WARN Act Considerations in an Uncertain Economy

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Jenny Craig is a well-known weight management and nutrition company. It recently announced it is going out of business after 40 years. More importantly for this update, though, is that Jenny Craig is also facing a class action lawsuit alleging federal and state Worker Adjustment and Retraining Notification (WARN) Act violations. With an uncertain economy, many businesses, even ones that are not fully closing shop, are facing financial pressures and the decision to permanently layoff or temporarily furlough employees. For example, layoffs have recently occurred at Nestlé, 3M, Google, Amazon, and McDonald’s, in addition to the complete closure of Jenny Craig. Given the current economic environment, employers would be well served with a reminder of some of the main requirements of and some of the key exceptions to the WARN Act.

On the federal level, the WARN Act was passed by Congress in 1988 and became effective a year later. The purpose of the Act is to protect employees, their families, and communities by requiring employers with 100 or more employees (excluding part-time employees) to provide advance notification of planned closings and mass layoffs of employees. Further, it requires 60 days’ advance notice, in writing, to each affected employee of a planned plant closing or mass layoff.

Generally, a plant closing is the permanent or temporary shutdown of a single site of employment for any 30-day period, which affects 50 or more employees. Alternatively, a statutory mass layoff is triggered at a single site of employment under either of the following situations:

• At least 50 employees are permanently laid off, which constitute at least 33 percent of the total active workforce at the single site of employment, or
• At least 500 employees permanently laid off at single site of employment, regardless of the percentage of the employer’s total active workforce.

Both a plant closing and a mass layoff require an “employment loss” to occur. However, the way “employment loss” is defined creates other triggering scenarios, which prevents employers from attempting to circumvent these rules. First, if a temporary layoff is announced for less than 6 months, but is later extended beyond 6 months, the WARN Act applies. Second, if an employer reduces the number of hours of work for 50 or more employees by 50% or more for each month in any 6-month period, the WARN Act is likewise triggered. Further, employment loss is analyzed on a rolling basis, such that an employer cannot simply terminate 49 employees on one day, and another 49 on the following day in an attempt to circumvent the WARN Act, because the WARN Act will consider employment loss across a 30-day period. If an employer is facing the possibility of any of the scenarios described above, the employer should be cognizant of its obligations under the WARN Act to provide 60 days’ advance written notice.

There are important exceptions, however. For example, a plant closing or mass layoff resulting from a natural disaster may be excepted from the notice requirement. Unforeseeable circumstances present another exception. If business circumstances initially suggest a furlough is necessary, but will not need to extend beyond 6 months, the WARN Act may not apply as of the date of the initial, less-than-6-month furlough. However, if businesses circumstances change that were not reasonably foreseeable at the time of the initial furlough date, the WARN Act will apply as soon as the employer becomes aware that the furlough will need to extend beyond 6 months. Although the WARN Act may not apply retroactively to the initial furlough date in these circumstances, the notice requirement will be triggered as soon as it becomes reasonably foreseeable the furlough will need to extend beyond 6 months. A third exception, albeit a complicated one that will not be fully addressed here, is for faltering companies.

The above analysis applies anywhere in the United States. However, several states and even some large cities, such as Philadelphia, have their own WARN laws with additional requirements. These state and local laws are colloquially nicknamed “mini-WARN Acts.” As previously indicated, Jenny Craig is alleged to have run afoul of not only the federal WARN Act, but the New Jersey version as well. State requirements vary drastically, from being more restrictive, to simply requiring additional notification to a state agency. For example, the Illinois WARN Act covers employers with only 75 employees, and applies to mass layoffs of just 25 or more employees constituting 75% of the workforce, whereas Oregon’s WARN Act simply requires written notice be provided to its Department of Community Colleges and Workforce Development in addition to the affected employees. The bottom line is these mini-WARN Acts create an additional level of consideration necessary to navigate an already complex statutory scheme. 

Given the current flux in the economic environment, employers would be well-advised to consider the implications of federal and state WARN laws (not to mention local laws) before implementing a plant closing, mass layoff, or even a temporary furlough. This update addresses the tip of the iceberg and employers can face a myriad of unique circumstances that may implicate the WARN Act. Maynard Nexsen attorneys have dealt with these issues and we are willing and able to provide counsel and additional guidance to employers.