TOUGH TIMES AHEAD? YOU’VE BEEN WARNED!
By Christopher Abel
Willcox & Savage, PC
Virginia’s ship repair industry is heavily dependent on Government contract work, principally for the U.S. Navy. And lately, the future for local Navy contract work has looked anything but rosy. The combination of programmed defense budget cuts, a dwindling number of ships homeported in Hampton Roads, and the looming prospect of sequestration chopping another $50 billion from the Defense Department budget on January 2nd has many in our industry battening down the hatches and preparing for some decidedly heavy fiscal weather. If those preparations involve plans to lay workers off, then VSRA’s member companies would be well advised to keep the federal Worker Adjustment and Retraining Notification (“WARN”) Act in mind.
The Act, which has been on the books since 1988, applies to employers of 100 or more full-time employees. Under its provisions, a covered company must make certain mandatory notifications prior to either a “plant closing” or a “mass layoff”, as each of those terms are defined by the Act. A “plant closing” for WARN Act purposes occurs when the employer shuts down a work site, leading to an “employment loss” for fifty or more of its employees during any 30-day period. A “mass layoff” takes place when a reduction in force causes at least 50 employees at a single site to suffer an “employment loss” during any 30-day period, and the number of employees to be let go constitutes at least a third of the company’s workers at that work site. The law defines an “employment loss” to be an involuntary termination (other than one for cause), a layoff exceeding six months, or a more than 50% cut in work hours for each month for a six month period.
If a covered employer believes that it is reasonably foreseeable that it will experience either a “plant closing” or a “mass layoff” in the future, then it must give written WARN Act notice to: (1) each affected employee (or to their representative, if they are unionized); (2) the Manager of the State Dislocated Worker Unit at the Virginia Employment Commission; and (3) the mayor or chairman of the Board of Supervisors for the city or county where the affected worksite is located. The information to be contained in each notification is set forth in the Act’s implementing regulations, which are located at 20 C.F.R. 639.7. The notifications must be in each recipient’s hands no less than sixty days before the affected employees’ “employment loss” commences. The regulations allow for conditional notices based on the occurrence or non-occurrence of an event—such as the loss of a particular Government contract.
Strange as it may seem, no federal agency has authority to enforce the Act. Instead, individual employees (or groups of employees, banding together in a class action) have to sue their employer in order to enforce the Act’s provisions. In addition to having to pay its employees’ legal fees, an employer judged to be in violation of the Act must pay each affected employee his or her pay and benefits for the period during which they should have received notice under the Act, up to a maximum of sixty days. Employers who have work sites in several states will want to know that at least a dozen states have their own “mini-WARN Act”s applicable to mass terminations within their own borders. Virginia does not.
The Act provides for three exceptions under which an employer may be excused from the law’s sixty-day notice requirement. The first is the very narrow “faltering company” exception, that applies only to plant closings (and not to mass layoffs) and arises when a company’s efforts to obtain capital or business have failed, despite its best efforts and if providing the required notice would have prevented the employer from getting the money or business it needed. The second is a “natural disaster” exception, and the third is the “unforeseeable business circumstances” exception, which requires a “sudden, dramatic, and unexpected action or condition” outside the company’s control.
Finally, given that a presidential election is right around the corner, it should come as no surprise that politics has intruded into the Act’s domain. Several large defense contractors have expressed their concern that the Government’s approaching the “fiscal cliff” in January forces them to issue WARN Act notices no later than November 2nd of this year. The Obama administration clearly wants to avoid mass layoff notices being received by workers almost literally on the election’s eve. With that in mind, both the Secretary of Labor and the White House’s budget director have opined that the potential for sequestration does not warrant giving a WARN Act notice, because spending cuts due to sequestration are “speculative and unforeseeable” and—even if they did take place—would be the kind of “sudden and dramatic” action that would exempt employers from compliance under the “unforeseeable business circumstances” exception. The problem, of course, is that neither the Department of Labor nor the White House enforces the Act and none of their recent WARN Act “guidance” has the force or effect of law. Indeed, employers who choose to follow it will have to wait to see whether the courts will agree with the administration’s current interpretation of the law—a gamble that many employers may be unwilling to take.
One thing remains clear: ignorance of the law is no excuse. Accordingly, employers with more than 100 employees will want to become thoroughly familiar with the WARN Act’s requirements and then do what it takes to stay on the right side of the law. No one wants to add WARN Act liability to the many challenges Virginia’s ship repairers face in this unusually trying and uncertain fiscal environment. When tough times lie ahead, today’s most thoughtful VSRA member companies make it a point to remember that they’ve been WARN-ed!
NOTE: Additional information about compliance with the WARN Act can be found on the Department of Labor’s web site at www.doleta/layoff/warn.cfm.
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