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Business Layoffs and Dissolution Risk Avoidance

August 23, 2011 3:40 PM


Businesses having financial difficulties have been much in the news in recent weeks. As companies face hard economic times, they still must be careful in how they treat their employees. Even after a business closes, lawsuits might be filed against it alleging violations of the federal Worker Adjustment and Retraining Notification (WARN) Act as well as state WARN laws and federal and state wage and hour laws. What do business owners, managers and HR professionals need to do to comply with the laws and avoid litigation risks as companies deal with financial hardships? And what are the ramifications of a company’s failure to safeguard itself?

The WARN Act requires employers to provide notice 60-days in advance of plant closings and mass layoffs. A plant closing means the permanent or temporary shutdown of a single site of employment if such a shutdown results in the loss of 50 or more employees during any 30-day period. The shutdown of one or more of the operating units or facilities contained within a single site of employment counts as a plant closing, assuming that the 50-employee employment loss threshold is met.

To qualify as a mass layoff under WARN, the layoff must involve an employment loss at a single site of employment of at least 50 employees and at least 33 percent of the employees at the employment site. Employment losses of 500 or more employees impose WARN requirements automatically no matter how many other employees a company employs at the site. Part-time employees are not counted for purposes of a plant closing or a mass layoff.

A covered employer who orders a plant closing or mass layoff without providing this notice is liable to each un-notified employee for back pay and benefits for up to 60-days. WARN does contain a “failing company” exception. Businesses that are able to show that a closing or mass layoff was caused by business circumstances that were not reasonably foreseeable at the time notice would have been required are free from the 60-day notice requirements.

In addition, companies actively seeking capital or additional business that would avoid or postpone a shutdown or a mass layoff are free from the 60-day notification requirement if the business can show that it believed in good faith that, had it given such notice, it would have been precluded from obtaining the sought-after capital or business.

Businesses fitting within these exceptions to the 60-day notice requirement are still expected to give as much notice as practicable. In addition, once any notice is provided, they are expected to give a brief statement of the basis for the reduced notification period.

Employers should also remember not think that because they have limited funds, they won’t have to pay their employees. In addition to the federal law, many states have WARN laws. Some of these laws impose notice requirements different from those imposed by the federal act. Most states have laws governing how and when wages must be paid. And many of these state laws impose personal liability for failure to comply.

And not to be forgotten, in a business dissolution, it is also important to maintain records since federal and state laws require retention of employee records for wage and hour and other purposes.

Source: Society for Human Resources Management

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