The U.S. Department of Labor (“DOL”) recently issued a new compliance assistance document that answers some of the frequently asked questions it has received during the COVID-19 pandemic regarding employer responsibilities and employee protections under the WARN Act. Any employer that was hoping for an official confirmation that the WARN Act notice requirements do not apply during a pandemic was left disappointed. While acknowledging that limited exceptions might apply, the DOL guidance makes it clear that employers must still comply with the WARN Act when implementing pandemic related workforce adjustments.
Background Information
The Worker Adjustment and Retraining Notification (“WARN”) Act is a federal law that requires covered employers to provide written notice to certain parties, as identified in the statute and regulations, at least 60 calendar days in advance of a “plant closing” or “mass layoff.”
In general, employers are covered by the WARN Act if they have 100 or more employees. This does not include any employee who has worked less than 6 months in the last 12 months or who works an average of fewer than 20 hours per week.
A “plant closing” is generally defined as the permanent or temporary 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” during any 30-day period at the single site of employment for 50 or more employees, excluding any part-time employees.
A “mass layoff” is generally defined as a reduction in force which (1) is not the result of a plant closing; and (2) results in an “employment loss” at the single site of employment during any 30‑day period for: (i) at least 33% of the active employees, excluding part-time employees; and (ii) at least 50 employees, excluding part-time employees or where 500 or more employees (excluding part-time employees) suffer an “employment loss.”
The term “employment loss” includes any of the following: (1) an employment termination, other than a discharge for cause, voluntary departure or retirement; (2) a layoff or furlough exceeding 6 months; or (3) a reduction in an employee’s hours of work of more than 50% in each month of any 6 month period.
Three exceptions exist to the 60-day notice requirement, including: (1) faltering company; (2) unforeseeable business circumstances; and (3) natural disasters.
WARN Act Requirements During a Pandemic
The COVID-19 pandemic has caused many employers to consider closing their facilities or reducing their workforces. Legitimate questions have arisen concerning how the WARN Act notice requirements apply during a pandemic. In particular, do the current pandemic conditions fit into one or more of the WARN Act exceptions?
Importantly, and as confirmed in the DOL’s recently released FAQs, if an employer relies on a WARN Act exception, it still must give as much notice as is practicable. Employers must also include a brief statement of the reason for not providing the full 60 days’ notice along with other required elements of a WARN notice.
Failure to provide notice as required under the WARN Act can result in substantial liability. Non-compliant employers may be ordered to pay up to 60 days’ worth of back pay and benefits per affected employee, along with the employees’ attorney’s fees.
First WARN Act Class Action Lawsuit Filed
At least one company is already defending a federal class-action lawsuit under the WARN Act following its COVID-19 related termination of nearly 700 employees. According to the Complaint, restaurant chain Hooters “failed to provide as much written notice as was practicable under the circumstance surrounding the COVID-19 pandemic, and also failed to provide a statement of the basis for reducing the notification period to zero days advance notice.”
Not only was Hooters sued, it was also publicly shamed for its actions. According to the Complaint, “The fact that Congress recently made available to defendant and many other businesses nationwide millions of dollars in forgivable loans through the ‘Paycheck Protection Program,’ but defendant still opted to instead engage in a mass layoff — and do so without any advance written notice to its employees — only further underscores the severity of the WARN Act violations committed by Hooters.”
Although the outcome of this case remains to be seen, it is safe to assume that many similar cases will follow.
COVID-19 FAQ Document
The DOL’s COVID-19 FAQ document begins by addressing several very basic employer questions concerning WARN Act coverage and applicability.
It then addresses temporary layoffs or furloughs by confirming that neither will trigger notice requirements so long as they last for no more than 6 months. However, a temporary layoff or furlough without notice that is initially expected to last 6 months or less but ultimately is extended beyond 6 months may violate the WARN Act. In order for an employer to avoid liability in that scenario, two things must occur. First, the extension of time beyond 6 months must be due to business circumstances not reasonably foreseeable at the time of the initial layoff. Next, the required notices must be given to the appropriate parties when it becomes reasonably foreseeable that the extension is required.
In the DOL’s own words:
This means that an employer who previously announced and carried out a short-term layoff (6 months or less) and later extends the layoff or furlough beyond 6 months due to business circumstances not reasonably foreseeable at the time of the initial layoff is required to give notice at the time it becomes reasonably foreseeable that the extension is required. A layoff extending beyond 6 months for any other reason is treated as an employment loss from the date the layoff or furlough starts.
The DOL then addressed the “unforeseeable business circumstances” exception to permanent layoffs resulting from COVID-19. Specifically, the DOL said:
(1) An important indicator of a business circumstance that is not reasonably foreseeable is that the circumstance is caused by some sudden, dramatic, and unexpected action or condition outside the employer’s control. A principal client’s sudden and unexpected termination of a major contract with the employer, a strike at a major supplier of the employer, and an unanticipated and dramatic major economic downturn might each be considered a business circumstance that is not reasonably foreseeable. A government-ordered closing of an employment site that occurs without prior notice also may be an unforeseeable business circumstance.
