Before executing a mass layoff, employers must consider all possible legal repercussions. Important considerations may include a close review of any labor or employment contract language and applicable state and federal laws. If such considerations are not taken seriously, adverse legal consequences may follow, such as forced rehiring and other negative results.
Federal Worker Adjustment and Retraining Notification
The federal Worker Adjustment and Retraining Notification Act (WARN) was enacted in 1988. The purpose of WARN is to provide workers and their families with advance notice of the loss of employment and income, to allow the employee sufficient time to obtain another job or seek training or retraining to allow them to compete successfully in the job market. WARN also provides notice to state dislocated worker units so that they may offer dislocated worker assistance.
WARN requires employers to give at least 60 days advance notice to employees of the following:
- Closing a plant. A plant closing under WARN means the permanent or temporary shut-down of a single site of employment, if such shut down results in the loss of 50 or more employees during a 30-day period.
- Conducting a mass layoff. A mass layoff involves the loss of at least 50 full-time employees at a single site of employment, provided the layoff involves at least 33% of the employees at the site. Employment losses of 500 or more full-time employees automatically qualify as a mass layoff under WARN.
Employers with 100 or more full-time employees or 100 or more employees who in the aggregate work at least 4,000 hours per week (excluding overtime) are subject to the provisions of WARN, and all employees, i.e., managers, supervisors, salaried and hourly workers, must be given notice of actions under WARN.
Penalties for Violation of WARN
Employers who fail to abide by WARN regulations are generally required to reimburse employees for lost income associated with the insufficient notice. Specifically, employers who violate WARN are subject to the following consequences:
- Employers must pay backpay and benefits for an amount equal to the period of violation, up to 60 days. This amount may be reduced by the period of any notice given.
- Employers who fail to notify the local governmental unit of a closing or layoff are subject to a $500 penalty for each day of violation. The employer, however, may avoid this penalty by satisfying any liability to employees within three weeks following the mass layoff or closure.
Other WARN Considerations
The provisions of WARN generally do not preempt any applicable state and local laws or even private contracts. Rather, WARN is merely intended to supplement such provisions or contracts.
Since WARN has been in existence for almost 20 years, the courts have had a significant opportunity to assess the applicability of its provisions, and numerous exceptions have been created. Such potential exceptions to the applicability of WARN include:
- Sale or Purchase of a Business
- Business Relocation
- Business Consolidation
- Unforeseeable Business Setbacks
Other Considerations in Conducting a Mass Layoff: Adhering to Contract Terms
In addition to complying with WARN, an employer contemplating a mass layoff must also review and adhere to the terms of any employment or labor agreements. In a significant 2003 arbitration in New York, Verizon Communications (Verizon) was ordered to rehire 2,300 New York employees for failure to correctly interpret such an agreement. The Communications Workers of America (CWA), which represents many of Verizon's workers, successfully argued that many December 2002 layoffs violated the current contract between Verizon and the CWA.
Interpreting Contract Language
The CWA claimed that, pursuant to the contract, lay-offs were allowed only after the occurrence of certain specified events. Such triggering conditions included “discrete external events,” such as the loss of a major contract. Verizon argued that the economy had turned “sour” and competition had become significantly more competitive, resulting in the loss of business. It further asserted that this loss of business eliminated the need for many positions, and that this was a sufficient basis for layoffs under the contract. The arbitrator disagreed and held that increased competition was not analogous to “discrete external events.”
Under the ruling, Verizon was ordered to:
- Reinstate (rehire) 2,300 workers
- Award the workers back pay, minus severance payments and unemployment benefits received as a result of the layoff
- Give reassigned workers back their old jobs