How does the WARN Act affect potential layoffs?
Having to lay off a significant number of employees is a decision that no employer wants to make. But mass layoffs do occur, and there are some rules and regulations that small business owners should be aware of before committing to a plan of action. Let’s take a look at the WARN Act and how it might affect your small business if you have to eliminate a large part of your workforce.
What is the WARN Act?
Passed in 1988, the Worker Adjustment and Retraining Notification (WARN) Act, requires employers to provide at least 60 written days’ notice to workers before a business or plant closure or “mass layoff” that will last more than six months. The intention is to allow workers to find another job or seek out retraining programs.
Employers that violate the WARN Act 60-day notice requirement are liable for back pay and benefits for each employee for the period of violation. An employer that fails to provide the required notice to their local government may also be subject to a civil penalty of up to $500 per day.
What triggers the WARN Act?
A mass layoff means an employment loss or a business or plant closing affecting at least 50 people at a single site of employment, provided the company employs 100 or more full-time workers (not including new or part-time workers).
The WARN Act also applies when one of these companies or organizations:
- Lays off 500 or more employees (not counting part-time workers) at a single site of employment during a 30-day period
- Lays off 50-499 workers (not counting part-time workers)
- These layoffs constitute 33% or more of the employer’s total active workforce (not counting part-time workers) at the single site of employment.
Please note that some states have laws similar to the WARN Act that apply to smaller employers, too.
Who is covered under the WARN Act?
Employers are generally covered by WARN if they have 100 or more employees — not counting employees who have worked less than 6 months in the last 12 months and not counting part-time employees who work fewer than 20 hours a week on average.
Employees entitled to notice under WARN include hourly and salaried workers as well as managers and supervisors. Even employees on leave (sick, vacation, maternity, etc.) are entitled to notification if there is a reasonable expectation that they will return to work when their leave is over.
The WARN Act affects private for-profit businesses as well as private non-profit organizations.
How layoffs are defined
Under the federal WARN Act, an “employment loss” is considered:
- A layoff exceeding six consecutive months
- A termination other than for cause, voluntary departure, or retirement OR
- A reduction in hours of more than 50% during each month of any six-month period
Note that the WARN Act makes no distinction between layoffs and furloughs as far as notification goes — employers must still notify workers, even if the employment relationship is not terminated permanently.
Are there exceptions to the WARN Act?
There are two main exceptions to the WARN Act’s 60-day notice requirement for situations. A company is exempt in the case of:
- A natural disaster would include layoffs as a direct result of events like a flood, earthquake, drought, or storm.
- Unforeseeable circumstances would be situations that were not reasonably foreseeable at the time the 60-day notice would otherwise have been required.
An exception is also available under narrow circumstances for faltering companies. In the case of a business or plant closure, specifically, the WARN Act creates an exemption for companies that reasonably expected to receive an infusion of capital at the time the 60-day notice would otherwise be required (see more on faltering companies).
How much notice does an employer have to give for a layoff?
Under the WARN Act, an employer is required to give 60 days’ written notice for a mass layoff. However, neither the federal government nor the Fair Labor Standards Act (FLSA) has requirements for notice to employees prior to the termination of their job for other kinds of layoffs. Some states may have other layoff or termination requirements for employers, so check with your state department of labor and unemployment bureau.
Even if you have to perform a mass layoff due to unforeseen circumstances, and the 60-day notification requirement is waived, you are likely still on the hook to send out notices to your employees. We recommend consulting your employment legal advisor to determine the best way to handle this for your business and employees.
Is a business required to give WARN notice if it declares bankruptcy?
There are two situations where WARN still applies even if your business declares bankruptcy. The first is when an employer knows about the mass layoff before filing for bankruptcy, and should have given their employees notice, but instead seeks bankruptcy in an effort to avoid giving legal notice. The second applies if the employer continues to run the business in bankruptcy — usually as a debtor in possession. WARN generally does not apply when there is a bankruptcy trustee liquidating a business.
Two of the exceptions to the notice requirement we mentioned before, the faltering company and unforeseeable business circumstances, often come up in bankruptcy cases. Note that any bankruptcy proceeding where an employee can file a claim under the WARN Act will change from the US District Court to the Bankruptcy Court. And the bankruptcy filing may affect how soon any damages would be paid to an affected employee.
State-level mini-WARN Acts
Many states also have mini-WARN Acts including California, Connecticut, District of Columbia, Georgia, Hawaii, Illinois, Iowa, Maine, New Hampshire, New Jersey, New York, Tennessee, Vermont, and Wisconsin. Philadelphia also has its own WARN act.
For instance, California’s WARN Act applies to employers with 75 or more employees (full or part-time) if 50 or more employees will be laid off because of a business or plant closing, mass layoff, or relocation of the employer’s business. Unlike the federal WARN Act, there is no requirement in California that the number of laid-off employees makes up a certain percentage of the employer’s workforce. There is also no unforeseen circumstances clause there.
Georgia, Maryland, North Dakota, and Ohio require notice to state agencies but not to employees, and Michigan and Minnesota encourage — but don’t require — notice to employees prior to closings or mass layoffs.
If you are facing a significant reduction in the size of your workforce, we hope this information about the WARN Act and small businesses is helpful as you work through the tough decisions.
This article is for informational purposes only and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal and accounting advisors for formal consultation.