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January 24, 2013 Articles

Implementing an Effective Workforce Reduction

The legal ramifications are complicated and require a nuanced understanding of the law.

By Teresa D. Teare and Bryan M. O'Keefe – January 24, 2013

With the economy continuing to struggle and employers facing increased economic pressure, many employers have encountered an unpleasant reality: a need for a reduction in their workforce. While the emotional impact of such a decision can be profound, the legal ramifications are complicated and require a nuanced understanding of the law. However, planning a reduction in force with legal considerations in mind can both avoid liability and allow an employer to properly focus its resources on helping employees through this difficult process.

Federal WARN Act
The primary law governing workforce reductions is the Worker Adjustment and Retraining Notification (WARN) Act of 1989. 29 U.S.C. §§ 2101–09. Generally, the law mandates employers with more than 100 employees to provide 60 days’ advance notice to certain state and local government officials and affected employees or their union representatives of a plant closing or a mass layoff.

The act defines a “plant closing” as a permanent or temporary shutdown of a single site or units within a single site of employment if the shutdown results in an “employment loss” during any 30-day period for 50 or more employees. A “mass layoff” is defined as an “employment loss” at a single site of employment during a 30-day period either for 500 employees or for at least 33 percent of the employees at that site if 33 percent equals or exceeds 50 employees. “Employment loss” is defined to include terminations (other than for cause, voluntary departure, or retirement), layoffs exceeding six months, and reductions of more than 50 percent of the hours worked for each month in any six-month period. Id. at § 2101.

What constitutes a “single site of employment” is important when an employer maintains several different locations and layoffs might occur at one location, but not another. Although the WARN Act does not define the term “single site,” Department of Labor regulations and the act’s legislative history suggest that non-contiguous facilities will be treated as a single site under the WARN Act only where they are part of a single operation; common ownership will not be sufficient. See, e.g., Rifkin v. McDonnell Douglas Corp., 78 F.3d 1277 (8th Cir. 1996) (layoffs at two plants, eleven miles apart); Hooper v. Polychrome, Inc., 916 F. Supp. 1111 (D.Kan. 1996) (two plants, 27 miles apart, with one in Kansas and one in Missouri, not considered “single site” despite sharing some employees and equipment; two sites were separately managed on day-to-day basis). For employees whose principal duties require them to travel from one point to another (e.g., bus drivers), or work outside any of the employer’s regular employment sites (e.g., salespersons), the site of their employment is that to which they are assigned as their “home base” from which they are assigned work, or to which they report. 20 C.F.R. § 639.3(i)(6).

WARN Act Exceptions
Where the WARN Act is applicable, the notification period can be reduced in three situations. First, under the “faltering company” exception, an employer who is “actively seeking capital or business” that could avoid or postpone the shutdown need not give the full 60 days’ notice if the employer “reasonably and in good faith” believes that giving the notice would preclude obtaining the needed capital. 29 U.S.C. § 2102(b)(1).

Second, under the “unforeseeable business circumstances” exception, an employer need not give the full notice if the plant closing or mass layoff is caused by “business circumstances that were not reasonably foreseeable” when the notice would have been required. Id. at § 2102(b)(2)(A).

Finally, under the “natural disaster” exception, the act dispenses with notice in the event of a natural disaster, such as a flood, an earthquake, or a drought. Id. at § 2102(b)(2)(B).

Regardless of the exception, an employer must give “as much notice as is practicable” and must also provide with the notice a brief statement of the reason for reducing the notice period.

WARN Act Liability and Statute of Limitations
An employer who violates the provisions of WARN may be liable to employees who suffer an “employment loss” as a result of the closing or layoff. The remedy may include backpay and benefits (including the cost of medical expenses that would have been covered had the closing or layoff not occurred) for up to 60 days. Kalwaytis v. Preferred Meal Sys., Inc., 78 F.3d 117, 120 (3d Cir. 1996) (employer ordering “mass layoff” in violation of notice provisions of WARN Act liable to all aggrieved employees suffering employment loss as result of such layoff for backpay for each day of employer’s violation, so upper limit of damages is 60 calendar days’ wages). In the context of a qualifying “mass layoff” where an employee is terminated within the 60-day notice period, the violation period extends from the date of termination through the end of the required 60-day period. Id. at 122.

