WARN Act Issues, Quirky Question # 94

Quirky Question # 94:

I own a company that manufactures boats.  We fabricate fiberglass hulls in one facility and install motors, carpet, seats, steering, etc. in another facility a few miles away.  I employ about 200 employees between the two sites.  Three weeks ago, one of my major customers cancelled a large order.  I haven’t told my employees yet, but this means I may have to let go 50-75 employees within the next month.

I’ve heard of something called the “WARN Act,” that covers employers who have to lay off employees.  Does that law affect me?

Dorsey’s Analysis:

You are right to be thinking about the WARN Act.  WARN requires an employer to give 60 days notice of termination in certain circumstances.  But whether the WARN Act would actually affect you in this instance is uncertain.  There are a number of threshold elements that must be satisfied before the WARN Act imposes any obligation on an employer.  It is unclear whether those elements would be satisfied in this situation.

As a preliminary matter, note that even if the WARN Act applies, the only obligation it imposes on an employer is to provide proper notice of the terminations to affected employees.  That can be a somewhat complicated task in itself, but employers do not have any obligation to extend employment for any amount of time or to provide placement assistance, etc. to affected employees.

To determine whether the WARN Act imposes any notice obligations requires a multi-step analysis.  First, you need to evaluate whether you are a “covered” employer?  Covered employers include those who (1) employ 100 or more employees, excluding part time employees; or (2) employ 100 or more employees (including part time employees) who aggregate at least 4,000 hours per week.  If you meet either of these tests, looking at your workforce as a whole, the WARN Act may be applicable.

Second, if you are a “covered” employer, you must next analyze the circumstances of the planned terminations.  Generally speaking, there are two types of notice triggering events under the WARN Act:  “plant closings” and “mass layoffs.”  It does not appear that you are closing a facility (or any distinct department or part of a facility), so the question is whether the facts described could be considered a “mass layoff.”

Generally speaking, a mass layoff means a reduction in force (such as the mass terminations contemplated here) that results in loss of employment at a single site of employment during any 30-day period, for 500 or more employees or at least 50 employees, if that number is at least 33 percent of the workforce.  In this case, it appears that two factors will determine whether the potential terminations involve a “notice triggering event.”  The first factor is the number of employees actually terminated.  If you only terminate 50 employees, that number satisfies only part of the test for a “mass layoff” because 50 employees is only 25 percent of your workforce.  You would need to terminate at least 66 employees to meet that threshold.

Even if the you terminate 66 or more employees, however, those terminations must occur at a “single site of employment” for a “mass layoff” to occur.  There is no simple analysis to determine what constitutes a “single site of employment.”  Making that determination requires a detailed factual assessment of the nature of the operations at separate facilities, the extent of personnel and management overlap, etc.  Federal regulations define a “single site of employment” as “either a single location or a group of contiguous locations.”  Here, the question is whether the two facilities are “contiguous.”  It appears they are not for purposes of the WARN Act.  The federal regulations specifically note that:

“Non-contiguous sites in the same geographic area which do not share the same staff or operational purpose should not be considered a single site.  For example, assembly plants which are located on opposite sides of a town and which are managed by a single employer are separate sites if they employ different workers.”

As the two facilities have been described – one for fiberglass fabrication and one for installation of interior components – they would likely have different “operational purposes” under the WARN Act.  If so, and particularly if the facilities do not share employees on a regular basis, it appears that the two facilities should be analyzed separately.

As such, it matters from which facility the employees may be terminated.  If 50 or more employees are terminated from one facility, the WARN Act would impose notice obligations as to the employees in that facility.  If fewer than 50 employees are terminated per facility, then WARN may not be triggered.  Again, a thorough assessment of several factors not spelled out in your note should be undertaken before drawing conclusions based on the number of terminations at separate facilities alone.

Third, from your note it appears that the need to downsize is the product of a customer’s unanticipated cancellation of a large order.  Although this circumstance will not relieve you of the obligation to provide WARN notice, where the law applies, it may shorten the required notice period.  The WARN “unforeseeable business circumstances” exception allows for less than 60 days notice if the business circumstances requiring a mass layoff or plant closure were not reasonably foreseeable at the time 60 days notice would have been required.  In your case, if you had no reason to expect that the customer in question was going to cancel the order, you may be able to go ahead with the terminations without giving the full 60 days notice.  This analysis itself raises numerous questions of fact – for example, why did the customer cancel the order and what insight, if any, did you have into that issue – and it will be your burden to prove that the exception applies.

Fourth, even if you can demonstrate unforeseeable business circumstances, however, you have an obligation to provide whatever notice is reasonable under the circumstances.  Here, for example, it appears that you have known about the cancelled order for several weeks, and the potential implications of that cancellation, but have not provided notice under the WARN Act.  While an employer does not have to give employees notice immediately upon learning of business difficulties – for example, if the employer needs time to determine whether a loss of business will actually require layoffs – the fact that you have known of the cancellation for several weeks could create significant questions as to whether you provided reasonable notice if you attempt to proceed with terminations on less than 60 days notice.   Needless to say, the seemingly simple WARN Act can be very complicated in practice.

Finally, it is not just the federal WARN Act you need to consider.  Many states have enacted their own, stricter versions of the WARN Act.  By way of example only, “mass layoffs” are defined under Illinois and New York law to include layoffs affecting 25 or more employees (rather than 50 or more), if that number is at least 33 percent of an employer’s workforce.  Any employer considering whether to terminate multiple employees should always pay attention to state law as well as federal law.  In addition, there are efforts underway to strengthen WARN Act protections for employees.  Most recently, a bill was introduced in Congress in April that would redefine “mass layoffs” to include employment losses from a single employer of 50 or more employees (if that number is at least 33 percent of the workforce) at more than one site of employment and double penalties for noncompliant employers.  You should monitor theses developments.

Dorsey & Whitney

Dorsey is a business law firm, applying a business perspective to clients' needs. We make it our first priority to know the context in which you do business - your market, your competitors, your industry.

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