The sudden and dramatic effects of COVID-19 in the United States have left employers grappling with unprecedented lockdown orders from state and local governments, in addition to government-mandated closures of certain businesses and establishments. As a result, many employers are faced with the reality that layoffs, furloughs, and/or closures have occurred or may soon become necessary.

Depending on its size, an employer may have obligations under the federal Worker Adjustment and Retraining Notification Act (WARN Act) and similar state statutes known as "mini-WARN Acts." Employers should be aware of these requirements and the exemptions that may be applicable to layoffs and closures resulting from COVID-19.

Overview of the WARN Act

Employers with (1) 100 or more employees, excluding part-time employees, or (2) 100 or more employees, including part-time employees, who in the aggregate work more than 4,000 hours per week, exclusive of overtime, are subject to the WARN Act.1 The WARN Act generally requires covered employers to give written notice to employees or their representative, as well as the state, at least 60 days prior to a plant closing or mass layoff.2

A "plant closing" is defined as the permanent or temporary shutdown of "single place of employment" or "one or more facilities or operating units within a single place of employment" that results in an employment loss3 during a 30-day period for 50 or more employees, excluding part-time employees.4 A "mass layoff" occurs when there is an employment loss at a single site of employment for (1) at least 33 percent of active employees (excluding part-time employees), and (2) at least 50 employees.5 When 500 or more employees are impacted, the 33-percent requirement does not apply, provided the other criteria are met.6

As a practical matter, if the event will not result in the loss of employment (or reduction in hours of more than 50 percent) for at least 50 employees for a six-month period, then the WARN Act will not apply. In other words, even if the event will affect more than 50 employees and could constitute a plant closing or mass layoff at the outset, if the employer recalls enough of the employees before the end of the six-month period so as to avoid having at least 50 employees suffer a loss of employment, the WARN Act requirements will not have been triggered. 

An employer that fails to give the required notice may be subject to significant penalties and litigation by impacted employees. Under the statute, an employer who orders a plant closure or mass layoff in violation of the WARN Act shall be liable to each affected employee for (1) back pay for each day of violation, and (2) benefits under an employee benefit plan described in section 3 of the Employee Retirement Income Security Act of 1974.7

"Mini-WARN" Acts

Several states, including but not limited to California, Delaware, New Jersey, and New York, have adopted their own "mini-WARN acts."8 Employers operating in these states are bound not only by the obligations in the federal WARN Act but also the applicable mini-WARN act, which may impose more stringent WARN-like notice obligations on employers. Other states have statutes that encourage, but do not require, additional WARN-like notice. These mini-WARN acts vary in scope and effect, so employers are encouraged to consider possible state-specific requirements prior to initiating a plant closing or layoff.

Exceptions to the WARN Act's Notice Requirements

There are three exceptions to the notice requirements in the WARN Act that may apply to plant closings or layoffs resulting from COVID-19: (1) the "unforeseeable business circumstances" exception; (2) the "natural disaster" exception; and (3) the "faltering company" exception. To rely on these exceptions, however, the employer must "give as much notice as practicable" and "this may, in some circumstances, be notice after the fact."9

1. Unforeseeable Business Circumstances

The unforeseeable business circumstances exception relieves employers of the full 60-day notice requirement if the plant closure or mass layoff is "caused by business circumstances that were not reasonably foreseeable" at the time notice would have been required.10 The U.S. Department of Labor (DOL) has previously issued guidance that indicators of an unforeseeable business circumstance include "sudden, dramatic, and unexpected action[s] or condition[s] outside the employer's control" such as "an unanticipated and dramatic major economic downturn" or "[a] government ordered closing of an employment site that occurs without prior notice."11

While COVID-19, as well as the drastic and unprecedented measures taken by the federal and state governments to curb its effects, will likely be viewed as unforeseen business circumstances, there is no per se rule on when the exception applies, and the determination is a fact-intensive inquiry made on a case-by-case basis.  Employers should also remember this exception is an affirmative defense, meaning that the employer bears the burden of proving the exception applies to the circumstance at issue. Even if the unforeseen business circumstance exception applies, the WARN Act requires that an employer "shall give as much notice as is practicable and at that time shall give a brief statement of the basis for reducing the notification period."12

2. Natural Disasters

Under the natural disaster exception, no notice is required if the plant closing or mass layoff is the result of "any form of natural disaster, such as a flood, earthquake, or the drought currently ravaging the farmlands of the United States."13 While the term "natural disaster" is typically viewed as a calamity such as a flood, tornado, earthquake or the like, there is a general catchall in the applicable regulations for "similar effects of nature."14  Given the unprecedented nature of COVID-19, courts have not had the chance to consider whether plant closings or mass layoffs caused directly by a viral pandemic (i.e., a mass outbreak at a single employment location) constitute a natural disaster.

3. Faltering Companies

Under the WARN Act, an employer may shut down a single site of employment (i.e., plant closure, single facility, or operating unit) prior to the expiration of the 60-day period if, at the time the notice would have been required, the employer was seeking financing which, if obtained, would have obviated the need for the closure.15 This exception may be of use to certain financially strapped companies that are forced to close a single site of employment as a result of COVID-19. In order to be protected by this exception, however, the employer must reasonably and in good faith believe that providing the required 60-day notice would have precluded it from obtaining the needed capital or business.16 Employers should also take note that this exception does not apply to a mass layoff.

In short, the WARN Act imposes notice obligations that may apply to circumstances resulting from COVID-19, particularly if the timetable for recalling affected workers could last more than six months. In such cases, employers should provide the full 60 days of advance notice or, if an exception applies, provide the required notices as soon as practicable. Employers also need to be sure to consult potentially applicable state-specific mini-WARN Acts.

Footnotes

  1. 20 C.F.R. § 693.3(a).
  2. 29 U.S.C. § 2102(a); 20 C.F.R. § 639.2.
  3. The term "employment loss" means "(i) an employment termination, other than a discharge for cause, voluntary departure, or retirement, (ii) a layoff exceeding 6 months, or (iii) a reduction in hours of work of individual employees of more than 50% during each month of any 6-month period."  20 C.F.R. § 693.3(f)(1).
  4. 20 C.F.R. § 639.3(b).
  5. 20 C.F.R. § 639.3(c).
  6. 20 C.F.R. § 639.3(c).
  7. 29 U.S.C. § 2104(a).
  8. This alert does not purport to be a complete survey of all states with mini-WARN acts.
  9. 20 C.F.R. § 639.9.
  10. 29 U.S.C. § 2102(b)(2)(B); 20 C.F.R. § 639.9(b).
  11. 29 U.S.C. § 2102(b)(2)(B); 20 C.F.R. § 639.9(b).
  12. 29 U.S.C. § 2102(b)(3).
  13. 29 U.S.C. § 2102(b)(2)(B).
  14. 20 C.F.R. § 639.9(c).
  15. 29 U.S.C. § 2102(b)(1).
  16. 29 U.S.C. § 2102(b)(1).

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.