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Protecting Your Company From Liability During Downsizing

January 3, 2022 By wrlaw

Your organization could resort to downsizing for many reasons, including cost-cutting, restructuring, mergers, and other factors. When you consider laying off employees, you must examine the risks of violating various state and federal laws. Furthermore, in the event of a layoff, several common law claims may be strengthened, and a mass layoff may expose you to multiple claims from several employees in a class-action lawsuit.

Successfully executing a layoff is one of the most challenging problems your company may face. However, a considerable body of best practices has been developed to aid management in carrying out the downsizing in a planned, legally compliant, and humane approach.

Legal Implications of Layoffs

An organization’s choice to downsize may violate several federal and state laws. Almost half of the states have their own notice laws. Some even go so far as to demand that corporations pay a modest severance package or continue to provide health insurance to employees for a limited time following the layoff. 

North Carolina, however, does not fit into either of these categories. Because North Carolina lacks its own layoff or plant closure statute, workers are solely covered by the Federal WARN Act.

Worker Adjustment and Retraining Notification Act (WARN)

The purpose of this statute (and its state law equivalents) is to reduce the harm caused by layoffs to workers and communities. WARN requires you to offer at least 60 days’ notice of a downsizing to the affected employees.

A “mass layoff” happens when at least 500 full-time workers lose their jobs within 30 days, or when at least 33% of workers at a single site of employment are laid off in 30 days, unless the percentage amounts to fewer than 50 people. A site of employment is a physical area where you run your business operations and could include a building, an industrial complex, or a campus. Physically separate worksites that are utilized for the same function, are in reasonable proximity, and share the same personnel and equipment may also be considered a single employment site.

The Federal WARN act is limited to larger firms. A large business has:

  • At least 100 full-time workers (those who work at least 20 hours a week and have been on the job for at least six of the previous 12 months prior to the notice) or,
  • 100 employees who work a cumulative of 4,000 hours or more each week.

Determining whether WARN applies to a given layoff can be challenging. It is advisable to seek legal advice in all instances, even in what may seem to be the most straightforward cases.

Notice Required by WARN

Employees who will lose their jobs during downsizing are entitled to 60 days’ notice. Individual notice is not available to unionized workers. Instead, the employer must inform its union representatives, who in turn notify the impacted employees.

The notice must include specific details regarding the impending layoffs, including whether they will be temporary or permanent or whether the employee will be given bumping benefits. It should also state when the layoffs are slated to begin and when the employee will receive a termination letter.

In some cases, you are not required to give any notice at all or can give less than 60 days’ notice.

No Notice Required

An employer is not legally compelled to give early notice of a mass layoff in some instances. They include:

  1. Temporary Projects: No notice is necessary if an employer releases personnel employed solely for a temporary project that has been completed or shuts down a facility that was only meant to be open for a limited time. This exception is only applicable if the employees were aware of the temporary situation during hiring.
  2. Strikes and lockouts: WARN does not apply if a closure or downsizing results from a workers’ strike or an employee lockout.

Shorter Notice Allowed

In select circumstances, you may offer less than 60 days’ notice. You must clearly explain in a written notice why you were unable to provide the mandated 60 days’ notice.

  1. Unforeseeable business conditions. A shorter notice period is permitted if the grounds for the downsizing or layoff were not reasonably foreseeable at the time, the employer should have given 60 days’ notice.
  2. Natural calamities. If a natural disaster causes a layoff, you may give less than 60 days’ notice.
  3. Faltering Enterprise: If your company is facing financial difficulties, it may give a shorter notice. You must, however, demonstrate that your business was actively seeking business or funding that would have enabled it to defer or avert the downsizing and that it reasonably believed that giving a 60-day notice would have gotten in the way of obtaining the necessary money or business. However, this provision is only applicable for plant closures, not mass layoffs.

What Happens With A WARN Violation?

An employer who breaches WARN may be held liable for all wages and benefits lost due to the violation, up to the full 60 days mandated by WARN. Any salaries or severance fees paid voluntarily by the employer are deducted from the sum. You may also be required to pay the legal fees and court costs of affected employees who win their lawsuits. 

Additionally, you may have to pay $500.00 in civil penalties for every day you fail to notify local authorities. However, if you deliver back pay to every affected worker within three weeks of parting, you can avoid the $500.00 civil penalty.

Because WARN stipulates that an employer’s maximum liability is limited to 60 days, providing your employees with full benefits eliminates any potential liability. However, no provision in WARN allows for payment in lieu of notice, and the laws do not recognize the concept.

Our North Carolina Business Attorneys Can Help

As seen from the above discussion, federal WARN and its state equivalents can be highly complex and technical legislation that should be considered whenever your business is having to downsize. 

If your company is considering layoffs or downsizing, the Wilson Ratledge North Carolina business attorneys can help you ensure compliance with all applicable state and federal labor regulations. Call them today at 919-787-7711 or fill out the form online to schedule a consultation!

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