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Business Closures and Mass Layoffs Due to COVID-19: WARN & Cal-WARN Requirements
Due to the COVID-19 safety measures, including Governor Newsom’s order last night that all California residents self-quarantine (unless you need essential services or you are an essential business) many businesses are being forced to close and/or face the prospect of laying off workers in response to the economic consequence from COVID-19.
Employers must recognize that they have specific legal duties and notice obligations when performing mass layoffs, temporary closures, or shutdowns under the federal WARN Act and its state equivalent, Cal-WARN. WARN and Cal-WARN require employers to give 60-day advance notice to employees and government officials of certain closures and layoffs. If employers fail to do so, they could be required to pay affected employees back pay and civil penalties for failing to give adequate notice.
The WARN act under federal law has an exception for notice requirements when the closure, mass layoff or reduction of force is caused by business circumstances that were not reasonably foreseeable sixty days before or is from a natural disaster, arguably both apply to COVID-19. Unfortunately, California law lacked these same exceptions, so the legal focus has been on Cal-WARN because under the California regulations, the employers would have to provide the 60-days’ notice or face hefty financial consequences. Fortunately, on March 17, Governor Gavin Newsom issued an implementing important temporary modifications to Cal-WARN to assist employers in the current crisis.
Here is what you need to know.
What is WARN?
A covered employer must give 60-days’ notice to affected employees and specified government officials before it: (i) shuts down an employment site that causes employment loss for 50 or more full-time employees; (ii) conducts a layoff that effects 50 or more employees and 33% or more of the total workforce at a single location; or (iii) lays off 500 or more employees at a single location. WARN does not apply to layoffs lasting less than 6 months.
How do I verify how many employees I have under WARN?
The federal Worker Adjustment and Retraining Notification Act applies to employers of 100 or more full-time employees (or 100 full-time and part-time employees who work a total of 4,000 non-overtime hours per week).
What is Cal-WARN?
The California version of WARN is similar, but with vital differences. Cal-WARN applies to an employer who has employed 75 or more persons, including part-time employees, at a single industrial or commercial facility (called a “covered establishment”) within the preceding 12 months.
An employer must give 60-days’ notice before:
(1) terminating operations at the covered establishment;
(2) relocating the covered establishment’s operations more than 100 miles; or
(3) laying off 50 or more employees at the covered establishment in a 30-day period. For an employee to count as part of the 50-employee threshold, that person must have worked for the employer for at least 6 of the preceding 12 months.
While WARN only applied to layoffs exceeding 6 months, Cal-WARN applies to layoffs of any duration. Therefore, employers must comply with Cal-WARN even for a short-term layoff. Cal-WARN has an exception for “physical calamity or act of war,” but it is uncertain whether a pandemic would qualify as a physical calamity. Prior to the Governor’s Executive Order, Cal-WARN had no express exception for unforeseen business circumstances.
What is Termination, Mass Layoff and Relocation?
TERMINATION: Under state law, the notice requirement is triggered by the cessation or substantial cessation of industrial or commercial operations.
MASS LAYOFF: In California, the notice requirement is triggered by any layoff or work stoppage that results from lack of funds or lack of work, and involves 50 or more full or part-time employees within a 30-day period, if they have been employed by the employer for at least 6 months of the 12 months preceding the notice. A reduction in hours is not considered a mass layoff.
RELOCATION: Under state law, the notice requirement is triggered by the removal of all or substantially all industrial or commercial operations to a site over 100 miles away.
Who Must Receive Notice Under WARN/Cal-WARN?
a. All affected full and part-time employees (in a language they understand)
b. The EDD’s State Dislocated Worker Unit
c. The local workforce investment board
d. Chief elected county official
e. Chief elected city official
f. CBA Representative if applicable
Who is an “Affected” Employee?
Any employee, not hired on a temporary basis, who may reasonably expect to experience an employment loss as a result of a triggering event. That includes temporary laid off employees as long as they have a reasonable expectation of recall and part-time employees. Also, any employee who is displaced due to bumping (which means allowing employees who are affected to move into other jobs available of non-affected employees, essentially “bumping” them from his or her job), even if they are located in another facility.
What Must The Notice(s) Contain?
Notice to Employee
1. Whether the action is permanent or temporary
2. Whether the entire plant will be closed
3. The expected date when the action will commence and the expected of the employee’s separation
4. Whether bumping rights exist
5. The name and telephone number of a company official to contact for information.
In addition, Notices provided to employees under Cal-WARN due to COVID-19 must also contain:
6. A brief statement on the basis for reducing the notification period.
7. “If you have lost your job or been laid off temporarily, you may be eligible for Unemployment Insurance (UI). More information on UI and other resources available for workers is available at labor.ca.gov/coronavirus2019.”
Notice to Government Official(s)
1. The name and address of the site where the layoff or closure will occur;
2. The name and telephone number of the company official to contact for further information
3. Whether the action is permanent or temporary
4. Whether the entire plant will be closed
5. The expected date when the action will commence and the expected date of future separations
6. Whether bumping rights exist
7. The job titles of positions to be affected and the number of workers to be affected in each classification
8. The name of each union representing affected employees and the name and address of each chief elected officer if applicable.
What does the Executive Order Change About Cal-WARN?
Governor Newsom’s Executive Order, which applies from March 4, 2020, through the end of the declared State of Emergency, suspends the 60-day notice requirement of Cal-WARN for employers who meet certain conditions detailed below.
Employer Must Still Provide a Notice: The employer must still give the required notices to (1) the affected employees, (2) the Employment Development Department, (3) the local workforce investment board, and (3 & 4) the chief elected official of each city and county government within which the termination, relocation, or mass layoff occurs. Therefore, there should be a minimum of four notices provided (if you have a Union this requires more notice).
Employer Must Still Provide as Much Notice As Practicable: The employer gives as much notice as practicable and includes a brief statement on the basis for reducing the notification period.
The Termination, Relocation or Layoff Must Be Caused by COVID-19: The termination, relocation, or layoff is caused by COVID-19-related business circumstances that were not reasonably foreseeable at the time notice would have been required (e., 60 days before); and
Employer Must Still Provide Legal Requirements in Notice, Plus An Additional Requirement: For all notices provided to employees from this point forward, the employer must state the usual contents of the notice, and the employer must include the basis for reducing the notice period and the following statement: “If you have lost your job or been laid off temporarily, you may be eligible for Unemployment Insurance (UI). More information on UI and other resources available for workers is available at labor.ca.gov/coronavirus2019.”
Guidance: The Executive Order directs the Labor and Workforce Development Agency to provide guidance for implementing these requirements.
The Executive Order does not waive Cal-WARN requirements; rather, it provides a procedure in line with the federal WARN Act that gives some relief to employers facing unforeseen business circumstances. Employers must continue to evaluate potential obligations under both WARN and Cal-WARN. Given the significant penalties for non-compliance, employers faced with closing a location or laying off employees (even for short periods) should contact your legal experts at McKague Rosasco LLP with any questions or assistance. Employers should also stay tuned for the Federal CARE Act which may provide loan assistance to small business if they do not lay off workers. You may want to hold off on a layoff until the details of this bill are worked out.