WARN Act Basics

I. The Worker Adjustment and Retraining Notification (WARN) Act

A. General Provisions / Coverage
The WARN Act, enacted on August 4, 1988 and effective as of February 4, 1989, provides protection to workers, their families, and their communities by requiring employers to provide 60 days advance notice of certain plant closings and mass layoffs.

In general, employers are covered if they have 100 or more employees, not including any employees who have worked less than 6 months in the preceding 12 months, or any employees who work an average of less than 20 hours per week. The Act covers private for-profit and non-profit employers, as well as public and quasi-public entities that operate in a commercial context and are separately organized from the regular government. The Act does not cover regular federal, state and local government entities that provide public services.

The Act provides protection to hourly and salaried workers, as well as managerial and supervisory employees. The Act does not cover business partners.

The Act is intended to allow workers time to make appropriate arrangements for a new job or retraining. However, it does not require employers to provide paid time off to affected workers. Rather, it is within the discretion of the employer to give the worker paid time off to look for another job.

B. Triggering Events
For purposes of triggering events under the WARN Act, “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 an employee’s hours of work of more than 50% in each month in any 6 month period. However, note that if the loss is the result of the relocation or consolidation of all or part of the employer’s business and the employer offers the employee a transfer to another employment site within reasonable commuting distance, and the employee refuses such transfer, there will be no “employment loss” under the Act. Also note, if the employer offers the employee a transfer to another employment site anywhere, and the employee accepts the transfer within 30 days of the offer or within 30 days after the plant closing or mass layoff, there also will be no “employment loss” under the Act. The foregoing exceptions apply as long as the transfer offer is made before the closing or layoff occurs, there will be no more than a 6 month break in employment, and the new position is cannot be deemed a constructive discharge.

1. Plant Closing
Covered employers must provide notice if an employment site (or one or more facilities or operating units within an employment site) will be shut down and the shutdown will result in an employment loss for 50 or more employees during any 30 day period.

2. Mass Layoff
Covered employers must provide notice if there will be a mass layoff which does not result from a plant closing, but will result in an employment loss at an employment site for 500 or more employees, or for 50-499 employees if they make up at least 33% of the employer’s total active workforce, during any 30 day period. Covered employers must also give notice if the number of employment losses for 2 or more groups of workers, each of which is less than the minimum number needed to trigger the notice requirement under the Act, reaches the threshold level during any 90 day period of either a plant closing or mass layoff. Such job losses within a 90 day period will count together toward the Act threshold requirements unless the employer demonstrates that the losses during the 90 day period were the result of separate and distinct actions and causes.

3.Sale of Business
If the sale of a business by a covered employer results in a covered plant closing or mass layoff, notice is required. The notice must be provided by the seller if the closing or layoff occurs up to and including the date/time of the sale. The buyer is required to provide the notice if the closing or layoff occurs after the date/time of the sale. Covered employees of the seller become employees of the buyer, for purposes of the Act, immediately following the sale.

C. Notice Requirements
1. Notice Recipients
Covered employers must give written notice to the chief elected officer of the exclusive representative(s) or bargaining agency of the affected employees and to any unrepresented workers who may reasonably be expected to experience an employment loss as defined by the Act. Notice must be given to employees who have worked less than 6 months in the preceding 12 months and employees that have worked an average of less than 20 hours per week even though such employees are not counted when determining if a triggering event has occurred. Notice must also be given to any employees who may lose their job due to “bumping” or displacement by other workers, if the employer can identify such employees at the time notice is given. If the employer cannot determine the identity of such employees, it must provide notice to any incumbents who hold positions that are being eliminated.

Covered employers must also provide notice to the State dislocated worker unit and to the chief elected official of the unit of government in which the employment site is located.

2. Notification Period
Notice must be provided at least 60 days before a covered closing or layoff. When the individual employment separations related to a closing or layoff occur on more than one day, the notices are due at least 60 days before each separation.

3. Form and Content of Notice
No particular form of notice is required. However, notice must be in writing and must be specific. The information provided in the notice must be based on the best information available to the employer at the time the notice is served.

The notice must contain a specific date, or a 14 day period, during which a separation is expected to occur. If a 14 day period is used, notice must be given at least 60 days in advance of the first day of the period.

If the notice is being provided to a representative of the affected workers, it must contain: (1) name and address of employment site where closing or layoff will occur, with name and phone number of company official to contact for further information; (2) statement as to whether the planned event is expected to be permanent or temporary and, if applicable, statement as to entire plant being closed; (3) expected date of the first separation and anticipated schedule for making separations; and (4) job titles of positions to be affected and the names of the workers currently holding the affected jobs.

