Saturday, September 24, 2011

The WARN Act - What Is It and How Does it Work

NOTE:  This article discusses the WARN Act as applied to non-unionized employers.  The rules where unions are concerned are different in certain important respects, and therefore are not considered or discussed herein.

WARN Act:  The Worker Adjustment and Retraining Notification Act

That's a mouthful!  In general, this statute is designed to require employers to provide employees with 60 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" employees;

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, 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 1/3rd of the workforce, WARN notice must be given.

The Act 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 2 reasons:  1) to avoid having to give WARN Act notice; 2) to reduce unemployment compensation liability.  Retirees and resignees have a much 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 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.  Irrespective of the impact of this issue 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 the WARN Act 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.  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 very limited.

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. Thus, for states that do not have statutes that otherwise permit employees to recover attorney fees and costs in lawsuits arising out of the failure to pay unpaid wages, WARN can be very helpful.

NOTE:  as discussed below, Pennsylvania has its own wage statute, so WARN has somewhat limited efficacy in PA where non-union shops are concerned.

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.

In Pennsylvania, such cases are filed not only under WARN, but also pursuant to applicable wage statutes such as Pennsylvania's Wage Payment and Collection Law ("WPCL").  Like WARN, WPCL provides for an award of attorney's fees and costs to employees who have to sue for unpaid wages.  WPCL also provides that employees may be entitled to an additional penalty of 25% of the wages due, a feature WARN does not include.

Where bankruptcies are involved, certain critical legalities are involved and must be understood.

The WARN Act:  A Paper Lion?

In many respects, the WARN Act is a bit of a toothless tiger in cases where the employer has paid its employees for all wages and benefits to which they are entitled during the last 60 days of employment.  If such payments have been made, the mere failure to give required notice will often not result in a lawsuit.

Consider:

Company employs all of its workers until suddenly giving notice on a Friday that it is closing operations, effective immediately. It had been paying them on time throughout the final 2 months of their employment, and on the Friday following the shutdown issues its final payroll to all employees.

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, employees have certainly been damaged nonetheless.  For example, 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.  Further, in smaller towns, or in more specialized industries, they are now immediately competing with 500 or more co-workers seeking work at exactly the same time.

In such circumstances, employees 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, 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 anything else.  Herego, from a business perspective, a lawyer simply has little financial incentive to file such a lawsuit.  This is why WARN Act violation cases are not prevelant if the employer has made good on its obligation to pay wages and benefits.  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 Where Pennsylvania Employees Are Concerned

Where Pennsylvania citizens are concerned, the WARN Act is in many respects a paper lion because it limits employees’ damages to their loss of wages and benefits over the last 60 days of their employment. It is in therefore somewhat duplicative of  WPCL, which provides remedies where employees have not been paid for hours worked.

NOTE:    WARN Act and WPCL violations may be filed in tandem.  WARN provides for federal jurisdiction, which in some circles is deemed a preferable jurisdiction to state courts.  A strong argument can be made that failure to adhere to WARN should result in the imposition of a 25% penalty on wages due under WPCL.

Since an employer who fails to give notice under the Act is essentially immune from any liability as long as it pays all compensation/benefits due its employees through their last day of work, WARN Act cases are relatively rare where the only offense is failure to give notice. 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 are entitled to recover attorneys fees and costs.  However, where Pennsylvanians are concerned, given the WPCL, it has somewhat limited effectiveness.

WARN could and should be improved to provided significant civil penalties in the event its notice provisions are violated; remedies merely beyond making good on unpaid wages and benefits.  People are entitled to notice that their job is being eliminated, and WARN as currently constructed is ineffective in ensuring that such notice is provided.

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