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Be Forewarned About Proposed Changes to WARN

Chicago-based Republic Windows and Doors was all over the news shows, the Web and print publications in late 2008 when terminated factory workers staged a sit-down demonstration and refused to vacate the premises until they received their WARN wages. Probably not a lot of Americans were then that knowledgeable about WARN, but they got an introduction as the factory sit-down continued until Republic came up with some dough to satisfy workers’ demands under the WARN Act.

Republic’s owner was no doubt hoping to slip through a provision of the Worker Adjustment and Retraining Notification (WARN) Act that allows failing businesses, or those facing unforeseeable business circumstance, to close down with fewer than 60 days’ advance warning. In fact, citing a loss of its line of credit with Bank of America, Republic Windows and Doors shut down almost overnight, but the workers’ and their union smelled a rat and refused to go home until paid. Eventually, Bank of America came to the rescue with a new line of credit, and the workers received 60 days’ wages and benefits, just as if the owner had actually given everyone the legally required advance notice and kept them employed for 60 days.

The owner was lucky his factory wasn’t located in France, where workers have taken to holding owners and managers hostage in their offices until they accede to union demands. However, Republic owner Richard Gillman was probably nowhere to be found since he had already nefariously purchased another window and door factory in Iowa, which is a right-to-work state, where his wife Sharon was installed as manager. In fact, the reason the Chicago workers and union smelled a rat came from their having observed machinery in the Illinois location being uninstalled and shipped off to Iowa. The union is now involved in legal action to force Gillman to return the machinery to the Goose Island site in Chicago, so the factory can be sold to someone else and the workers rehired. (In fact, shortly after this was written, the happy news surfaced that California-based Serious Materials had purchased the factory and rehired most of the workers at their previous wage scales.)

The WARN Act was passed two decades ago during another banking crisis, this one involving savings and loan institutions that were gradually taken over by the federal government and either folded or sold off. The intent of WARN was to safeguard employees from showing up one morning at work only to find a sign on the gate or front door saying “Out of Business.”

As currently constructed, the federal WARN Act applies to businesses with 100 or more employees within a 75-mile radius, but it counts as full-time employees anyone who works 20 or more hours a week. The law mandates 60 days’ warning whenever a company of that size or larger plans to lay off 50 people or more, representing at least one-third of the workforce. Thus, if a company employs 200 people, it can lay off 50 and not trigger the one-third clause, freeing it from any advance notice. Sensing that companies might try to game the system, however, legislators also wrote a 30-day window into the law, so that if layoffs over that period constitute at least 50 people and one-third of the workforce, the advanced warning applies. Also, anytime a company lays off 500 people or more, regardless of the percentage of total employees, WARN applies. Again, there is a 30-day window. Finally, and here’s where the law applied to Republic Windows and Doors, whenever there’s a plant closing, owners must also give a 60-day notification.

Even with the triggers written into WARN, employers have found ways around its provisions. Some connivers will lay off 30 people in one month, wait 31 days and lay off 30 more (fill in the blank on the number so long as it doesn’t represent one-third of total employees or add up to 500 in aggregate). Also, since buyouts, retirements and terminations for cause don’t count, if a company can get a few people to take buyouts or early retirement, it can breach the 50-employee barrier with impunity. Get six people to retire or take a buyout and you can go to 55, for instance, and still be safe (if mindful of the one-third rule). Another end run is to reduce workers’ hours by less than 50 percent. Cut everyone’s workweek from 40 hours to 21 hours, and WARN has been held at bay. However, matters get a little stickier from here on out. When there are two or more rounds of layoffs, a 90-day window can be triggered, so that the aggregate count can be extended over a longer period.

As mentioned earlier, federal WARN also contains some gray areas for wiggle room. The law provides leeway if the layoffs result from a natural disaster, a failing business, or unforeseeable business circumstances. In any of these circumstances, advance warning still must be given but in the longest time-frame practicable. Richard Gillman was no doubt relying on a couple of those loopholes and probably hoping for a tornado to fortuitously strike as well when he gave just a few days’ notice.

Penalties for non-compliance include the payment of back wages and benefits to all employees for every day up to 60 maximum for which advance warning was not issued. Failure to provide notice to the government can also result in a fine of $500 for each day of violation. In Gillman’s case, he did eventually honor the 60 days of wages and benefits.

That millions of laid-off workers from the current recession are mostly still displaced points up what critics see as the glaring contradiction in WARN. Though the law is designed to protect workers, layoffs of such magnitude as represented by WARN tend to proliferate in bad economic times, leaving workers with few options even when given advance notice. As well, many companies today offer severance packages that are more generous than the 60 days represented by WARN. Critics also charge that giving 60 days’ advance warning is like announcing you’re having difficulties, thus attracting creditors to descend on your and repelling both customers and (especially) debtors who might decide to wait two months on the money owed until you’re no longer around to collect it.

Even with its shortcomings and contradictions, however, WARN has been tightened and enhanced in several states, which usually lower the employee-count threshold and lengthen the warning period. California, New Jersey, Illinois, Wisconsin and now New York (in 2009) have all enacted stricter WARN laws. Additionally, Barack Obama when campaigning for the presidency vowed to strengthen WARN by making it apply to companies with 50 or more employees, and Democrats in Congress have already crafted an act to do just that. Called FOREWARN, the proposed replacement legislation not only lowers the barrier but lengthens the notification period to 90 days and doubles the amount of back pay owed.

Enforcement of WARN has proven tough to carry out, however. The Department of Labor has no authority to police for the law, and three is no national WARN organization. The law states that “Advance notice should be given to the State Rapid Response Dislocated Worker Unit as well as to the chief elected official of the local government where the closing or mass layoff is to occur.”

Thus local and state officials often find themselves scrambling to keep track of layoffs, investigate and put solutions in place. What seems to work best results from the media’s focusing attention on a business, as was seen in the case of Republic Windows and Doors. WARN lawsuits often provide tough legal and evidentiary barriers, and fewer than one percent of employment litigation nationwide is related to WARN, according to the University of Pennsylvania’s Center for Human Resources at the Wharton School.

It remains to be seen if FOREWARN will strengthen enforcement, but it has already decidedly set its sights on increasing both obligations and penalties, which could lead to the perverse and unintentional result of employers’ rushing to lay people off before the harsher law takes effect. But with a tougher nationwide law in effect, it would level the playing field on a state-by-state basis, so there might be fewer companies’ vacating California and New Jersey, as they have in the past, for greener pastures in states with fewer and softer compliance hurdles. However, it might also encourage the states to get tougher themselves. In today’s harsh economic climate, it might seem contradictory to make business tougher to conduct, but that’s precisely the current direction in Washington, D.C., so everyone should be forewarned.

Personnel Concepts, pioneer and pacesetter in the labor law poster and workplace compliance industry, provides detailed explanations and recommendations on the WARN Act and other workplace requirements in its comprehensive HR Desk Reference.

About the author:
Gary McCarty is a researcher and Web Content Manager for Personnel Concepts.

Note: The details in this white paper are provided for informational purposes solely. All answers are general in nature, not legal advice and not warranted or guaranteed. Readers are cautioned not to rely on this information. Because laws change over time and in different jurisdictions, it is imperative that you consult an attorney in your area regarding legal matters and an accountant regarding tax matters.

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