After filing for bankruptcy last month, retail chain store Charming Charlie was sued by a former employee as part of a proposed class action lawsuit for alleged violations of the Worker Adjustment and Retraining Notification (“WARN”) Act.
The lawsuit, In re: Charming Charlie Holdings Inc., et al., Case No. 1:19-bk-11534, filed in the U.S. Bankruptcy Court for the District of Delaware, claims that Charming Charlie failed to give proper notice to around 200 employees prior to abruptly effectuating a mass layoff. The case seeks to recover unpaid wages, commissions, bonuses, and other benefits for the class of employees who were not provided with requisite notice pursuant to the WARN Act.
To avoid being in the unfortunate situation that Charming Charlie now faces – a potential lawsuit on top of bankruptcy proceedings – employers should ensure they know whether the statute applies to them and what is required for full compliance.
The WARN Act
The WARN Act is a federal law that requires certain covered employers to give advance written notice to employees who will be affected by a mass layoff or plant closure. Enacted in 1988, the WARN Act’s purpose is to protect workers and their families by reducing the negative economic impact that occurs when large groups of employees are let go.
The required notice is meant to give employees a head start searching for new work, thus lessening the financial blow to the workers, their families, and the economy at large. Employers are covered by and must abide by the WARN Act if they have either
- 100 or more employees who are full-time, or
- a minimum of 100 employees (both full and part time) who work a combined total of 4,000 or more hours per week (not counting overtime hours).
Government entities and organizations, no matter what size, are not covered by the WARN Act. However, all other private and public businesses fall under the definition of a covered “employer” if they meet the minimum employee/hour threshold above.
If an employer falls into one of the above categories, the notice requirement under the WARN Act is triggered when either a specified percentage and/or number of workers are expected to lose their job as a result of a “mass layoff” or “plant closing” (statutorily defined terms).
To fall under the definition of a “mass layoff,” one of two situations must occur: there must be a reduction in force that results in employment loss at a single job site during any 30-day period for either
- at least 50 employees who make up a minimum of 33% of the active workforce at that site; or
- at least 500 employees, regardless of whether such amount is more or less than 33% of the total employees at that site. 29 U.S.C. § 2101(a)(3).
When determining the number of affected employees for the above situations, part-time employees (those who work less than 20 hours a week on average and those who have worked for less than six months of the preceding year) are not counted.
The term “plant closing” is defined as “the permanent or temporary shutdown of a single site of employment … if the shutdown results in an employment loss during any 30-day period for 50 or more employees, excluding part time employees.” 29 U.S.C. § 2101(a)(2).
WARN Act Notice Requirements
When one of the above notice triggers occurs, employers covered by the WARN Act must notify each affected employee in writing at least 60 days prior to the anticipated layoff or plant closure. If those employees are members of a labor union, the employer can give notice to union representative in lieu of notice to the affected employee. In addition, employers must also provide notice to chief elected local government official where the mass layoff or plant closing is to occur, as well as to the State Dislocated Worker Unit.
According to the statute, the notice must be “specific” and the information provided to the employees must be based on the best information known to the employer at the time the notice is required to be given. If given directly to the employees, the notice must be written using language that will be understandable to the employee.
The content of the notice must list:
- the anticipated date of the closing or layoff, along with the expected date of that individual’s termination;
- a statement describing whether the closing or layoff will be temporary or permanent;
- a description of whether “bumping rights” exists; and
- contact information for a company representative the employee may contact for further information.
All employees who are affected by the mass layoff or plant closing are generally covered by the notice requirement, regardless of position, pay, etc. However, business partners, consultants, self-employed contract employees, and workers hired strictly for temporary projects are not protected by the WARN Act, and thus no notice is required for such categories of workers. Additionally, because federal, state and local government entities are excluded from being considered covered employers, their employees are also exempt from the WARN Act’s notice requirements.
Exceptions to WARN Act Notice Requirements
There are several exceptions that relieve an employer’s obligation to provide notice or reduce the amount of advance notice an employer is obligated to give.
For example, a large-scale layoff or plant closure that is due to an employee strike or lock-out does not require any mandatory notice. Other exempt situations include mass layoffs or plant closures as a result of:
- natural disasters (i.e. flood, earthquake, hurricane, etc.),
- unforeseeable business circumstances (i.e. sudden unexpected cancellation beyond the employer’s control), and
- a faltering company (i.e. when the company is actively procuring new capital or business and it believes notice would interfere with its ability to acquire such business or capital – however, this only applies to plant closings).
Although these three situations are “exceptions” to the 60-day rule, companies facing these situations must still provide employees with as much written notice as practicable, while also including a statement in such notice explaining why the 60-day notice period was reduced.
Employers who fail to provide the requisite notice may be liable to each employee who is laid off for lost benefits and back pay for each day of violation (up to the entire 60-day period). This means that an employee can seek to recover prematurely terminated benefits lost as a result of termination without proper notice (i.e. medical expenses).
The rate of back pay an employee is entitled to seek is calculated at a rate of
- the employee’s final regular pay, or
- the employee’s average rate of pay for the past three years of employment, whichever amount is greater.
Courts also have discretion to award attorneys’ fees to prevailing employees who bring claims under the WARN Act.
In addition to damages owed to an aggrieved employee, employers may also be subject to a civil penalty of up to a maximum of $500 per day of violation for failure to give notice of such closing or layoff to the proper local governmental unit. However, employers can avoid this civil penalty by paying each affected employee the total amounts they are owed due to such employer’s noncompliance within three weeks following the layoff or plant closing.
An employer’s damages for violation of the WARN Act may be reduced if the employer’s actions in terminating its employees without proper notice were taken in good faith, or if there were reasonable grounds for the employer to believe that it was not in violation of the WARN Act.
Although an employer’s liability is statutorily limited to a 60-day lookback period, the damages in such period can still add up when mass layoffs are effectuated and an employer finds itself on the hook for backpay to hundreds of employees. Therefore, to minimize risk of liability, any employer considering a mass layoff, reduction in force, or plant closure should consult with employment counsel to ensure that the notice requirements under WARN will be satisfied.
For assistance with employment and workplace disputes contact Clouse Brown PLLC. Our attorneys are available to advise employers and business owners how to comply with federal, state and local employment laws. We also counsel senior-level and C-suite executives whose rights under employee protection laws, like the WARN Act, may be affected.
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