What You Should Know About the WARN Act

At some point, you may decide that the closing of your company is inevitable — not something you want to think about, but layoffs do happen to the best of us. That information, in many cases, is not something you can keep close to your vest.

The Worker Adjustment and Retraining Notification (WARN) Act, which has been in effect since 1989, calls for you to notify your workers within 60 days prior to closing your business or instituting layoffs if you fall under the act’s criteria. In addition to notifying employees who will suffer “employment loss,” you also have to let trade unions, the state and the local government know. If you don’t comply, you can be required to pay wages for the 60-day period that you were supposed to give notice. But if you give proper notice, you don’t have to pay anything, says Steve Roppolo, managing partner at Fisher & Phillips LLP’s Houston office.

If you have 100 or more employees, you may be affected. Excluded are workers who have been with you for less than six of the last 12 months and employees who work less than an average of 20 hours a week. Salaried and hourly employees, including management and supervisors, have to be notified, but business partners do not. Only federal, state and local governments are exempt.

Your first step is to determine if you are covered by the act, says Roppolo. Smaller employers aren’t impacted. Even larger employers may not be affected. For example, Roppolo had a case in New Orleans where a riverboat casino employed 700 workers, but because it closed within six months, it wasn’t affected by the WARN Act.

Then you want to look at whether you’re faced with a mass layoff or a plant closing, Roppolo says.

  • Mass layoff. In a mass layoff case, your company isn’t being shut down, but at least a third of the workforce is being affected. If, for example, you have at least 50 employees affected, but they’re from different departments, the layoffs fall under this category.
  • Plant closing. If 50 or more covered employees are going to be affected by a facility or “operating unit” (like a department) shutting down, it qualifies as a plant closing, and your organization has to comply with the WARN Act.

Also, the company has to give notice within 90 days if the related closings or layoffs affect at least two groups of workers that together make up the threshold level. But if you can show that the job losses were not in any way linked, then you are exempt.

Even when you’re selling off part or all of your business, you may have to comply with the WARN Act. You, the seller, have to let employees who are losing their jobs (and fall under the rules of the act) know that they will be laid off, up until the sale of the business. Immediately after the sale, it’s the buyer’s job.

According to the U.S. Department of Labor, under this act, “employment loss” falls under these categories:

  • Termination. If the employees are not being let go for cause, retirement or they’re leaving on their own.
  • Layoff. When a layoff will be for more than six months.
  • Fewer hours. If employees’ hours will be reduced by more than 50 percent during each month of a six-month period.

There are exceptions to the employment-loss definition, including some employees who are offered a transfer. You should always consult your legal advisor before making decisions about reducing your workforce or closing your business.