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Shughart Thompson & Kilroy

Do You Have to WARN? 
Exceptions to the WARN Act’s 60 Day Notice Requirement

By David M. Kight  Bio   email
Shughart Thomson & Kilroy


            The Worker Adjustment and Retraining Notification Act (known appropriately as "WARN"), 29 U.S.C. 2101, was enacted by Congress in 1988 to provide employees with advance notice of  a plant closing or mass layoff at their company. The WARN Act requires employers who are planning a plant closing or a mass layoff to give affected employees at least 60 days notice prior to any employment action.

As the air escapes from the dot-com balloon and upstart internet companies fail, they face the same employee protections faced by the traditional brick-and-mortar businesses.  Generally, when a company employing at least 100 people decides to shut-down, it would have an obligation to provide 60 days written notice to employees, the state dislocated worker unit, the chief elected official of the unit of local government where the lay-off is to occur, and any labor organization representing affected employees.  However, there are some important exceptions to these obligations.

Most notably, employers are only required to provide 60 days notice to its employees in cases where either a "plant closing" or a "mass layoff" occurs.  The definition of a plant closing under WARN is fairly straight-forward.  A plant closing under WARN means the permanent or temporary shut-down of a single site of employment, if such a shut down results in the loss of 50 or more employees during any 30-day period.  29 U.S.C.  2101(a)(2).  Part-time employees are not counted as part of the 50 or more employee requirement which kicks in a WARN obligation.  In addition, the shut down of one or more of the operating units or facilities contained within a single site of employment would count as a plant closing, assuming the 50-employee threshold employment loss occurred.  29 U.S.C.  2101(a)(2).

To qualify as a mass layoff under WARN, 29 U.S.C.  2101(a)(3), the layoff must involve an employment loss at a single site of employment of at least 50 employees (excluding part-time employees) assuming such a layoff involves at least 33% of the employees at the employment site. Employment losses of 500 or more employees -- again excluding any part-time employees -- automatically kick in WARN requirements no matter how many other employees a company employs at the site.[1]  

The definitions of plant closing and mass layoff exclude part-time employees from the mix.  Thus, it is important to understand what type of employees are considered "part-time employees" under the Act.  According to WARN, part-time employees mean those who are employed for an average of fewer than 20 hours a week, or those employees who work less than 6 of the 12 months preceding the date WARN notification is required.  29 U.S.C. ' 2101(a)(7).  Employees, even full-time employees who have worked less than six months, are excluded from the act.  Solberg v. Inline, 740 F.Supp. 680 (D. Minn. 1990) (Dismissing claim of 300 employees who had been terminated without notice under WARN).

A.        Sale and Purchase of Businesses.

1.         Sale of Business Where Purchaser Elects to Keep All or Most of the Employees.

A technical reading of the WARN statute would seem to suggest that the seller would still have an obligation to provide notice to its employees 60 days in advance of the sale.  The regulations accompanying the WARN statute offer a realistic interpretation of this language.  According to the regulations, and consistent with recent court rulings on this issue, WARN notice is only required where the employees have in fact experienced an employment loss.[2]  This opinion seems to hold true even after the sale.[3]

2.         Sale of Business Where Purchaser Elects to Purchase Assets, But Does Not Accept Employees.

In Burnsides v. MJ Optical, Inc., 128 F.3d 700 (8th Cir. 1997), the Eighth Circuit suggested that the exemption from WARN’s notice requirements does not apply to the sale of assets.  While it resolved the case without directly facing this issue, the Court noted that it “doubt[ed]” the exemption would apply in these circumstances.  128 F.3d at 702.  The Court also stated that other courts have held that 2101(b) did not apply to asset sales when there is no transfer of any employees into the purchaser’s employment along with the purchased assets, citing Oil, Chem. & Atomic Workers Int’l Union v. CIT Group/Capital Equip. Fin., Inc., 898 F. Supp. 451, 457 (S.D. Tex. 1995).         

The Court concluded that even if the sale involved a “‘sale of part or all of an employer’s business’ within 2101(b), responsibility for giving notice never passed to [the buyer] because the plant closing occurred on the sale’s effective date.”  128 F.3d at 702.  The business simply shut down on the sale date.  Whoever is the employer at the time of the plant closing is responsible for giving notice.

The Court also states that the seller “brought about the employment loss by deciding to accept [the buyer’s] offer to purchase [its assets] without transferring employees.”  128 F.3d at 702-03.  The seller terminated the employees and closed down the plant on the date of the sale, so the buyer had no reason to give the employees notice.  The buyer did not automatically hire the Seller’s employees, buy the Seller’s facility, conduct any operations there, or take on any of the Seller’s receivables or liabilities. 

The Eighth Circuit suggests in Burnsides that the sale of assets with no transfer of employees to the buyer is an “employment loss” in and of itself that triggers WARN’s notice requirements.  However, as the plant closed on the sale date, there is no question that an employment loss occurred simply from that fact alone.  The more interesting question is whether an employment loss occurs in an asset sale if the buyer rehires enough of the seller’s employees such that the 50 employee threshold necessary to show an employment loss is not present. 

This exact situation was recently addressed in Dingle v. Union City Chair Co., 16 I.E.R. Cases 60 (W.D. Pa. 2000).  Dingle held that even in the context of an asset sale, unless 50 or more employees are not rehired by the buyer, there is no employment loss.

