The WARN Act requires employers to provide written notice to their employees in advance of certain mass layoffs, business restructurings, or business closings that will result in employment losses for those employees. The purpose of the law, as its acronym suggests, is to provide the employees who are losing employment with sufficient advance notice so that those employees can prepare for the job loss and seek other employment.
The WARN Act’s application is triggered only in specific types of “plant closings,” “mass layoffs” and certain work relocation and work hour reductions. Further, the WARN Act applies to employers with 100 employees (but, in some states, like New York, the law applies to companies with just 50 employees). The advance notice must be provided not only to employees who will lose their employment, but also to local and federal government regulators. The notice of job loss must be provided to the affected employees at least 60 calendar days before the job loss, however, some states require more advance notice (e.g., NYS requires 90 days’ notice). (more advance notice is required in some states, like New York). Failure to provide adequate WARN notices, when required, could result in the employer being ordered to pay the employees’ lost wages (during the notice period) and benefits, and penalties to the government. Elon Musk has been embroiled in a number of WARN lawsuits as a result of his restructuring of Twitter.
Many employers will seek to structure their business reorganization in a manner to “avoid” the WARN Act’s obligations. One of the more challenging questions, thus, becomes whether the WARN Act is triggered by the specific layoff or business closing at issue. As indicated in the previous paragraph, the WARN obligations apply in “mass layoff” situations, however, they can also apply if an operating unit of a business is closing and the closure will result in job losses for a specific number of employees. The “operating unit” definition has been subject to litigation due to its potential for dual meanings.
In a recent case, the Second Circuit Court of Appeals opined that a buffet restaurant that was located within a massive casino constituted an “operating unit” under the WARN Act. When the casino closed that buffet and laid off 177 of the buffet’s employees, it failed to provide the employees with WARN notices. The employees filed a class action lawsuit seeking damages under the WARN Act. Due to the nature of the layoff, the only way that the employees would “win” is if they proved that their buffet was a discrete “operating unit” within the casino and that the number of employees being terminated triggered the WARN Act. The casino argued that the operating unit was not actually a discrete department, division, or segment of the bigger casino and that the number of employees being laid off from the buffet did not trigger WARN obligations. The Second Circuit noted that there were some factors to suggest that the buffet was its own separate entity, and not an operating unit of the casino (e.g., the buffet had its own entrance and managers that were separate from the casino). However, the Second Circuit ultimately ruled that there was also sufficient evidence to indicate that the buffet was an operating unit of the casino and, thus, the employees’ layoffs triggered WARN obligations.
Takeaways: When planning a layoff of “many” employees, reorganizing the business in a way that will result in layoffs, or closing/consolidating departments that also result in job losses, employers should consider whether or not the WARN Act applies and plan accordingly.