News & Insights

Originally published in the July/August 2020 issue of The Florida Bar Journal.

By: Alicia Koepke

As a result of the novel coronavirus (COVID-19) pandemic, many businesses have been or will be forced to close operations or reduce or eliminate their workforce. In doing so, covered employers should carefully consider their obligations under the Worker Adjustment and Retraining Notification Act (WARN or the act).^[1] WARN generally requires covered employers to provide 60-days’ advance notice of employment losses that meet the definition of “plant closing” or “mass layoff.”^[2] Although WARN obligations sound simple, in practice often they are not — especially in uncertain times like a pandemic. During a pandemic, it may be difficult or impossible for employers to know 60 days in advance whether they will need to implement large-scale employment losses. Further complicating matters, under certain circumstances, employment losses over a 90-day period may be combined to determine if they amount to a sufficient number of losses to require WARN notice.^[3] Moreover, if employers as a precautionary measure send WARN notices in case they might have to implement such reductions, they could exacerbate their problems by affecting employee morale, causing employees to seek alternative employment, and making third parties hesitant to conduct business with them. This article discusses employer obligations under WARN and how the uncertainty of a pandemic might affect those.

Covered Employers

A covered employer under WARN is “any business enterprise” employing either 1) 100 or more employees, excluding part-time employees; or 2) 100 or more employees, including part-time employees, who “in the aggregate work at least 4,000 hours per week (exclusive of hours of overtime).”^[4] The label “part-time” in WARN in reference to employees is misleading because the definition of “part-time employee” includes not only employees employed for an average of fewer than 20 hours per week, but also all employees who have been employed for less than six of the 12 months preceding the date on which WARN notice is required.^[5] In this article, references to “full-time employees” are to employees who do not meet the definition of “part-time employees.”

Generally, employers must count their employees, for purposes of determining whether they are covered employers, as of the date the first WARN notice must be given; however, if the number of workers employed on that date is clearly unrepresentative of the typical employment level, which could certainly happen in a pandemic, “a more representative number can be used to determine coverage.”^[6]

During a pandemic, a critical question in evaluating coverage is whether employers need to count furloughed or laid-off employees. In evaluating whether a business is a covered employer, a business must count employees “on temporary layoff or on leave who have a reasonable expectation of recall,” when “reasonable expectation of recall” means an employee “understands, through notification or through industry practice, that his/her employment with the employer has been temporarily interrupted and that he/she will be recalled to the same or to a similar job.”^[7] Whether independent contractors and subsidiaries are separate employers or part of the contracting or parent company depends upon their degree of independence.^[8]

Types of Employment Losses Covered

WARN applies to certain “employment loss[es]” of 50 or more full-time employees at a single site of employment.^[9] “Employment loss” generally includes 1) a termination of employment, “other than a discharge for cause, voluntary departure, or retirement”; 2) a layoff exceeding six months; or 3) a reduction of hours by more than 50% for each month of any six-month period.^[10] In evaluating which type of “employment loss” will occur, the Seventh Circuit Court of Appeals, in Leeper v. Hamilton County Coal, 939 F.3d 866, 869-870 (7th Cir. 2019), found that the three categories of “employment loss” are separate and distinct, and held an initial categorization of the type of loss at issue should be made based on an employee’s objective expectation of recall (e.g., from a separation notice). “Termination” for these purposes means the permanent cessation of employment, whereas “layoff” means the temporary cessation of employment.^[11]

One issue that arises during a pandemic is that employers may not know how long layoffs will last. If an employer initially announces that a layoff will not exceed six months, but later determines the layoff will exceed six months due to business circumstances that were not reasonably foreseeable when the layoffs were implemented, the employer can avoid violating WARN by providing notice as soon as it becomes reasonably foreseeable that the layoff will extend beyond six months.^[12]

A WARN notice is only required for two types of employment losses: a plant closing or mass layoff. A plant closing is a temporary or permanent 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 [full-time] employees.”^[13] A mass layoff is a reduction in force that does not meet the definition of plant closing and results in an employment loss at a single site of employment during any 30-day period for either: 1) 50 or more full-time employees, if such employees comprise at least 33% of the active employees; or 2) at least 500 full-time employees (regardless of whether they comprise at least 33% of the active employees).^[14]

Because plans can change frequently during a pandemic, employers should note that the Fourth Circuit Court of Appeals concluded, in Graphic Communications International Union, Local 31-N v. Quebecor Printing (USA) Corp., 252 F.3d 296, 299 (4th Cir. 2001), that successive employment losses for employees may occur and necessitate separate WARN notices to such employees.

