In recent days, manufacturers, hospitality providers, major retail chains and other employers have been reducing hours/pay or closing employment sites in response to the COVID-19 (coronavirus) pandemic. For many employers, these layoffs are expected to be temporary while the virus runs its course, a period estimated by the current administration (at a press conference held on March 16, 2020) to end in July or August 2020. But a lot can happen during that time, including the possibility, as the president acknowledged on March 16, a recession. That might turn a short-term layoff into an event that triggers notice obligations under the federal Worker Adjustment and Retraining Notification (WARN) Act or state “mini-WARN” Acts. This article answers employers’ common wage and hour and WARN Act questions caused by the coronavirus.
Q1: COVID-19 is forcing our company to shut down or suspend its operations temporarily. How much notice must be provided? What if there will be a permanent shutdown of a location?
A1: The WARN Act requires covered employers to provide at least 60 days’ advance notice of a mass layoff or plant closing. A covered employer is an employer that employs at least 100 employees, excluding part-time employees.
A mass layoff means a reduction in force that is not the result of a plant closing and that results in an employment loss at a single site of employment during any 30-day period for (a) at least 33% of the employees and at least 50 employees (excluding part-time employees) or (b) at least 500 employees, excluding part-time employees.
A plant closing means the permanent or temporary shutdown of a single site of employment, or one or more facilities or operating units within a single site of employment, if the shutdown results in an employment loss at the single site of employment during any 30-day period for 50 or more employees, excluding part-time employees. An employment action that halts production or work is a shutdown even if a few employees remain. Closing of a shift, production line or business unit could trigger WARN obligations depending on the number of employees involved. A “temporary shutdown” triggers the notice requirement only if there is a sufficient number of terminations, layoffs exceeding six months or reductions in hours of work as specified under the definition of “employment loss.”
A part-time employee means an employee who is employed for an average of fewer than 20 hours per week or who has been employed for fewer than six of the 12 months preceding the date on which notice is required.
An employment loss means (a) an employment termination, other than a discharge for cause, voluntary departure or retirement, (b) a layoff exceeding six months, or (c) a reduction in hours of work of more than 50% during each month of any six-month period. The regulations indicate that “an employment loss does not occur when an employee is reassigned or transferred to employer-sponsored programs, such as retraining or job search activities, as long as the reassignment does not constitute a constructive discharge or other involuntary termination.” Courts have routinely recognized that employees placed on paid leave do not suffer an employment loss until the end of the leave (i.e., when employment terminates). There is also no employment loss under WARN if a closing or layoff is the result of a business relocation or consolidation and, prior to the closing or layoff, the employer either offers (a) to transfer the employee to another facility, if the job is within reasonable commuting distance or (b) to transfer the employee to another site, regardless of distance, and the employee accepts within 30 days of the offer or the closing or layoff, whichever is later.
Accordingly, whether a “furlough” or layoff is subject to the WARN Act depends on the employer’s size, the nature of the action the employer takes, its duration, and the number of affected employees. If the employer furloughs or lays off fewer than 50 employees, there is no WARN event. If the layoff or reduction in hours lasts six months or less, there is no WARN event. An employer implementing a layoff because of COVID-19 likely thinks it is announcing a short-term layoff, but if the coronavirus lasts longer than expected, the furlough or layoff could last more than six months. Under the WARN regulations, an employer who has previously announced and carried out an anticipated short-term layoff (six months or less) that is being extended beyond six months due to business circumstances not reasonably foreseeable at the time of the initial layoff is required to give notice when it becomes reasonably foreseeable that the extension is required. Of course, an employee could claim the extension was reasonably foreseeable at the time of the initial layoff and, thus, the employer should have provided WARN Act notice at least 60 days before the beginning of the initial layoff.
It is important to note that WARN also provides an “aggregation” rule which is designed to prohibit scheduling of “rolling” layoffs/terminations to avoid WARN or to move some such employment actions outside of a 30-day period but within a 90-day period. This aggregation rule provides that where an employment loss occurs over time such that the employee number and/or percentage limits (for mass layoffs or plant closings) are not reached in any 30-day period, a proper advance WARN notice is still required where, in a 90-day period, the numerical and/or percentage limitations will be exceeded and where the layoffs cannot be considered as being from separate and distinct causes. Due to nuances beyond the scope of this article, WARN counsel should be secured before initiating any such staggered/phased reductions.
State law, union agreements and employer policies may provide employees with greater rights than are provided by WARN. The mini-WARN Acts may have different thresholds to be considered a covered employer or to have a covered event. For example, both New York and New Jersey now require 90 days of notice before a large layoff, with a threshold of only 25 job losses. The California WARN (Cal-WARN) Act applies to establishments at which at least 75 employees had been employed during the prior year, and requires employers to provide at least 60 days’ advance notice of a mass layoff, relocation or termination. A mass layoff under Cal-WARN means a layoff during any 30-day period of at least 50 employees at a covered establishment. A termination means the cessation or substantial cessation of industrial or commercial operations in a covered establishment. There is no numerical threshold for a specific termination event. In other words, the cessation or substantial cessation of operations is a covered event regardless of the number of affected employees if at one time during the prior year there were 75 or more employees on the payroll.
