Employers across the country are ramping up business continuity planning to respond to the immediate and long-term business effects of the COVID-19 pandemic. This planning includes workforce reduction considerations such as layoffs, furloughs, reductions in pay or hours, and other cost-saving measures. However, such planning cannot be done absent contemplation of the requirements of the federal Worker Adjustment and Retraining Notification (“WARN”) Act.
What is WARN?
The WARN Act requires covered employers to provide at least 60 days’ advance written notice of a mass layoff or plant closing impacting 50 or more employees over a 90-day lookback period. For a “mass layoff,” it must impact at least 50 full-time employees and at least 33% of the active full-time employees at a “single site of employment,” unless the layoff impacts 500 or more employees, in which case the one-third requirement does not apply. A plant closing includes the closure of an office or business unit that impacts 50 or more employees at a single site of employment. Covered employers constitute those with 100 or more full-time employees, who in the aggregate work at least 4,000 hours per week, exclusive of overtime work. However, for employees laid-off for less than six months, WARN notification is not required. Any covered employer that orders a plant closing or mass layoff in violation of the WARN Act may be liable to pay each impacted employee back pay for each day of violation and the cost of health insurance benefits, including the cost of medical expenses the employer’s benefit plan would have otherwise covered.
Seven states (California, Illinois, Maryland, New Jersey, New York, Tennessee, Wisconsin) have enacted their own layoff notice laws similar to the WARN Act. In fact, on March 17, 2020, California Governor Gavin Newsom signed an Executive Order implementing temporary modifications to California’s WARN Act notification requirement to assist employers during the COVID-19 crisis. Employers should always check state law prior to implementing a workforce reduction strategy.
Does WARN Still Apply if COVID-19 Triggers a Covered Workforce Reduction?
Yes, the WARN Act applies to workforce reductions triggered by the COVID-19 outbreak. However, there are three exceptions to the 60 days’ notification requirement: (1) faltering company; (2) unforeseeable business circumstances; and (3) natural disaster. COVID-19’s exponential rate of progression across the United States and its significant disruption of business operations across the globe, will likely be seen to fall within the unforeseeable business circumstance exception. This exception is especially important for employers that operate in communities subject to government shelter-in-place orders, such as California, Illinois, Ohio, and Pennsylvania (although some of these states have their own mini-WARN Acts that do not contain parallel exceptions). The application of any one of the three exceptions, however, does not eliminate an employer's obligation to notify relevant parties at some point. Instead, employers should give as much written notice as practicable, and this is especially important where no notice was provided and the employer is close to the six-month mark of a business interruption. Further, as time passes, it will be more difficult to argue that the business circumstances resulting from COVID-19 are “unforeseen.” We are watching upcoming federal legislation that could provide some relief from or guidance regarding applicable WARN Act requirements.
Does the WARN Act Still Apply if a Company Furloughs Employees?
Whether an employer's furlough decision triggers the WARN Act depends on the timing of the furlough. If the furlough is expected to last longer than six months, then WARN will likely apply. If an employer has a good faith belief that the furlough will last less than six months, then WARN will likely not apply. Having said that, an employer may decide to provide WARN notice to mitigate the risk of future litigation regarding the absence of notice.
Are Furloughed Employees Eligible to Receive Paid Leave under H.R. 6201: The Families First Coronavirus Response Act?
On March 18, 2020, the President signed H.R. 6201: the Families First Coronavirus Response Act into law. This relief package, among other things, amends the Family and Medical Leave Act (“FMLA”) and requires that employers with less than 500 employees provide a complement of paid and unpaid FMLA leave. The Act also creates an entitlement to Emergency Paid Sick Leave for individuals experiencing COVID-19 symptoms, who have been placed in quarantine or isolation by a healthcare provider or pursuant to government order and for other defined reasons (a more detailed analysis of H.R. 6201 is provided in the Ice Miller COVID-19 Resource Center). However, the United States Department of Labor (“DOL”) has yet to issue regulations or guidance interpreting the Act. Thus, a number of questions have emerged regarding the application of the paid FMLA and Emergency Paid Sick Leave provisions of the Act.
- Are Employees who are Furloughed Because of a Company Shut-down due to a Government-issued Shelter-in-Place Order Eligible to Receive Public Health Emergency FMLA leave? Likely not. Public Health Emergency Leave is only available when the employee needs leave because his or her child’s school or childcare provider is closed or unavailable and the employee is unable to work for that reason. When the company is shut down, the need for leave is not based on the closure of a school or childcare provider. The regulations may shed further light on this question.
- Are Employees Who are Furloughed Because of a Company Shut-down Due to a Government-issued Shelter-in-Place Order Eligible to Receive Emergency Paid Sick Leave? The availability of Emergency Paid Sick Leave for employees who are furloughed as a result of a government-ordered quarantine appears more straightforward. The specific language of the law implies that leave is only available if the employee, individually, is subject to an order to quarantine or self-isolate, but it is possible to interpret the language more broadly to require Emergency Paid Sick Leave under these circumstances. The DOL’s forthcoming regulations may shed light on this question.
- Are Employees Who are Furloughed Because of a Downturn in Business Caused by COVID-19 Eligible to Receive Public Health Emergency FMLA? There is currently no guidance as to whether employees who are furloughed due to a COVID-19 related business downturn are eligible to receive Public Health Emergency FMLA leave. Again, the regulations that will be issued soon may clarify this issue for employers. That said, a compelling argument exists that these employees are not eligible under the Act. Prior to the pandemic, courts that considered the availability of FMLA and other leave entitlements for furloughed employees construed furloughs as periods of unemployment. Thus, individuals who are furloughed are not considered active employees for the purposes of the FMLA. Instead, these employees should access relief through their state’s unemployment system.
Employers should continue to comply with the WARN Act if they anticipate a workforce reduction that may extend beyond six months. In situations where the WARN Act applies but an employer is unable to give the required notice due to the impact of COVID-19, they should give as much notice as practicable to all relevant parties. Also, employers should not overlook any applicable state mini-WARN laws. Ice Miller will continue to monitor this area of the law and update this information as necessary as it relates to the federal WARN Act.