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WORKFORCE REDUCTION ISSUES RAISED BY COVID-19

  • Due to the COVID-19 crisis, many retailers, small businesses, and large companies have little or limited revenue coming in and are forced to address “stay-at-home” employees who are without the ability to conduct “work-from-home” business.
  • Whether government mandated or not, restrictions on business caused by COVID-19 leave these companies with few workforce options other than workforce reductions and/or temporary, indefinite, or permanent business closures.
  • In the event of a COVID-19-realted workforce reduction or business closure, these companies should consider whether they have notice obligations under the federal WARN Act and/or its state-law equivalents.

THE FEDERAL WARN ACT - 29 U.S.C. §§ 2101, et Seq.

The federal Worker Adjustment and Retraining Notification Act (the “federal WARN Act”) requires a “covered employer” to provide a 60-day written notice to “affected employees” if the employer initiates either of 2 types of workforce reduction triggering events: a “plant closing” or “mass layoff."

          A.           “Covered Employer” Defined

The federal WARN Act applies to any “Covered Employer,” which is defined as an employer with:

  • 100 or more employees, excluding part-time employees; or
  • 100 or more employees who in the aggregate work at least 4,000 hours per week (exclusive of hours of overtime).

For purposes of this definition, “Part-time Employee” means an employee who is employed for an average of fewer than 20 hours per week or who has been employed for fewer than 6 of the 12 months preceding the date on which notice is required.

          B.          “Affected Employee” Defined

Under the federal WARN Act, an employee is an “affected employee” entitled to 60-day notice under the Act if the employee may reasonably be expected to experience an “employment loss” as a consequence of a proposed “plant closing” or “mass layoff” by their employer.

  • An “employment loss” means (1) an employment termination, other than a discharge for cause, voluntary departure, or retirement; (2) a layoff exceeding 6 months; or (3) a reduction in hours of work of more than 50 percent during each month of any 6-month period.
  • A “plant closing” is a permanent or temporary shutdown of a “single site of employment” that affects at least 50 full-time employees. Notably, a shutdown that halts production or work may be considered a covered “plant closing” under the Act, even if a few employees remain.
  • A “mass layoff” is (1) termination of more than 500 full-time employees at a single site of employment within a 30-day period, or (2) termination of at least 50 full-time employees at a “single site of employment,” but only if the number of terminated employees within that 30-day period is also at least 33 percent of the full-time employees at that same “single site.”
    • In either “mass layoff” scenario, a covered employer must provide the required 60-day written notice only if the employer expects the “mass layoff” to exceed 6 months. However, extensions of shorter “mass layoff” periods also obligate a covered employer to provide the required 60-day written notice.
    • With respect to workforce reductions caused by COVID-19, this latter “extension” provision may provide covered employees some leeway with respect to the 60-day notice requirement because it is not necessarily foreseeable that COVID-19 business disruptions will exceed 6 months.

          C.           “Single Site of Employment” Defined

A triggering event has not occurred unless a “plant closing” or “mass layoff” occurs at a “single site of employment.” The term "single site of employment” may refer to either (1) single location or (2) a group of contiguous locations. Whether separate locations are considered “a group of contiguous locations” is a fact-specific inquiry regarding, inter alia:

  • The geographic proximity of the separate locations;
  • The nature of the operations conducted at the separate locations; and
  • Whether management and/or staff at the separate locations overlap.

However, there is no bright-line rule; rather, a court will have discretion to weigh and balance these factors. Although no factual inquiry is identical and a court should conduct a detailed individual analysis of an employer’s circumstances where there is a dispute, generally:

  • Groups of structures which form a campus or industrial park, or separate facilities across the street from one another all generally constitute a “single site of employment” under the Act.
  • Multiple of warehouses in the same area regularly shift or rotate the same employees from one building to another generally constitute a “single site of employment” under the Act.
  • Assembly plants located on opposite sides of a town are managed by same people, but they employ different workers do not generally constitute a “single site of employment” under the Act.
  • Contiguous buildings have separate management, produce different products, and have separate workforces do not generally constitute a “single site of employment” under the Act.

NOTE: For purposes of the federal WARN Act, workers who primarily travel, work from home, or regularly work outside primary work site are assigned to the single site of employment to which they report.

          D.          Penalties Under the Federal WARN Act

Recoverable penalties under the federal WARN Act include back pay and benefits for each day of violation to each aggrieved employee for up to a maximum of 60 days, and $500 in civil penalties for each day an employer fails to provide requisite notice to a unit of local government.  However, a covered employer may avoid the $500 civil penalty if it provides back pay to each aggrieved employee within three weeks of separation.

          E.          Exceptions to the Federal WARN Act

An otherwise  covered employer is not obligated to provide the 60-day written notice required under the Act when a triggering event is caused by (1) financial difficulties of a faltering covered employer; (2) a natural disaster; or (3) “unforeseeable business circumstances.” Whether any of these exceptions may be applied to a COVID-19 related workforce reduction or business closure will likely be resolved across the country as cases make their way through the courts.

  1.           The “Faltering Company” Exception

An otherwise covered employer under the Act may be excepted from the Act’s 60-day notice requirement, if, as of the time that notice would have been required, (1) a covered employer failed to obtain capital or business which it was actively seeking and which would have enabled the covered employer to avoid or postpone the plant closing or mass layoff, and (2) the covered employer in good faith believed that giving the required notice would have precluded it from obtaining the needed capital or business. While, some pundits believe COVID-19 related layoffs may fall within this exception, it does not seem likely given the latter requirement, and the “faltering company” exception seems to be the least likely of the three recognized exceptions which courts may apply to COVID-19 related workforce reductions or business closures.