If the notice is being provided to an unrepresented affected employee, it must be written in language understandable to employees and must contain: (1)statement as to whether the planned event is expected to be permanent or temporary and, if applicable, statement as to whether entire plant is closing; (2) expected date when closing or layoff will begin and the expected date when the specific employee will be separated; (3) indication whether or not bumping rights exist; and (4) name and phone number of company official to contact for further information.

In addition to the required contents of the notices to affected workers or their representative, notice to the State dislocated worker unit and to the chief elected official of the unit of government must also contain the number of affected employees in each job classification and then name of each union representing affected employees, with the name and address of the chief elected officer of each such union.

Notice required under the Act may be delivered by any reasonable method of delivery to ensure receipt at least 60 days before a covered closing or layoff.

D. Enforcement/Penalties
The remedies provided for in § 2104 of the Act are the exclusive remedies for any violation of the Act’s provisions. Pursuant to § 2104, a person seeking to enforce the Act’s provisions, including a representative of aggrieved employees or a unit of local government, may bring individual or class action civil suits in any district court of the United States for any district in which the violation is alleged to have occurred or in which the employer transacts business. The district court, in its discretion, may allow the prevailing party a reasonable attorney’s fee as part of the awarded costs.

Under § 2104, an employer who violates the Act’s provisions and fails to provide the required notice is liable to each aggrieved employee for back pay and benefits, including the cost of medical expenses incurred during the employment loss which would have been covered under an employee benefit plan if the employment loss had not occurred. The amount of pay for each day shall be the greater of: the average regular rate received by the employee during the preceding 3 years of employment; or, the final regular rate received by the employee. Such liability shall be calculated for the period of the violation, up to a maximum of 60 days. Note that the Third Circuit has held that employees may receive wages for 60 calendar days, as opposed to the number of working days during the 60 day notice period. The Third Circuit has further held that back pay includes overtime which is normally and regularly available and that employees on disability status are entitled to damages.

An employer’s liability will be reduced by the amount of any wages paid to the employee for the period of the violation, any voluntary and unconditional payment to the employee that is not required by any legal obligation, and any payment to a third party or trustee (such as premiums for health benefits) on behalf of and attributable to the employee for the period of the violation.

If an employer proves that the act or omission which violated the Act was done in good faith and that the employer had reasonable grounds for believing the act or omission was not a violation of the Act, the district court may, in its discretion, reduce the amount of the liability or penalty provided for by § 2104.

An employer who fails to provide notice to a unit of local government as required by the Act will be subject to a civil penalty of not more than $500 for each day of such violation. However, the employer will not have to pay this fine if it pays each aggrieved employee the amount it is liable to him/her within 3 weeks from the shutdown or layoff.

E. Employer Defenses
1. Temporary facility/project
Covered employers do not need to provide notice under the Act if the closing is of a temporary facility, or the closing or layoff is the result of the completion of a temporary project. However, this exemption only applies if the workers were hired with the understanding that their employment was limited to the duration of the facility or project. Employers cannot label an ongoing project as “temporary” in order to evade their obligations under the Act.

2. Strikes/Lockouts
Covered employers do not need to provide notice under the Act if the result of strike or lockout is equivalent to the employment loss threshold requirements for a plant closing or mass layoff. However, this only applies to workers who are part of the bargaining unit(s) involved in the labor negotations that led to the lockout or strike. Non-striking employees who experience an employment loss as a direct or indirect result of the strike and are not part of the bargaining unit(s) involved in the labor negotiations are still entitled to notice under the Act.

Covered employers do not need to provide notice under the Act when permanently replacing an “economic striker” as defined by the National Labor Relations Act.

3. Faltering Company
The “faltering company” exemption applies only to covered plant closings. It is an affirmative defense to liability, placing the burden of establishing its required elements on the employer. It provides a defense to liability under the Act to covered employers who demonstrate that: they were actively seeking financing or business at the time notice was required; there was a realistic opportunity to obtain the financing or business; the financing or business would have enabled them to avoid or postpone the plant closing; and they reasonably and in good faith believed that giving notice would have precluded them from obtaining the needed financing or business. In order to claim this exemption, the employer must show that it has taken concrete steps to secure the needed funds and must be able to identify specific actions taken to obtain capital or business.

4. Unforeseen Business Circumstances
The “unforeseen business circumstances” exemption provides for a reduction in, or elimination of, the required notice period under the Act for situations involving a plant closing or a mass layoff caused by business circumstances that were not reasonably foreseeable at the time the notice would have been required. In order to claim this exemption, the employer must show that the circumstances were sudden, dramatic, unexpected, and outside of the employer’s control.

When determining whether a closing was caused by unforeseeable business circumstances, the courts evaluate whether a “similarly situated employer” in the exercise of commercially reasonable business judgment would have foreseen the closing.

