Does the WARN Act apply and how do you comply?

The WARN Act (Worker Adjustment and Retraining Notification Act) is a federal law requiring employers to provide at least 60 days advance notification of plant closings and mass layoffs. Notice must be given in writing to:

1. the employees' representative or, if there is no representative, to each affected employee,

2. the state dislocated worker unit, and

3. the local government where the plant is located.

Who must comply? The law requires employers of 100 or more full-time employees to give at least 60 days notice to specific groups prior to a plant closing or mass layoff.

What are the exceptions? The most common exceptions to providing notice at or prior to 60 days before closing include:

• An employer may give less than 60 days notice if at the 60-day time the employer is actively seeking capital that could avoid or postpone the shutdown and the giving of notice would preclude obtaining the capital.

• The employer may give less than 60 days notice if the closing or layoff is due to either business circumstances that were not reasonably foreseeable or a natural disaster.

There are other exemptions to the notification requirement, such as:

• The law does not apply to the closing of a temporary facility.

• The law does not apply if the closing or layoff is the result of the completion of a particular project and the affected employees were hired with the understanding that their employment was limited to the duration of the project.

• The law does not apply when the closing or layoff constitutes a strike or lockout. An employer will not be required to give notice when permanently replacing a person who is deemed to be an economic striker.

Caution: Any employer wishing to pursue an exception to the law should contact counsel first.

What are the penalties? An employer who violates the federal notice requirement can be sued, and a court can order payment of back pay and benefits to each employee for each day of violation. In addition, an employer may be subject to a civil fine of not more than $500 for each day of violation. If an employer can prove that the act or omission constituting the violation was done in good faith and with a reasonable belief that no violation was being committed, a court may reduce the employer's liability. The law also provides that a court cannot prevent a plant closing or mass layoff as a remedy to an employer's violation.

How are damages calculated? The exact calculation of damages due to affected employees because of a violation of the WARN Act's notice requirements can make a big difference in an employer's liability. There is disagreement among the federal circuit courts on the issue of whether the violation period should be calculated based on working days or calendar days. Under the terms of the statute, an employer who violates the notice provision shall be liable to each aggrieved employee who suffers an employment loss for back pay for each day of violation. The majority of circuit courts, but not all of them, that have considered the issue have held that the violation period should be calculated based on working days; so, if damages are an issue, discuss with legal counsel how this conflict may affect your organization.

What is an employer's liability for benefits it had been paying? If an employer had been providing medical benefits to employees before the closing, it is liable for the value of the medical benefits, in addition to reimbursement for any medical expenses incurred that would have been covered. This means that the employer must pay to former employees the premiums it otherwise would have paid to an insurance company or, if self-insured, the actuarial cost that the employer would have incurred in insuring the employees.

Can liability for back pay be reduced by a voluntary severance payment? Backpay liability is reduced by any voluntary severance or extra vacation pay given to employees. If the employer was not contractually obligated to provide the severance or vacation pay, it is entitled to a credit for payments that it voluntarily made.

State WARN Act laws. In addition to the requirements of the federal WARN Act, several states and even some cities require employers to give advance notice of plant closings and mass layoffs. The requirements of these laws vary from encouraging employers to provide notice of a closing to laws that are more restrictive than the federal act. Some of the issues covered are:

• Must employers continue employees' existing group health insurance benefits?

• Are ailing companies required to give employees notice of a closing?

• How much notice are employers required to give before a plant closing?

• Is notice to a state agency required?

• Must the employer provide eligible employees with a dislocated worker allowance as a supplement to unemployment compensation benefits?

• What happens if an employer fails to give notice?

• Under what circumstances, if any, is failure to give notice excused?

• What is a selling employer's liability for a plant closure after the sale?

• What is an employer's liability for a closing when business circumstances arise that were not foreseeable at the time notice should have been given?

• What if there is a natural or man-made disaster beyond the employer's control that forces a plant closing?

• What is an employer's liability for a temporary cessation in business operations?

For further information on state laws regulating plant closings and mass layoffs, see State Laws.