  1.           The “Natural Disaster” Exception

No 60-day notice is required under the federal WARN Act if “the plant closing or mass layoff is due to any form of natural disaster, such as a flood, earthquake, or the drought currently ravaging the farmlands of the United States.” The Code of Federal Regulations further provides that such disasters also include storms, tidal waves, tsunamis and “similar effects of nature.” Some pundits believe COVID-19 related layoffs may fall within the definition of “similar effects of nature” exception. Future litigation will likely test this theory, but its application to COVID-19 related workforce reductions or business closures seems less likely than application of the third recognized exception—i.e., the “unforeseeable business circumstances” exception.

  1.           The “Unforeseeable Business Circumstances” Exception

Finally, a court may also except a covered employer under the federal WARN Act from the Act’s  60-day notice requirement if the triggering event is caused by business circumstances that were not reasonably foreseeable as of the date the notice would have been otherwise required. The Code of Federal Regulations further provide that unforeseen business circumstances include a “sudden, dramatic, and unexpected action or condition outside of the employer’s control” such as a “dramatic major economic downturn” or “[a] government ordered closing of an employment site that occurs without prior notice.” Again, future litigation will likely test the theory of whether this exception will apply COVID-19 related workforce reductions or business closures, but for obvious reasons, courts will likely apply the “unforeseeable business circumstances” in situations where the factual inquiry reveals that the exception in reasonable under the particular circumstances before a particular court. In making that determination, courts will likely assess whether a cover employer still provided notice as soon as possible. As such, where a covered employer who is unable to provide affected employees with the required 60-day notice of a COVID-19 related workforce reduction or business closure, the covered employer should still send late notices as soon as possible. Any such late notice should also include a statement that the shortened notice was unavoidable due to sudden, dramatic, and unexpected business circumstances caused by COVID-19 which are specially detailed in the notice.

          F.           Cautious Reliance on Any of the Above-Referenced Exceptions Is Encouraged

As noted above, the above-referenced exceptions to the federal WARN Act’s 60-day notice requirement—even if applicable to a covered employer’s workforce reduction or plant closure caused by COVID-19—do not excuse any lack of notice, just notice that a cover employer could not have given at least 60 days prior to the any such workforce reduction or plant closure that had become unexpectedly and more immediately necessary. As such, covered employers (and their counsel) are encouraged to remember:

  • The above-referenced exceptions to the 60-day notice requirement under the federal WARN Act are affirmative defenses that must be proven.
  • Whether any of the above-referenced exceptions actually will apply to any particular  workforce reduction or plant closing caused by COVID-19 is a fact-specific inquiry, and covered employers certainly will have differing factual circumstances regarding their knowledge and ability to give the required 60-day notice.
  • Important, the existing case law makes clear that reasonable business judgment, not hindsight, dictates the scope of unforeseeable business circumstances.
  • Finally, common sense dictates that if particular circumstances allow a covered employer to satisfy the 60-day obligations under the federal WARN Act (and in certain cases, similar obligations under a state-law mini-WARN Act as well), there is no sense for any such employer to roll the dice during years of litigation on the above-discussed, yet unproven legal theories. Rather, whenever possible, it behooves a covered employer to provide the required 60-day notice. And in any event, even if 60-day notice is impossible, a covered employer should always give as much notice to affected employees as the circumstances reasonably allow.

          G.          State-Law “Mini-Warn” Acts Must Also Be Considered

Some states also have state-law “mini-WARN” or other state-law notification requirements that must be considered in addition to federal WARN Act considerations. An employer is not exempt from fulfilling the obligations of a state-law mini-WARN act simply because it has complied with the federal WARN Act. Although these state-law mini-WARN acts usually mirror many aspects of the federal WARN Act, key aspects such as triggering thresholds and notice requirements may vary. The following states have mini-WARN Acts or other state-law notification requirements: California, Connecticut, Delaware, Georgia, Hawaii, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New York, North Dakota, Ohio, Tennessee, Vermont, Wisconsin, and Illinois.

For example, Similar to the federal WARN Act, the Illinois mini-WARN Act requires a covered employer to provide a 60-day written notice to affected employees in advance of a “plant closing” that affects at least 50 full-time employees at a single site of employment. Under the Illinois mini-WARN Act, however, “covered employers” include employers with:

  • More than 75 (rather than 100) employees working in Illinois, excluding part-time employees; or
  • More than 75 (rather than 100) employees working in Illinois who in the aggregate work at least 4,000 hours per week (exclusive of hours of overtime).

In addition, a “mass layoff” under the Illinois WARN Act includes:

  • more than 250 (rather than 500) full-time employees at a “single site of employment,” or
  • At least at least 25 (rather than 50) full-time employees at a “single site of employment” if the “mass layoff” also includes at least 33 percent of the full-time employees at the same site.

Other differences also exist. In addition, states are already reacting to the COVID-19 crisis by making changes to their state law mini-WARN Acts by executive order, advisory opinions issued by the state’s department of labor, or otherwise. As such, any employer considering a mass layoff of plant closure is advised to seek reputable legal counsel for advice before doing so.

If you have questions about how this ruling might affect your workplace, please contact a Johnson & Bell Employment Shareholder, Joseph F. Spitzzeri, Christopher J. Carlos, Genevieve M. LeFevour, or Brian C. Langs,