(2) The test for determining when business circumstances are not reasonably foreseeable focuses on an employer’s business judgment. The employer must exercise such commercially reasonable business judgment as would a similarly situated employer in predicting the demands of its particular market. The employer is not required, however, to accurately predict general economic conditions that also may affect demand for its products or services.
If the above standards are met, an employer may be able to argue that it is entitled to an exception to the 60-day notice requirement. Again, though, when invoking an exception, a covered employer is still required to give as much notice as is practicable and include a brief statement of the reason for reducing the notification period.
Importantly, the DOL has not stated that a plant closing or mass layoff occurring as a result of COVID-19 is, in every situation, going to meet the requirements of the “unforeseeable business circumstances” exception. Rather, the COVID-19 FAQ Document states that “[a]pplicability of the ‘unforeseeable business circumstances’ exception rests on an employer’s particular business circumstances.”
The “Other” Exceptions
The COVID-19 FAQ Document does not address whether the COVID-19 pandemic might trigger either of the other possible WARN Act exceptions. The answer is probably no.
First, the faltering company exception, which applies only to plant closings, is very narrowly construed and most likely inapplicable to pandemics. It applies where a company has sought new capital or business in order to remain open and where giving notice would ruin the opportunity to obtain the new capital or business.
Employers may have a better argument under the natural disaster exception, but even that would be difficult. According to the applicable WARN Act regulations, the employer must be able to demonstrate that the plant closing or mass layoff was a “direct result” of a natural disaster. The regulations go on to say that “where a plant closing or mass layoff occurs as an indirect result of a natural disaster, the exception does not apply but the ‘unforeseeable business circumstance’ exception . . . may be applicable.” This is likely the reason the DOL focused only on the unforeseeable business circumstance exception in its recent guidance.
Practical Takeaways
Private Enforcement – Employers should understand that the WARN Act is enforced by private legal action. Compliance with the WARN Act is neither investigated nor enforced by the DOL. The DOL’s COVID-19 FAQ Document is, therefore, merely guidance and is not binding on courts. Nevertheless, covered employers that are considering pandemic related workforce reductions should review the DOL’s WARN Act COVID-19 FAQ Document closely, as well as the WARN Act itself and its corresponding regulations.
Permanent or Long-term Reductions – If an employer is permanently reducing its workforce or implementing layoffs or furloughs that are anticipated to last longer than 6 months, it must comply with the WARN Act’s notice requirements if there are a sufficient number of employment losses to constitute a “plant closing” or “mass layoff.” If providing 60 days’ notice is not feasible, the employer should carefully document why they could not foresee the circumstances leading to the necessary reductions. Then, it should provide as much notice as possible along with a brief statement of the reason for providing less than 60 days’ notice.
Short-term Layoffs/Furloughs – If an employer is considering temporary layoffs or furloughs that are expected to last 6 months or less, it should document the anticipated length of time that the layoff/furlough will last and the reasons supporting that timetable. If circumstances change and it becomes apparent that the layoff/furlough will last longer than 6 months, then the employer should document the changed conditions they did not initially foresee, and then immediately issue the required notices along with a brief statement of the reason for providing a reduced notice period.
Aggregating Employment Losses in Series of Reductions – Employers must also recognize that a series of workforce reduction events that are individually too small to trigger notice may—if they fall within any 90-day period—have to be aggregated for purposes of reaching the required number of employment losses.
State WARN Acts – Employers should be aware that some states have adopted their own WARN Act laws. In many cases, these “mini” WARN Acts impose similar notice requirements but have broader coverage standards. For example, an employer that is too small to be covered by the federal WARN Act may still be covered by its state counterpart. Similarly, a workforce reduction that results in only 25 employment losses would not trigger notice under federal law, but it might under state law.
Mitigating Risk – Employers that have already imposed workforce reductions without considering the WARN Act should evaluate now whether notice should have been given in advance. If so, they should consult their legal counsel to discuss potential strategies to minimize existing liability exposure.
WARN Act compliance can be quite complex and requires careful navigation of an array of technical definitions and time periods. Employers should consult legal counsel prior to undergoing any employment actions that may trigger notice requirements under the WARN Act or its state counterparts.
If you have any questions or require any assistance please do not hesitate to contact:
- Jon Bumgarner at (317) 977-1474 or jbumgarner@wp.hallrender.com;
- Mary Kate Liffrig at (720) 282-2033 or mliffrig@wp.hallrender.com; or
- Your regular Hall Render attorney.
Hall Render’s attorneys and professionals continue to maintain the most up-to-date information and resources at our COVID-19 Resource page, through our 24/7 COVID‑19 Hotline at (317) 429-3900 or by contacting your regular Hall Render attorney.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
