A Toothless Tiger: What You Need to Know About the WARN Act

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Photo by Dreamstime

By John A. Gallagher

The WARN Act is The Worker Adjustment and Retraining Notification Act. That’s a mouthful!

In general, this statute is designed to require employers to provide employees with 6o days notice of layoffs due to plant closings, sale of business or financial hardship. It is a complicated statute, filled with nuances and exceptions, so click here to read a more complete analysis on the Act issued by the United States Department of Labor.

Here is a general synopsis of the Act, and a few important tips to remember:

  1. WARN only applies to employers that have 100 or more full-time workers;
  2. WARN applies to all private and publicly-traded companies, whether they are for profit or not for profit;
  3. WARN notice must be provided to all affected employees, whether hourly or salary, management or line personnel;
  4. WARN notice must be given if there is a plant closing or “mass layoff” employers;

The 2 WARN tests

For plant closings, the test is: if one or more facilities or operating units in a given location anticipate a shut down that will affect more than 50 workers AND last more than 30 days, WARN Act notice must be given.

For mass layoffs, the test is: if a series of layoffs over a 30-day period will result in the loss of 500 or more employees, a WARN Act Notice must be given. Also, if a series of layoffs of more than 50 or less than 500 employees over a 30-day period will result in a loss of one-third of the workforce, a WARN notice must be given.

The Act applies to the above situations and targets situations involving “loss of employment.” Terminations for cause, voluntary resignations and retirements are not considered “loss of employment” under the statute.

BE CAREFUL: Many companies facing a shutdown will seek to encourage employees to “retire” or “resign.” They do this for at least two reasons:

  1. To avoid having to give WARN Act notice; and,
  2. To reduce unemployment compensation liability. Retirees and resignees have a must harder time getting unemployment than do those suffering a layoff.

In addition, employees who refuse a transfer to a different work site “within a reasonable commuting distance” are are not deemed to have suffered a “loss of employment.”

What is a reasonable commuting distance? The Act is silent on that issue, and you should likely call legal counsel if the issue arises. While such matters are not necessarily critical from a WARN Act perspective, the issue of commuting distance is highly relevant when seeking unemployment compensation (if an offer of a reasonable replacement job is rejected, the terminated employee may well be ineligible for unemployment benefits).

(NOTE: The 2011 amendment to Pennsylvania’s Unemployment Compensation statute has decreed that unemployed workers must accept a reasonable job offer located within a 45-minute commute of their home or else suffer the loss of unemployment benefits. It is reasonable to assume, at least in Pennsylvania, that this will be deemed a “reasonable commute” in WARN Act cases as well).

What happens if WARN is violated?

Employers who fail to give WARN Act notice are required to pay affected employees all wages and compensation to which they would have been entitled over a 60-day period. However, employers are entitled to a set-off equal to the amount of compensation/benefits they paid to the employee over his/her last 60 days of employment. Hence, if an employer that has failed to give WARN notice has paid to employees all that they were entitled over the last 60 days of their employment, their liability under WARN is essentially nonexistent.

Private parties (i.e. workers) are allowed to bring WARN Act cases in federal court, and may be entitled to an award of attorneys fees and costs if they win.

For employee-side lawyers, the most attractive WARN Act cases are those that involve: 1) the failure to give required notice coupled with 2) the failure to pay employees all compensation and benefits that are due for the last 60 days of the employees’ employment.

Such cases are filed not only under WARN, but also pursuant to wage statutes such as Pennsylvania’s Wage Payment and Collection Law (“WPCL”). Further, where bankruptcies are involved, certain critical legalities are involved and must be understood.

The WARN Act: A Paper Lion?

As a practical matter, the WARN Act is a bit of a toothless tiger. As long as an employer pays its employees up to the last day of work, its liability for violations of the WARN Act are pretty insignificant, and thus their exposure to potential WARN Act litigation is pretty minimal. Consider:

A company employs all of its workers until suddenly giving notice on a Friday that it was closing operations, effective immediately. It had been paying them on time throughout the final two months of their employment, and on the Friday following the shutdown issues its final payroll to all employees.

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What is the harm to employees? Well, there is no direct, immediate financial harm because they have been paid in full for their labor. But, it is easier to get a job when employed than when unemployed. In addition, they have suffered a sudden and unexpected loss of income for which they were unable to plan.

In smaller towns, or in more specialized industries, they are now immediately competing with 500 co-workers at exactly the same time. They are understandably angry at the company’s failure to give WARN Act notice, and want to take action against their (former) employer.

They call a lawyer, who tells them that, indeed, WARN has been violated,. it’s clear, but she doesn’t have any interest in taking the case.

Why?

Because, given that they have all been paid for their labor, the employees do not have any direct financial losses. A federal statute has been violated, that is true, and people have been hurt, that is undeniable, but the employees cannot prove any direct economic injuries, and under the WARN Act they are not entitled to recover for anything else.

This is why, in circumstances such as described above, WARN Act violation cases are not prevalent. Violations may be common, but lawsuits are not unless the employees have not been paid all of the wages/benefits to which they are entitled.

The WARN Act: A Toothless Tiger

The WARN Act is a paper lion because it limits employees’ damages to their loss of wages and benefits over the last 60 days of their employment. Thus, an employer who fails to give notice under the Act is essentially immune from any liability as long as they pay all compensation/benefits due their employees through their last day of work.

Companies figure, ‘Why give the notice, and risk a mass exodus of workers, when violation of the Act will not result in any penalty?’ Thus, the Act’s lack of “teeth” significantly undermines its true purpose: to give employees a reasonable, 60-day opportunity to find work in advance of their loss of employment.

The fact is, WARN is most helpful in states that do not have wage statutes such as Pennsylvania’s WPCL because, in cases where wages have not been paid, it provides for the payment of attorneys’ fees and costs to prevailing parties (something that is provided for under WPCL).

Believe it or not, many states do not have statutes permitting uncompensated employees who have to file lawsuits to get wages to which they are entitled to recover attorneys fees and costs. However, where Pennsylvanians are concerned, given the WPCL, it has somewhat limited effectiveness.

This was also published on attorney John A. Gallagher’s Employment Law 101 blog.

John A. Gallagher, Esquire, is the president of the Gallagher Law Group, P.C., a Philadelphia-area law firm concentrating its practice almost exclusively on representing individuals with workplace issues. After 15 years of representing major corporations in employment litigation, John Gallagher opened his firm in 2006, and since that time has represented only employees. Contact him at jag@johnagallagher.com.

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