’s regular employment sites (e.g., railroad workers, bus drivers, salespersons), the single site of employment to which they are assigned as their home base, from which their work is assigned, or to which they report will be the single site in which they are covered for WARN purposes.
Thus, employers must consider whether any of their remote or virtual workers would qualify as the type of employee covered under this provision, and whether, in turn, they would be tied back to the impacted single site of employment. Courts have begun to grapple with this provision’s reach, including whether it applies to those workers who have relocated to their homes permanently to perform work virtually on a full-time basis.
A recent case out of Virginia lends support to the notion that certain remote or virtual workers would not be part of an impacted single site of employment. In Piron v. Gen. Dynamics Info. Tech., Inc., (E.D. Va. Mar. 10, 2020), employees worked “‘remotely’ from their homes but reported to, and received assignments from, managers … both of whom were situated in [a physical office].” In other words, despite their permanent remote work arrangements, the employees claimed they were part of a single site of employment because they reported to and received assignments from one physical office. The Court rejected the employees’ argument, finding that they failed to demonstrate that they were “mobile workers” without a fixed work location, and that their job duties and responsibilities were not akin to the groups of employees that typically fall within the ambit of WARN’s mobile worker regulation: namely railroad workers, bus drivers, or travelling salespersons. The Court did, however, permit the employees to file a second amended complaint to better plead that they were “mobile workers” within the meaning of the WARN regulation. The parties are now litigating that issue, making the Piron case one employers will be watching closely.
Importantly, there are public policy reasons why WARN may not apply to otherwise non-mobile remote employees scattered in various locations. For example, the purpose behind the WARN Act notification requirements is not only to inform workers of a future job loss event, but also to notify government agencies: (i) where a single site of employment is located and (ii) that a number of workers will soon be unemployed and looking for a job. If remote employees are scattered across the country, is the same burden placed on local governments and unemployment agencies? Are workers competing for the same jobs? Is the harm of mass unemployment to a group of workers in a community the same as a group of individuals’ job losses in different states? Employers should continue to pay close attention to this issue.
Important Takeaways:
- Many mini-WARN laws that were temporarily suspended during the pandemic have since been reactivated. Make sure to check your state’s mini-WARN laws, and whether rules have changed in the past two years.
- Pay close attention to the timing of the layoff to determine whether you will trigger WARN and if so, that you will meet the 60 (or sometimes 90)-day notice requirement. If your business is unable to meet the full notice period requirement, consider providing notice as soon as practicable.
- Also consider who will receive a notice. Remember, not only employees receive WARN notice; community leaders (such as union leaders or members of a local government) must receive notice as well.
- As part of the WARN analysis, consider whether you will need to “count” remote employees as being part of the impacted “single site of employment.”
- Note that WARN is not the only law implicated during a mass layoff or plant closing. Employers should be mindful of other laws in play when conducting a reduction in force, including with respect their wage payment obligations under wage and hour laws, and that they are making sound termination selections to ensure compliance with applicable discrimination laws.
Employers must understand that a WARN Act analysis is anything but simple – it can be both nuanced in its interpretation and comprehensive in its reach. It is strongly recommended that employers contact their counsel to help them engage in this analysis and with respect to all aspects of a reduction in force.
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