B.        Relocation/Consolidation.

Another potential source of confusion may come up when companies seek to relocate or consolidate part or all of their business to another facility.  In such cases, what are an employer's notification obligations?  Simply put, covered employers are expected to notify their employees of such a relocation or consolidation unless:

  1. the employer offers to transfer the employee to a different site of employment within reasonable commuting distance; or

  2. the employer offers to transfer the employee to any other employment site -- regardless of distance -- provided the employee accepts within 30 days of the offer, or within 30 days of the closing or layoff, whichever is later.

29 U.S.C.  2101(b)(2).

Under both scenarios, however, the offer of transfer cannot result in more than a 6-month break in employment.  If the transfer would involve such an extended period of non-employment, the regular WARN notification requirements would apply.

C.        Failing Company Doctrine

The failing company doctrine actually encompasses a series of events that prevent a business from having 60 days advanced notice of a plant shutdown or significant layoff.

Businesses who are able to show that a closing or mass layoff was caused by business circumstances which were not reasonably foreseeable at the time notice would have been required are free from the 60-day advance notice requirements under the Act.  However, once a business does foresee such a layoff or plant closing, it does have the obligation to notify its employees.  29 U.S.C.  2102(b)(2)(A).  Courts interpreting this exception have been willing to grant the exception in cases where an employer had some information that may have led to the closure.  In Hotel Employees and Restaurant Employees Local 54 v. Elsinore Shore Associates, 173F.3d. 175 (3rd Cir. 1999), the U.S. Court of Appeals for the Third Circuit held that the WARN Act’s exception for unforeseen business circumstances applied where a gambling casino was ordered closed by the New Jersey Casino Control Commission.  The Court held that even though the casino owners knew more than 60 days before the order that the closure was possible, it was no more reasonably foreseeable than the casino not being shut down at all.

Businesses actively seeking capital or business, which would avoid or postpone a shut down or a mass layoff if obtained, would also be free from the 60-day advance notification requirement.  A business will have an exemption to the notice requirement if it can show that it believed in good faith that had it given such notice it would have been precluded from obtaining the sought-after capital or business.  29 U.S.C.  2102(b)(1).

Businesses are also relieved from 60-days advance notice if the plant closing or mass layoff is due to any form of natural disaster, including but not limited to floods, earthquakes or droughts. Still, businesses fitting within these exceptions to the 60-day notice requirement are still expected to give as much notice as practicable.  In addition, they are also expected to give a brief statement of the basis for the reduced notification period once any notice is provided.  29 U.S.C.  2102(b)(2)(B).

D.        Damage Issues

Employers failing to provide adequate notice under WARN are subject to civil suits by employees and by employer representatives.  Employers violating the Act are subject to:

  • Back pay liability for each day of the violation, up to a maximum of 60 days.  Back pay is calculated based on the employee's final regular rate of pay or the average rate of pay over the past 3 years of employment, whichever is higher; and

  • Any losses an employee may have incurred for prematurely terminated benefits, including the cost of medical expenses incurred during an employment loss which would have been covered under an employee benefit plan if the employment loss had not occurred.  Employers would only be expected to pay for such benefits for a period up to a maximum of 60 days.

29 U.S.C.  2104(a)(1).

Employers can avoid such back pay and employee benefit liabilities by paying wages and benefit premiums for the employee during the period of the violation.  Damages may also be reduced if an employer can convince the court that their acts or omissions were in good faith, and that they had reasonable grounds for believing they were not violating WARN.  Courts are free to allow reasonable attorney's fees to prevailing plaintiffs who bring such suits.  Finally, employers failing to notify the local governmental unit of a closing or layoff are subject to a civil penalty of $500 per day for each day of such a violation.  Employers can avoid this penalty, however, if they pay each aggrieved employee whatever is owed the individual employee within 3 weeks from the date of a plant closing or layoff.    Importantly, these are the exclusive remedies provided for under the statute, so employers need not fear that a federal court might enjoin a plant closing or a mass layoff if it failed to provide sufficient notice under the Act.

D.        Conclusion

While it might be difficult to know 60 days before a plant closing or layoff which would require notice under WARN, employers should keep in mind that there are many safe harbors and exceptions to the requirements which could come into play.

[1]For example, if an employer wanted to lay off 75 employees at a single site of employment, and the employer employed 150 full-time employees at the single site, the employer would be required to provide advanced notification under WARN.  If, however, the employer wanted to lay off 75 employees, but employed 300 employees at the single site, the employer would not be required to provide advanced notification under WARN.

[2]When employees are shifted from one employer to another as the result of a sale, WARN’s notice requirement is not triggered merely because employees are technically “terminated” by the seller.  Under WARN, such an event is not a “plant closing” and employees do not suffer an “employment loss.”  See Wiltz v. M/G Transport Services, Inc., 128 F.3d 957 (6th Cir. 1997); Headrick v. Rockwell International Corp., 24 F.3d 1272 (10th Cir. 1994).  The Eighth Circuit is in accord with these decisions.  See Rifkin v. McDonnell Douglas Corp., 78 F.3d 1277, 1282-83 (8th Cir. 1996) (mass layoff; finding no termination where laid off employees were rehired; actuality of termination controlled and not expectation of employees).

[3]In an unpublished Tenth Circuit opinion, the Court of Appeals held that a former owner could not be held liable for the failures of a later owner.  The later owner closed a mine 17 months after it acquired it from the former owner, but did not give 60 days notice and subsequently filed for bankruptcy.  Kirby v. Cyprus Amak Minerals Co., 2000 U.S. App. LEXIS 839 (10th Cir. 2000).

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