Unlike the federal WARN Act, the Cal-WARN Act does not exclude layoffs of six months or shorter. Therefore, a short-term layoff of at least 50 employees — where the employees experience a “separation from a position for lack of funds or lack of work” — would be a covered event. For instance, in Int’l Brotherhood of Boilermakers v. NASSCO Holdings Inc., 17 Cal.App.5th 1105 (Cal. Ct. App. 2017), the employer announced a layoff of around 90 employees for three to five weeks. The court held a mass layoff had occurred, noting the definition did not include a temporal component. The fact that the layoff was temporary and the employees’ employment was not terminated during the layoff period did not take the action outside the scope of Cal-WARN’s notice requirement.
Q2: If a plant closing or mass layoff under the WARN Act occurs, are there any exceptions to the typical employee notice requirements?
A2: Under the WARN Act, an employer may order a plant closing or mass layoff before the conclusion of the 60-day period if the plant closing or mass layoff is caused by (a) business circumstances that were not reasonably foreseeable as of the time notice would have been required or (b) a natural disaster. An employer relying on these exceptions must give as much notice as is practicable (even if after the fact) and must give a brief statement of the basis for reducing the notice period. An unforeseeable business circumstance is caused by some sudden, dramatic and unexpected action or condition outside the employer’s control. Examples of natural disasters include floods, earthquakes, droughts, storms, tidal waves, tsunamis and similar effects of nature. To qualify for the natural disaster exception, the plant closing or mass layoff must be a direct result of a natural disaster. If the plant closing or mass layoff is an indirect result of a natural disaster, the natural disaster exception does not apply, but the unforeseeable business circumstance exception may apply. Cal-WARN does not have an unforeseeable business circumstance exception or a natural disaster exception but has a physical calamity exception. We are not aware of any cases addressing whether a virus or pandemic constitutes an unforeseeable business circumstance, natural disaster or physical calamity, but based on the definition of unforeseeable business circumstance, it would be reasonable for an employer to take the position that the coronavirus pandemic constitutes an unforeseeable business circumstance.
As noted above, Cal-WARN does not have an unforeseeable business circumstance exception, which has created frustration for employers, particularly during the current circumstances. Governor Gavin Newsom relieved a great deal of frustration for implementing a reduction in force related to the COVID-19 crisis by issuing an executive order on March 17, 2020, allowing a shortened notice with some requirements that must be met by the notice, which parallel the federal WARN Act, quoting specific sections relating to notices. The executive order is retroactive to March 5 and directs the California Labor and Workforce Development Agency to develop specific guidance by March 23.
One issue currently arising due to the coronavirus outbreak is employers being forced to shut down (at least temporarily) due to state or local orders prohibiting or severely limiting the operations of certain types of business. Under such circumstances, employers may assert that the government, not the employer, effectively “ordered” any plant closing or mass layoff that may occur.
Employers should consult with WARN counsel to determine whether the above-described exceptions may apply due to the impact of the coronavirus on business, and also to ensure appropriate notices are provided even if a notice exception can be supported.
Q3: What are the potential consequences for not providing advance notice as required by WARN?
A3: WARN enables terminated employees at all levels, including top executives, to sue for damages where a covered employer “orders” a “plant closing” or “mass layoff” without first giving advance notice to employees who suffer an “employment loss.” See 29 U.S.C. § 2104(a). Where the notice period should have been a full 60 days, damages for a WARN violation can be roughly estimated at two months’ pay per employee, plus benefits, except where the employees can sue 1 within the jurisdiction of the Third Circuit Court of Appeals (New Jersey, Pennsylvania, Delaware and the Virgin Islands). In those cases, damages for hourly employees would be higher, and roughly estimated at one day’s pay times 60, (though it would remain two months’ pay for salaried employees), plus benefits. Litigation would also involve an award of plaintiffs’ attorney fees.
Advance notice of the “plant closing” or “mass layoff” is also required to be given to certain local government units, though the fine for failure to give this notice is $500 per day of the notice period, and the actual incidents of the governmental penalty being collected, or even sought, are extremely rare.
Q4: Is an employer required to pay employees during a temporary shutdown or reduction in operations?
A4: This depends on whether the employee is exempt or non-exempt. Under the federal Fair Labor Standards Act (FLSA), employers must pay non-exempt employees only for actual hours worked. Some states have reporting time laws that may require an employer to pay an employee if it sends the employee home during the middle of a shift.