Ninety-Day Aggregation Rule

To constitute a plant closing or mass layoff, generally there must be an employment loss at a single site of employment for at least 50 full-time employees during a 30-day period. But the counting of employment losses to meet the definitions of a plant closing or mass layoff (triggering a WARN notice) can, in certain circumstances, span more than a 30-day period. Specifically, employment losses for more than one group at a single site of employment “each of which is less than the minimum number of employees” specified in the definitions of plant closing and mass layoff but “which in the aggregate exceed that minimum number, and which occur within any 90-day period shall be considered to be a plant closing or mass layoff unless the employer demonstrates that the employment losses are the result of separate and distinct actions and causes and are not an attempt by the employer to evade” WARN obligations.^[15] Consequently, employers must constantly evaluate employment losses, particularly those related to a pandemic, to determine if such losses alone or in combination with other losses within 90 days before or after any such loss might collectively reach the 50 full-time employee threshold.

Duration of Advanced Notice Required and Exceptions to 60-Day Rule

Many employers will be unable to provide 60-days’ advance notice of reductions during the COVID-19 pandemic. The question then becomes whether such employers can rely on any of the WARN exceptions. Significantly, the exceptions do not excuse notice altogether; employers relying on an exception are still required to provide as much notice as is practicable.^[16] The Department of Labor (DOL) regulations note that “in some circumstances” in which notice was not practicable before a plant closing or mass layoff, notice after the fact may suffice.^[17] There are three exceptions under WARN: natural disasters, “unforeseeable business circumstances,” and “faltering company.” Employers bear the burden of proof with respect to exceptions.^[18]

Under the natural disaster exception, the advance notice required for plant closings and mass layoffs can be reduced if the employment losses are “due to any form of natural disaster, such as a flood, earthquake,” or drought.^[19] The DOL regulations list the following additional examples of natural disasters: “storms, tidal waves, or tsunamis and similar effects of nature.”^[20] It is unclear whether the COVID-19 pandemic would be considered a natural disaster, as there appear to be some differences between the pandemic and the examples of natural disasters listed in WARN and the regulations. (Perhaps because of that, some states specify that a “national emergency” qualifies as an exception to their mini-WARN requirements.^[21]) But even if a pandemic is a natural disaster, to shorten WARN notice under this exception, the plant closing or mass layoff must be a direct result of the natural disaster; if the employment losses occur as an indirect result of a natural disaster, this exception is inapplicable, although the unforeseeable business circumstances exception may apply.^[22]

Under the unforeseeable business circumstances exception, the advance notice required for plant closings and mass layoffs can be reduced if the employment losses are “caused by business circumstances that were not reasonably foreseeable as of the time that notice would have been required.”^[23] Many businesses are expected to argue that the COVID-19 pandemic and/or government-mandated closures in response to the pandemic caused their employment losses and were not reasonably foreseeable 60 days before employment losses were implemented. Although the applicability of the exception depends on the facts and circumstances of a particular business, this exception appears to offer the greatest likelihood of success to businesses implementing employment losses during a pandemic that are unable to offer 60-days’ advance notice.

The DOL regulations provide examples of events that might meet the exception and state that an important indicator of a business circumstance not being reasonably foreseeable is that the circumstance is “caused by some sudden, dramatic, and unexpected action or condition outside the employer’s control.”^[24] A strong argument can be made that a pandemic, in most circumstances, qualifies under that standard, particularly because the Seventh Circuit Court of Appeals, in Roquet v. Arthur Andersen LLP, 398 F.3d 585, 590 (7th Cir. 2005), held “an employer does not have to be caught completely off guard by a dire business circumstance” to meet that standard.^[25] Further bolstering employer’s arguments for the applicability of this exception is the fact that the DOL regulations state “an unanticipated and dramatic major economic downturn,” which many economies throughout the world have experienced as a result of the COVID-19 pandemic, could constitute a business circumstance that is not reasonably foreseeable.^[26]

Moreover, the DOL regulations specify that a government-ordered closing of an employment site “that occurs without prior notice also may be an unforeseeable business circumstance.”^[27] For example, a government-ordered shutdown of a facility for an indefinite period due to the release of a hazardous gas, coupled with the company’s inability to generate revenue and the refusal of the company’s parent to advance further funds, satisfied the requirements of the exception in Bradley v. Sequoyah Fuels Corp., 847 F. Supp. 863, 869 (E.D. Okla. 1994).

Under WARN, however, timing is everything, so employers should carefully consider whether pandemic-related reductions may at some point in time become reasonably anticipated. As the Third Circuit Court of Appeals pointed out in In re AE Liquidation, 866 F.3d 515, 525 (3d Cir. 2017), whether the exception applies is evaluated on a case-by-case basis. The Third Circuit highlighted the fact-intensive and objective nature of the inquiry in Hotel Employees & Rest. Employees Intern. Union Local 54 v. Elsinore Shore Associates, 173 F.3d 175, 186 (3d Cir. 1999):

When determining whether a closing was caused by unforeseeable business circumstances, we evaluate whether a “similarly situated employer” in the exercise of commercially reasonable business judgment would have foreseen closing. 20 C.F.R. §639.9(b)(2) (1998). In making this determination, we consider the facts and circumstances that led to the closing in light of the history of the business and of the industry in which that business operated.