The statute of limitations for a claim based on a WARN Act violation is to be taken from the appropriate state-law limitations period. North Star Steel Co. v. Thomas, 515 U.S. 29 (1995). The applicable statute of limitations is that which is most analogous to “the essence” of the WARN cause of action. Federal appellate courts have differed in this respect, with some applying wrongful-termination case law. Hinton v. Pacific Enterprises, 5 F.3d 391, 394 (9th Cir. 1993); Felton v. Unisource Corp., 940 F.2d 503, 510–13 (9th Cir. 1991). Others courts, however, have applied the statute of limitations applicable to discharges in retaliation for the filing of workers’ compensations claims. Byrd v. MacPapers, Inc., 961 F.2d 157, 159 (11th Cir. 1992).

Affected employees may bring suit on their own, or a union may bring suit on behalf of the employees it represents. United Food and Commercial Workers Union Local 751 v. Brown Group, Inc., 517 U.S. 544 (1996). The employer may also be subject to a civil penalty of up to $500 for each day of the violation and may have to pay the opposing party’s attorney fees.Local Union No. 1992 v. Okonite Co., 358 F.3d 278, 287 (3d Cir. 2004). The act does not grant courts the authority to enjoin any closing or layoff, and punitive damages are not available in WARN cases.

State “Mini” WARN Acts
Many states have enacted “mini” WARN acts. These states include Connecticut, Hawaii, Illinois, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Washington, and Wisconsin. While many of these laws mirror the federal WARN Act, some state statues have important differences—including the size of the covered employer and the number of affected employees. Reviewing all of these state laws is beyond the scope of this article; attorneys should consult these state statutes to ensure that all requirements are met.

Unionized Employers: NLRA Obligations
Unionized employers not only have WARN Act obligations, but also critical duties under the National Labor Relations Act when they lay off employees or shut down locations. Under section 8(a)(5) of the National Labor Relations Act (NLRA), an employer generally has the duty to bargain with a labor union over terms and conditions of employment. 29 U.S.C. § 158(a)(5). However, in First Nat’l Maintenance Corp. v. NLRB, 452 U.S. 666 (1981), the U.S. Supreme Court held that an employer did not have a duty to bargain over the underlying decision to close operations or lay off employees.

But even if an employer does not have a duty to bargain about the decision to lay off, an employer is obligated to bargain over the effects of that decision. Id. Therefore, when a closure or layoff decision has been made, a company should promptly notify the appropriate union representatives and indicate a readiness to discuss the effect of that decision on bargaining-unit members. The subsequent meetings and negotiations with the union may encompass matters such as payment of unused vacation pay; termination or conversion of group insurance benefits; termination or merger of pension plans; payment of severance pay; assistance to employees in obtaining other employment; review of opportunities for employees to transfer to other jobs with the employer or, if applicable, the purchaser; reimbursement of moving expenses; payment for unused sick leave; and the like.

There is no legal obligation that an employer come to agreement as to the resolution of any or all of these items, nor is there any obligation on the part of an employer to make concessions to the union. The only obligation is to meet with union representatives and bargain in good faith.

The failure to bargain over effects can result in an unfair-labor-practice charge by the National Labor Relations Board (NLRB). An employer could be liable for backpay for all employees for the entire time that the employer was obligated to bargain over effects. For example, if an employer laid off employees in February but fails to bargain over effects until September, the employer might be responsible for backpay for that time period—for all affected employees. Obviously, a backpay award of this magnitude could have major financial ramifications for an employer already under financial stress and trying to find relief through a reduction in force.

Finally, even if the employer is not obligated to bargain with the union, offering to discuss the decision to close with the union may impose little additional burden and will safeguard against possible NLRB claims.

Employers never want to face the prospect of closing down locations or laying off employees. Yet, economic realities sometimes dictate that difficult decisions be made and layoffs or shutdowns become inevitable. In that circumstance, an employer must ensure that it follow the federal WARN Act, as well as any state-specific WARN acts. Unionized employers must also be mindful of their duty to bargain over the effects of such decisions. Being aware of these laws will limit any liability and allow for an effective implementation of a reduction in workforce.

Keywords: litigation, employment and labor relations law, WARN Act, reduction in force, NLRB, NLRA

Teresa D. Teare is a partner and Bryan M. O'Keefe is an associate at Shawe Rosenthal in Baltimore, Maryland.

Copyright © 2013, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).