Reductions in force can bring legal risk

The WARN Act is a federal labor law that extends protections to workers and community members in cases of mass layoffs or plant closures. The purpose of the law is to provide employees with adequate notice of a layoff so they can prepare financially and acquire new training, if needed, to reenter the workforce.

It is not easy to make the decision to begin a reduction in force (RIF) or layoff. A complex framework of federal and state law makes the process even more difficult and rife with risk. Whatever 2024 may bring for your business, it is essential that you have a clear picture of the risk environment when considering layoffs so that you can take appropriate measures and keep liability to a minimum.

If the WARN Act applies to an employer, there is a specific procedure that must be followed – failure to comply can result in hefty penalties. However, like all heavily regulated areas of the law, the risk doesn’t stop there. Discrimination and wrongful termination lawsuits often follow a round of layoffs.

The WARN Act

A wide range of businesses, nonprofit organizations, and even some governmental agencies are all affected by the WARN Act. An employer is covered by the WARN Act if it has 100 full-time employees or more – not counting workers who have been employed for fewer than six months – and is laying off at least 50 workers at a single site of employment. Additionally, employers may also be covered if they employ 100 workers or more who work at least a combined 4,000 hours per week.

Most often, the WARN Act is triggered when a covered employer:

• closes a facility or an operating unit at a single site of employment that affects at least 50 employees, or
• lays off 500 workers or more at a single site of employment or lays off 50 to 499 workers and these layoffs constate 33 percent of the employer’s total active workforce at that single site of employment.

Note that WARN looks at employment losses that occur over a 90-day period, such that a series of smaller layoffs could require WARN notice.

To put it simply, the WARN Act requires employers that meet certain criteria to give at least 60 days’ notice of a qualified plant closing or mass layoff, as defined by the statute. That notice must go out to not only to employees who will be affected, but also labor representatives (if there is a union), the local chief elected official (such as a mayor), and the state dislocated worker unit.

If an employer fails to provide adequate notice of layoffs or plant closures in violation of the WARN Act, the employer could be liable for 60 days’ wages and paid benefits to all employees affected. Penalties can be assessed on top of this liability for each day the employer is out of compliance. An organization or business that is already facing the tough choice to lay off employees is usually not able to pay WARN Act penalties, which is why compliance is so important.

State law interaction

The WARN Act does not exist in a vacuum. Many states have accompanying or interlocking laws that deal with layoffs and plant closures, often called “Mini-WARN Acts.”

Antidiscrimination law fallout

The Equal Employment Opportunity Commission, the government agency that oversees antidiscrimination laws, officially recommends that employers engaged in RIFs review them in depth to ensure that they are nondiscriminatory in intent as well as impact. Indeed, the employer engaged in layoffs could have no discriminatory intent in carrying out a RIF but could still be found liable for disparate impact discrimination because of the way the layoffs affected certain groups of employees.

Some tech companies have run into trouble with layoff practices that targeted lower-performing employees. One way to target the lowest performing employees in a tech company is to lay off the employees who have received the fewest company stock options. However, courts have found that stock option compensation can differ by age group, and this could be grounds for the beginning of a discrimination lawsuit. That is just one example of how a normally legal metric for selecting employees to lay off – performance – could accidentally stray into an unlawful employment practice.

Best practices to avoid liability

Sometimes an employer has no other choice but to engage in layoffs. Macroeconomic conditions are outside of an employer’s control, and clients and customers have their own decisions to make. When you must reduce your labor force, make sure to: plan, retain specialized counsel, maintain clear records of the process, and provide required notice. Oftentimes, the story doesn’t end once the layoffs take effect.

Joshua Waugh is an attorney with Barran Liebman LLP. He advises and represents employers on a wide range of employment and labor matters.