Labor & Employment Alert: The WARN Act – Advance Notice for Plant Closures and Mass Layoffs

On Monday March 23 at midnight, the “Stay At Home Order” issued by Ohio’s Director of Public Health became effective. This order required all non-essential businesses to cease operations. While imperative for public health, the effect of this order (and previous orders aimed at preventing the spread of COVID-19) will undoubtedly cause businesses throughout the state to implement layoffs or close plants. In a nutshell, the federal Worker Adjustment and Retraining Notification Act (the “WARN Act”) requires those businesses, which are governed by its provisions, to provide at least 60 calendar days advance written notice of any plant closing or mass layoffs to its affected employees.

The purpose of the WARN Act is to allow employees some time to prepare for the loss of employment by giving them time to seek a new job, learn a new skill, or retrain so they can compete in the job market. In the case of a typical plant closing or layoff, such as one caused by a decrease in work or funds, or one that is caused by a company relocation, merger, or buyout, a business has time to comply with the required notice provisions. In the case of plant closings and mass layoffs caused by COVID-19, many businesses will find that they need to act quickly and may not have the luxury of time to provide proper WARN Act notice.

Fortunately, there are certain exemptions to the WARN Act’s requirements, which are likely to be relied upon now: the “unforeseen business circumstances” exemption, the exemption for “faltering businesses,” and perhaps also, the exemption for “natural disasters.” In cases where an exemption applies, the WARN Act will excuse a business from failing to provide the required amount of advance notice to its workers.

Businesses should not consider themselves absolved of the requirement to provide any WARN Act notice, even if they believe an exemption applies. Furthermore, they know that there is no clear authority on whether these exemptions will ultimately apply to circumstances prompted by COVID-19. Notwithstanding, these exemptions will probably provide some measure of protection if a business cannot fully comply with the WARN Act given the wide-sweeping effects this pandemic is having on businesses nationwide.

It is important that every business contemplating plant closings and mass layoffs consider the WARN Act as it applies to that business’s particular circumstances by considering the following:

• Does the WARN Act apply? The WARN Act will generally apply to employers who have 100 or more employees, excluding part-time employees, or those who have 100 or more employees, including part-time employees if those part-time employees collectively work at least 4,000 hours a week, not including overtime.

• Is this a “plant closing” or “mass layoff”? Generally speaking, a “plant closing” is a permanent or temporary shutdown of a single site of employment that results in an “employment loss” during any 30-day period and which affects 50 or more employees, excluding those who work part time. A “mass layoff” is a reduction in force that is (1) not the result of a plant closing and (2) results in a loss of employment at a single employment site if the loss of employment occurs during a 30-day period and involves either 50 or more employees, which collectively make up at least 33% of all active employees, or 500 more employees.

• What about temporary shutdowns? A temporary shutdown can require notice if there are a sufficient number of terminations or layoffs that will exceed six months, or if the shutdown meets the definition of “employment loss,” noted below.

• What qualifies as an “employment loss” under the WARN Act? The WARN Act defines employment loss as (1) any termination that is not for cause, voluntary, or the result of an employee’s retirement; (2) which exceeds 6 months; or (3) a reduction in hours worked for individual employees of more than 50% during each month of any 6-month period. Note: Transfers and relocations can be deemed “employment loss” depending on the circumstances.

• If 60 days’ notice is not possible, what notice does my company have to give and what should it say? Employers should give WARN Act notice even if they are not able to provide the full 60 days’ notice. Typically, the notice must be given to the impacted employees or union representative. There are also notice obligations to governmental entities. The WARN Act requires notice to “be specific”, and it sets forth the specific information that the notice must contain, but generally requires that the employees be fully apprised whether their employment will be affected. This information includes when the plant will be closed or the layoff is expected, whether it is permanent or temporary, and if temporary, the expected duration.

• Will COVID-19 provide an exemption? Possibly. As noted above, the WARN Act provides exemptions for “unforeseen business circumstances,” “faltering businesses,” and “natural disasters.” The United States Department of Labor has not yet provided any guidance on the implications of business layoffs and closings due to COVID-19. However, California has relaxed the notice requirements of its Mini-WARN Act, which indicates that certain federal exemptions may apply to plant closings and layoffs related to COVID-19. See generally the United States Code of Federal Regulations, 20 CFR 639.9.

• What is the “unforeseeable business circumstances” exemption? This exception applies to plant closings and mass layoffs caused by business circumstances that were not reasonably foreseeable and will typically apply where there was a “sudden, dramatic, and unexpected action or condition outside the employer’s control.” This is the most likely to be invoked section of the WARN Act given state mandates closing businesses. However, as the shutdowns continue to roll out across the country, and the revenues of open businesses decline, many businesses are arguably now on notice of the possibility of a Coronavirus-related closing, thus making a plant closing or mass layoff reasonably foreseeable.

• What is the “faltering business exemption”? This narrow exemption will apply to businesses who have been actively seeking capital or financing at the time the notice would have been required. To invoke this exception, a business must have been trying to obtain capital or financing where there was a realistic opportunity to obtain it and the capital or financing sought must have been sufficient to avoid the plant closing or shutdown if it was obtained. Furthermore, the business must have a reasonable and good faith basis to have believed that providing the notice would have precluded it from obtaining the necessary capital or financing. Notably, this exception would probably not be possible for those businesses seeking government loans that are being provided in response to COVID-19 because the possibility of a plant-closing or layoff is the sole reason behind these loans in the first place.

• What is the “natural disaster exemption”? This exemption applies specifically to a plant closing or layoff that is the direct result of “floods, earthquakes, droughts, storms, tidal waves, tsunamis” and similar natural disasters. While COVID-19 is arguably natural, and to many a disaster, it probably would not apply here. Nevertheless, the results of this pandemic are relatively unchartered waters and it could arguably apply.

Also, keep in mind that many states have what are known as “Mini” WARN Acts, which may require notice for businesses (or circumstances) not governed by the federal WARN Act. Ohio follows the federal WARN Act, but businesses operating in other states should be aware of additional state-specific requirements.