5. Natural Disaster
The “natural disaster” exemption applies when a covered closing or layoff is the direct result of a natural disaster such as a flood, earthquake, drought or storm. This exemption excuses a covered employer completely from the obligation to provide advance notice under the Act. However, the final WARN regulations state that while advance notice is not required, some notice, even if after the fact, must be given for a loss caused by a natural disaster.

6. Good Faith
The courts have discretion to reduce an employer’s liability under the Act when the employer acted in good faith. The employer is required to show both subjective good faith and an objectively reasonable belief that its conduct did not violate the statute. The “good faith” defense is an affirmative defense and the employer bears a “substantial burden” of proof.

Actions taken by the employer after the alleged violation has already occurred, such as helping employees find new jobs, providing unemployment insurance payments, and continuing to provide fringe benefits, do not prove good faith.

7. Liquidating Fiduciary
The WARN Act defines an employer as any “business enterprise” that employs a certain number of employees. While the Act itself does not define a business enterprise, the Department of Labor’s comments to its regulations implementing the Act suggest that whether an entity is an “employer” under the Act depends in part on the nature of the entity’s activities:

The term “employer” includes public and quasi-public entities which engage in business (i.e., take part in a commercial or industrial enterprise, supply a service or good on a mercantile basis, or provide independent management of public assets, raising revenue and making desired investments)…
20 C.F.R. § 639.3(a)(1)(ii), 54 Fed. Reg. 16042, 16065 (1989).

Furthermore, the commentary specifically addresses an exemption to the Act’s provisions for fiduciaries whose sole purpose is to liquidate a failed business:

The Department does not think it appropriate to [exclude all bankrupt companies from the definition of “employer”]. Further, DOL agrees that a fiduciary whose sole function in the bankruptcy process is to liquidate a failed business for the benefit of creditors does not succeed to the notice obligations of the former employer because the fiduciary is not operating a “business enterprise” in the normal commercial sense. In other situations, where the fiduciary may continue to operate the business for the benefit of creditors, the fiduciary would succeed to the WARN obligations of the employer precisely because the fiduciary continues the business in operation.
54 Fed. Reg. at 16045.

In reviewing whether a specific entity qualifies as an “employer” under the Act, the courts have considered whether the entity was engaged in business during the time prior to the plant closing or mass layoff. Based on the Department of Labor’s above commentary, the courts have held that whether a bankrupt entity is an “employer” under the Act depends on the nature and extent of the entity’s business and commercial activities while in bankruptcy. The more closely the entity’s activities resemble those of a business operating as a going concern, the more likely it is that the entity is an “employer.” The more closely the activities resemble those of a business winding up its affairs, the more likely it is the entity is not subject to the requirements of the Act.

The “liquidating fiduciary” doctrine recognizes that once a company is preparing for liquidation, it is not functioning as a business enterprise and has assumed new and different duties and obligations. Moreover, a company that is in the process of liquidating has no prospect of further business with which to fund 60 days’ pay and benefits to its employees, and in addition, must prepare whatever resources it has left for the benefit of all creditors. Thus, the courts have held that an entity that has ceased operating in the normal course of business and was preparing itself for liquidation at the time of the employment loss is not an “employer” under the Act and is not obligated to comply with its notice provisions.

II. State and Local WARN Regulations

Several states have enacted their own WARN regulations which differ slightly from the provisions of the federal WARN Act. Attached is a chart summarizing the provisions of the state regulations.

In addition to the state regulations covered in the attached chart, the City of Philadelphia has also enacted its own WARN Act. The City of Philadelphia’s Worker Adjustment and Retraining Notification Act (WARN) of 1985 requires Philadelphia-based businesses with 50 or more employees to submit a letter (“impact statement”) to the Philadelphia Director of Commerce specifying the anticipated economic impact associated with the impending and involuntary closure or relocation of their facilities. The impact statement must include the employer’s payroll, the number of employees affected by the action, and the employer’s efforts to find suitable employment for those affected by the closure or relocation. Similarly to the federal Act, Philadelphia’s WARN Act requires covered employers to provide notice to affected employees, and any employee organization which represents the affected employees, no less than 60 days prior to the date of the closing or relocation. The Philadelphia Act does not apply to any involuntary closing (defined as a closing pursuant to court order or caused by fire, flood, natural disaster, national emergency, acts of war, “civil disorder or industrial sabotage”), an employer who has filed for bankruptcy, or discharge of employees due to strikes and lockouts. Under the Philadelphia Act, the court can enjoin the employer from carrying out its closure or relocation until it has given the required notice. In the alternative, if the employer violates the Act and has already closed or relocated, the court will award damages to each affected employee in an amount equal to the average daily wage of that employee times the number of work days, up to 60 days, in which notice was not provided by the employer.