During the past six months, a host of major U.S. companies have started issuing warnings about their expected future performance by retracting or reducing previously issued earnings forecasts. Some of these companies have even announced plans for layoffs. A workforce reduction may be an easy way for companies to offset anticipated earnings decreases. However, employers must be cautious and thoughtful about implementing workforce reductions, because there are very specific laws governing how certain layoffs may be carried out.
WARN Act Requirements
The Worker Adjustment and Retraining Notification Act (“WARN”) requires employers with 100 or more employees to provide 60 days’ advance written notice of 1) any permanent or temporary shutdown of an employment site, facility or operating unit that impacts 50 or more employees; and 2) a reduction in force that results in the loss of employment for 50 or more employees representing at least 33% of the active workforce at a single site, or 500 or more employees.
Common Pitfalls Under WARN
Most employers with 100 or more employees make an initial determination about the applicability of WARN with the number 50 in mind. If 50 employees will be impacted by a proposed reduction, the employer must consider whether the reduction in force involves 1) the closure of a plant, site or organizational unit; or 2) an “across the board” company-wide reduction in force.
For closures, the employer is subject to WARN. For across the board, company-wide reductions, the employer is subject to WARN only if the number of impacted employees also represents at least 33% of the total workforce at a single site. Even after employers engage in this analysis, it makes sense to run the proposed reduction in force past a lawyer with WARN experience, because WARN is fraught with pitfalls for the unwary and inexperienced.
Some examples include the following:
- “Plant Closing”: It would be natural to assume that a Plant Closing means what it says – the closing of an entire plant. However, under WARN, plant closings include situations when an employer closes a site, facility or operating unit. So, for example, a company wishing to reduce overhead may decide to outsource janitorial duties to a contractor. By doing so, the company is able to lay off the 60 employees who work as janitors. Even though the 60 employees only represent 10% of the total workforce, if the outsourcing resulted in the elimination of the entire janitorial operating unit, WARN likely applies. Employers seeking to avoid the 60-day notice required under WARN must carefully consider the impact of proposed layoffs and avoid the temptation to simply eliminate or outsource based on operational ease.
- Counting Employees: Under WARN, part-time employees are not counted among the 100 employees required to trigger WARN compliance. However, part-time employees are entitled to the 60-day notice required under WARN. Conversely, temporary employees are counted to determine WARN applicability, but they are not entitled to the 60-day notice, even if they are included among the employees being laid off. As a result, an employer with a large number of temporary employees may be subject to WARN but avoid the 60-day notice requirement by confining layoffs to temporary employees only.
- State or “Baby WARN Acts”: Employers who operate in multiple states must be mindful that thirteen states maintain laws that augment the rights guaranteed by WARN. Some states increase the number of days’ notice required for a layoff. Others decrease the number of employees required for determining when a plant, site, or operational unit closing or mass layoff occurs. Employers should carefully review the laws of any state where they employ individuals who may be impacted by a plant closing or layoff.
- 90 Days and Modifications: Employers may not avoid the application of WARN by simply staging plant closings or layoffs over time in an effort to keep the number of impacted employees below 50 at each stage. WARN looks at employment losses during a 90-day period. As a result, unless an employer can prove that subsequent layoffs are motivated by totally distinct circumstances (e.g., unforeseen loss of a major contract, natural disaster, etc.), any employment losses during a 90-day period will be added together to determine WARN applicability. Finally, while employers may make changes to the layoff date, if the employer extends the layoff date by 60 or more days past the date in the initial WARN notice, a new notice must be issued.
Other Reduction in Force Pitfalls
Title VII of the Civil Rights Act of 1964 (“Title VII”) prohibits employers from treating employees differently based on protected characteristics (race, gender, age, religion, etc.). Title VII also prohibits employers from applying what appears to be a neutral policy or practice that has a disproportionately negative effect on a protected group. Once an employer has applied the criteria for layoff to its workforce, employers should carefully consider the resulting list of employees to be laid off. Often, employers are surprised to see that a disproportionate number of employees in one or more protected classes has been impacted. There are multiple applications that can run this statistical analysis for employers considering a reduction in force, but it is an exercise that thoughtful employers must include in their layoff processes to avoid potential financial liability for discrimination that could outstrip any financial benefits of a reduction in force. In the past, employers paid little attention to layoffs that disproportionately impacted white males. Under the current administration, employers can no longer afford to look past such a disparity.
Many employers will offer severance to employees impacted by a reduction in force. These severances are typically included in a waiver and release agreement signed by the employee. Employers should consult with legal counsel before offering any such severance agreements. In addition to WARN and state laws governing the content of severance agreements, employers must consider the impact of the Older Workers Benefit Protection Act (“OWBPA”). As many employers know, OWBPA requires that severance agreements provided to employees over the age of 40 must include, among other things, a provision allowing the employee 21 days to consider the severance agreement and 7 days to revoke the agreement after signing. Any severance agreements offered to employees as part of a reduction in force that impact two or more employees over the age of 40 must include a 45-day consideration period. The severance agreement must also identify 1) the group of employees considered for the reduction in force; 2) the criteria used to select employees for inclusion in the reduction in force; and 3) job titles and ages of all employees considered for the reduction in force, including who was chosen and who was not chosen.
Conclusion
Employers who are thinking about a possible workforce reduction should consult with legal counsel and consider the impact of WARN, Title VII, the OWBPA and laws of states where impacted employees reside, among other things. Failure to consider or to accurately apply these critical laws may result in significant harm to an employer already in economic distress.
Please direct any questions or comments to Zachary Wiseman.