If an employee is a salaried, exempt employee or a salaried, non-exempt, fluctuating workweek (a/k/a half-time) employee, the employee is generally entitled to the full amount of the salary for each workweek in which the employee performs any work. There is no exception if, for example, the employer implements a temporary shutdown of operations in the middle of a workweek; the employee must be paid the employee’s full salary for that workweek. If the employee does not perform any work during a particular workweek, the employer is not obligated to pay the employee for that workweek. “Work” includes work performed away from the employer’s premises or outside normal working hours, so if an employer does not want to pay an employee for a particular workweek, the employer must make sure the employee does not perform any work, such as reviewing or responding to emails or phone calls. The employer could consider shutting off the employee’s access to company email and voicemail and make sure the employee’s supervisor understands not to ask the employee to perform work during the workweek.
Q5: If an employer reduces or shuts down operations due to the coronavirus, may it require employees to use accrued vacation, paid time off (PTO), or sick time?
A5: Employers may require employees to use accrued vacation and PTO absent a policy or agreement to the contrary. If an employer provides sick leave under state or local law, it should not require employees to use accrued sick leave (or at least a portion of PTO, to the extent PTO is used to satisfy any legally required sick leave allocation) during a shutdown or reduction in operations, but it should allow employees to elect to use accrued vacation, PTO or sick leave as long as such use is consistent with the law and the employer’s policy.
The FLSA requires that, if a salaried, exempt employee performs any work during a particular workweek and has accrued vacation or PTO, the employer must pay the full salary for that workweek, but the employer may make a corresponding deduction from the employee’s accrued vacation or PTO bank. If a salaried, exempt employee performs any work during a particular workweek but does not have accrued vacation or PTO, the employer still must pay the full salary for that workweek. If a salaried, exempt employee does not perform any work during a particular workweek, the employer is not obligated to pay the employee, but the employer may require the employee to use accrued vacation or PTO.
Q6: May an employer reduce the amount of a salaried, exempt employee’s salary because it reduces the number of hours it expects the employee to work?
A6: To satisfy the salary basis requirement under the FLSA, a salaried, exempt employee must receive a predetermined amount that does not vary based on the quality or quantity of work performed. An employer may, however, reduce an employee’s normal scheduled workweek and reduce the employee’s salary amount accordingly. The change must be prospective and based on long-term business needs, and the changes cannot be too frequent. If an employer changes the salary too frequently, a court or the Department of Labor could conclude the salary basis requirement is not met because the salary is the functional equivalent of an hourly wage. There is no bright line test for how frequent is too frequent, but there is case law holding that two changes per year is not too frequent. Under the FLSA, the salary must remain at least $684 per week, although some states impose a higher minimum salary requirement than federal law.
Q7: Are furloughed employees entitled to receive unemployment benefits?
A7: Unemployment compensation laws vary by state. Generally, unemployment benefits are available to individuals who are unemployed through no fault of their own and are ready, willing and able to work. Some states may provide for a waiting period before employees will be eligible for benefits. Some states may recognize claims for partial unemployment, such as for a reduction in hours.
Some states recently amended their unemployment compensation requirements in response to the coronavirus. For example, on March 16, 2020, Minnesota Governor Tim Walz issued an executive order to ensure workers affected by the coronavirus have access to unemployment benefits. The executive order makes applicants eligible for unemployment benefits if:
- A health care professional or health authority recommended or ordered them to avoid contact with others.
- They have been ordered not to come to their workplace due to an outbreak of a communicable disease.
- They have received notification from a school district, daycare or other childcare provider that either classes are canceled or the applicant’s ordinary childcare is unavailable, provided that the applicant made reasonable effort to obtain other childcare and requested time off or other accommodation from the employer and no reasonable accommodation was available.
Additionally, the executive order waives the one-week waiting period. While applicants for unemployment benefits must actively seek suitable employment, the executive order stipulates the applicant may look for suitable work that does not pose a risk to the applicant’s health or the health of others. If the applicant has been laid off only temporarily, the applicant can meet work search requirements by staying in contact with the applicant’s current employer.
Several other states have taken similar steps to expand unemployment benefits to employees as a direct result of the economic impact of the coronavirus pandemic.
A prudent employer reducing hours/pay of employees or laying off employees in connection with COVID-19 should be transparent about how long the layoff is expected to last and carefully consider whether WARN Act or state mini-WARN Act notice may be required. WARN Act or state mini-WARN Act notices must comply with technical federal and state requirements and should be prepared by knowledgeable counsel.
- A WARN lawsuit may be brought “in any district court of the United States for any district in which the violation is alleged to have occurred, or in which the employer transacts business.” 29 U.S.C. § 2104(a)(5).
As the number of cases around the world grows, Faegre Drinker’s Coronavirus Resource Center is available to help you understand and assess the legal, regulatory and commercial implications of COVID-19.