WARN Me Before You Let Me Go: Coronavirus Terminations

By Dr. Mark Gambill
Faculty Member, School of Business, American Public University

The coronavirus pandemic has forced many companies to have mass reductions of employees. According to USA Today, a record 6.65 million unemployment claims were filed in the week ending March 28, 2020.

Consequently, the COVID-19 pandemic has become the “joblessness epidemic.” Some firms are ceasing operations and terminating rather than laying off or furloughing their workers.

The WARN Act Requires Employers to Give a 60-Day Notice to Qualifying Employees

The Worker Adjustment and Retraining Notification (WARN) Act requires that employers give a 60-day notice to employees in the event of a plant closing or mass layoff. WARN covers any “employer,” which is defined as a business enterprise that employs 100 or more employees, excluding:

• Part-time employees
• 100 or more employees who in the aggregate work at least 4,000 hours per week (excluding overtime hours)

According to the WARN Act, a “mass layoff” means a reduction in force which is not the result of a plant closing and results in an employment loss at the single site of employment during any 30-day period for:

• At least 33 percent of the employees (excluding any part-time employees)
• At least 50 employees (excluding any part-time employees)
• At least 500 employees (excluding any part-time employees)

Employers who fail to give WARN Act notices are required to pay affected employees all wages and compensation to which they would normally have been entitled over a 60-day period. But the amount for which an employer is liable under WARN shall be reduced by any wages paid by the employer to the employee for the period of the violation.

Exceptions to the WARN Act and the Coronavirus Pandemic

However, the current coronavirus pandemic has raised some issues to consider:

1. There are exceptions to the WARN notice when the plant closing or mass layoff is caused by business circumstances that were not reasonably foreseeable as of the time that notice would have been required. There is a strong argument that COVID-19 was not reasonably foreseeable, and this situation might impair the legal validity of the employer’s compliance with WARN. The longer that the COVID-19 situation persists, the less likely non-compliance with WARN on a non-foreseeability issue would be seen as valid.

Another exception would be when the employer offers to:

• Transfer the employee to a different site of employment within a reasonable commuting distance with no more than a six-month break in employment
• Transfer the employee to any other site of employment regardless of distance with no more than a six-month break in employment, and the employee accepts within 30 days of the offer or of the closing or layoff, whichever is later.

However, these actions would not necessarily apply to COVID-19 shutdowns as employers are terminating rather than relocating workers during the current coronavirus pandemic.

2. A lot of the workers affected by the COVID-19 pandemic job losses are employees of restaurants and hotels. While the local McDonald’s, Wendy’s, or Comfort Inn may seem like it is part of a national chain for branding and other purposes, many of these restaurants and hotels are owned by franchisees.

Many restaurants and hotels are single-purpose organizations with the restaurant or hotel being the only asset for that entity. Their operations would likely not be subject to WARN requirements if they were to suddenly cease operations and lay off their entire workforce.

There are, however, holding companies that own several hotels or restaurants, and those entities could employ over 100 people. Under WARN, a business enterprise includes parent and subsidiary corporations.

So when there is a common owner and management has centralized operations, two corporations that each have less than 100 employees but together have more than 100 employees, they are considered a single employer. As a result, they must comply with the WARN Act.

3. There are remedies. Employees that are “aggrieved” under WARN, i.e. someone who suffers an mass layoff subject to the Act, are entitled to back pay for every day that they were not given sufficient notice of termination. The WARN Act says that “ issubject to a civil penalty of not more than $500 for each day of such violation, except that the penalty shall not apply if the employer pays to the aggrieved employee the amount for which the employer is liable to that employee within 3 weeks from the date the employer orders the shutdown or layoff.”

An aggrieved employee or a bargaining unit representing that employee could otherwise file suit in U.S. District Court. However, there are obviously problems with this scenario. The employee is out of work and even if he/she did not get the requisite WARN notice, suing in federal court is not going to take care of the employee’s immediate needs such as putting food on the table.

Some Lawyers Consider the WARN Act to Be a ‘Toothless Tiger’

Pennsylvania employment attorney John Gallagher calls the WARN Act a “toothless tiger.” He notes, “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 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.”

What Employers Should Do to Comply with the WARN Act During the Coronavirus Pandemic

So what should employers do in light of the WARN Act when faced with the need to terminate employees durind the coronavirus pandemic? There are several options:

1. Seek the advice of employment law counsel to protect the company to the extent possible.
2. Obviously, give employees as much prior notice as possible even if it is not 60 days under the WARN Act.
3. Pay employees at least through their last day of employment. If possible, give severance pay to affected employees.

“May you live in interesting times” is supposed to be a blessing, but it has been used most frequently as a curse. These are crazy times for employers and employees. While we are facing practical realities during this crisis, we should never forget compassion as we deal with the coronavirus and those employees most affected by it.

About the Author

Dr. Mark Gambill is an adjunct faculty member at American Public University. He has his DBA from Nova Southeastern University, a J.D. from Capital University Law School and an MBA from Xavier University. He teaches courses in management, law and ethics, including employment law. Dr. Gambill has over 25 years of law practice and real estate development with several major shopping center owner/development companies.