Employment losses are always possible, but the mere possibility of such losses is insufficient to preclude application of the exception; covered losses must be probable, meaning more likely than not, to be “reasonably foreseeable” and foreclose the use of the exception.^[28]

Unlike the natural disaster and unforeseeable business circumstances exceptions, which can apply to both plant closings and mass layoffs, the faltering company exception only applies to plant closings.^[29] The faltering company exception allows an employer to order the shutdown of a single site of employment^[30] with less than 60 days’ notice if, at the time notice would have been required, the employer “was actively seeking capital or business which, if obtained, would have enabled the employer to avoid or postpone the shutdown and the employer reasonably and in good faith believed that giving the notice required would have precluded the employer from obtaining the needed capital or business.”^[31] Seeking “capital or business” can include seeking financing through loans, the issuance of stocks or bonds or other methods of internally generated financing, or seeking “additional money, credit, or business through any other commercially reasonable method.”^[32] Because many companies will seek loans and other financing during the COVID-19 pandemic, this exception may apply when funding efforts fail, if the other elements of the exception are met.

To use the exception, an employer must have a realistic opportunity to obtain the financing or business; the financing or business sought must be sufficient so that if obtained it would have enabled the employer to keep the facility, unit, or site open for a reasonable period of time; and the employer must be able to identify the actions it took to obtain such funds or business.^[33] In evaluating the exception, the company is viewed as a whole; a company cannot seek the benefit of the exception by looking solely at the financial condition of the facility, unit, or site closed.^[34]

The Notice

WARN notice must be provided to 1) each representative of the affected employees or, if there is no representative, to each affected employee (i.e., each employee reasonably expected to suffer an employment loss due to the plant closing or mass layoff); 2) the state or the entity designated by it to carry out rapid response activities (i.e., the state dislocated worker unit); and 3) the chief elected official of the unit of local government where the closing or layoff will occur.^[35] Full- and part-time employees, including managerial and supervisory employees, may be “affected employees,” but business partners are not.^[36] The content required and delivery methods used for notices vary, and are specified in the DOL regulations.^[37] Notably for employers during a pandemic, the notice given can be conditional upon whether an event occurs if “the event is definite and the consequences of its occurrence or nonoccurrence will necessarily, in the normal course of business, lead to a covered plant closing or mass layoff less than 60 days after the event.”^[38] The issuance, continuation, or cessation of government-ordered shutdowns; or the receipt or denial of government or other funding, during a pandemic, might warrant the use of a conditional notice. The failure to send a conditional notice, however, should not be held against an employer.^[39]

Significantly, when providing “as much notice as is practicable,” under the WARN exceptions, an employer must also “give a brief statement of the basis for reducing the notification period.”^[40] According to the 11th Circuit Court of Appeals in Sides v. Macon County Greyhound Park, Inc., 725 F.3d 1276, 1284-86 (11th Cir. 2013), the notice must be specific, provided in a manner to ensure receipt and made in accordance with the DOL regulations. The 11th Circuit rejected the employer’s argument in Sides that it did not need to provide formal notice because the closures were obvious and known to employees through internet postings, third-party newspaper articles, and billboard ads.^[41]

WARN Enforcement and Liability

WARN violations can be costly given the number of employees aggrieved by such violations (50 or more), the prevalent use of class-action procedures in WARN cases, and the fact that civil penalties can be imposed against violators, in addition to employee claims for damages and fees.^[42]

Employers who fail to provide WARN notice are liable for back pay to each aggrieved employee for each day of violation.^[43] Violations generally can last as long as 60 days (i.e., for employers who completely fail to provide a WARN notice), except for new employees because the days of violation for damages purposes cannot exceed one-half the number of days an aggrieved employee was employed by an employer.^[44] In addition to back pay, violators must provide each aggrieved employee with benefits, including medical expenses that otherwise would have been covered during the period of violation if the employment loss had not occurred.^[45] An employer receives a reduction of its liability in specified circumstances, for example, when it pays wages to affected employees for the period of the violation.^[46] Finally, if an employer shows its violation was in good faith and that it had reasonable grounds for believing its actions did not violate WARN, a court has discretion to reduce WARN liability and penalties.^[47] Courts also have discretion to award reasonable attorneys’ fees to a prevailing party.^[48]

Conclusion

The only certainty in these uncertain times is that many businesses will be forced to implement plant closings and mass layoffs during and after the COVID-19 pandemic, and WARN lawsuits have and will continue to follow.^[49] How courts will treat shortened employer notices under the WARN exceptions remains to be seen. Because the applicability of such exceptions is often fact-intensive, companies should consult with legal counsel and carefully document their reasoning before relying on a WARN exception to shorten or eliminate advance notice of plant closings and mass layoffs.