- April 1, 2020
Businesses across the country are laying off workers in unprecedented numbers on account of the unprecedented challenged presented by the COVID-19 pandemic. When doing so, employers must be cognizant of all applicable laws. One such state and federal law imposes a duty to notify employees well in advance of mass layoffs or plant closings. That duty is created by the Worker Adjustment and Retraining Notification Act (WARN Act). Failure to comply with the notice provisions of the WARN Acts render the employer liable to pay each employee for the period of time for which they should have received notice before termination (in Illinois, up to 60 days) plus a civil penalty.
While similar, an employer's obligations under the Federal WARN Act and each state's unique WARN Act may differ, and an employer is required to follow both.
WARN Act Applies to Businesses Based Upon Employee Count
The Illinois WARN Act applies to employers with: (1) 75 or more full-time employees, or (2) 75 or more total employees who in aggregate work 4,000 hours per week, exclusive of overtime. 820 ILCS 65/5(c). For WARN Act purposes, a "full-time" employee is one who has been employed for 6 months and works an average of 20 or more hours week, calculated over the actual time the employee has been employed or the most recent 90 days, whichever is shorter. State and Federal laws differ on the number of employees required to trigger WARN, so review each state's WARN Act for specific guidance.
- If an employer has fewer than the required number of employees, for example, 40 full-time employees in Illinois, then the employer has no WARN Act notice obligations in advance of a mass layoff or plant closing.
- If the number of employees is close to the threshold, the employer should complete a thorough calculation to determine its obligations.
- If the number of employees exceeds the threshold, next consider whether a "mass layoff" or "plant closing" will occur.
WARN Act Only Applies to "Mass Layoffs" or "Plant Closings" at a Single Site
In Illinois, a "mass layoff" results in an employment loss at a single site of employment during any 30-day period of at least 33% of the employees and 25 full-time employees (again, a "full-time" employee is one who has been employed for 6 months and works an average of 20 or more hours week). 820 ILCS 65/5 (d). A "plant closing" means the permanent or temporary shutdown of a single site of employment, if the shutdown results in the loss of employment for 50 or more "full-time" employees. 820 ILCS 65/5(f)."
If the employer's number of employees exceeds the threshold, and the proposed action constitutes a "mass layoff" or "plant closing" at the single site of employment, the WARN Act applies and notice is required sixty (60) days before the employment loss. 29 U.S.C. § 2102(a); 820 ILCS 65/10(a).
Exceptions to WARN Act's 60 Day Advance Notice Requirements
Even if the WARN Act applies, certain circumstances can reduce the required notification period. Under Illinois law, there are two exceptions: (1) faltering business; and (2) unforeseen business circumstances. 820 ILCS 65/15(a). The Federal WARN Act includes those two exceptions and adds a third: "natural disaster," such as a flood, earthquake or drought. 29 U.S.C. § 2102(b)(2)(A).
The "faltering business" exception applies if, at the time the notice would have been required, the employer was actively seeking capital, which if obtained, would have enabled to employer to avoid or postpone the employment loss event, and the employer reasonably and in good faith believed the notice required to be given would have precluded the employer from obtaining the needed capital. 820 ILCS 65/15(a)(1).
The "unforeseen business circumstances" exception applies if, under Illinois law, "the need for a notice was not reasonably foreseeable at the time the notice would have been required." 820 ILCS 65/15(a)(2). Under Federal law, "[a]n employer may order a plant closing or mass layoff before the conclusion of the 60-day period if the closing or mass layoff is caused by business circumstances that were not reasonably foreseeable as of the time that notice would have been required. 29 U.S.C. § 2102(b)(2)(A).
The Code of Federal Regulations provides additional guidance on "unforeseen business circumstances":
An important indicator of a business circumstance that is not reasonably foreseeable is that the circumstance is caused by some sudden, dramatic, and unexpected action or condition outside the employer's control. A principal client's sudden and unexpected termination of a major contract with the employer, a strike at a major supplier of the employer, and an unanticipated and dramatic major economic downturn might each be considered a business circumstance that is not reasonably foreseeable. A government ordered closing of an employment site that occurs without prior notice also may be an unforeseeable business circumstance. 20 CFR § 639.9(b)(1).
The test for determining when business circumstances are not reasonably foreseeable focuses on an employer's business judgment. The employer must exercise such commercially reasonable business judgment as would a similarly situated employer in predicting the demands of its particular market. The employer is not required, however, to accurately predict general economic conditions that also may affect demand for its products or services. 20 CFR § 639.9(b)(2).
The Illinois exceptions expressly only apply to a "plant closing", but not a "mass layoff", while the Federal exceptions expressly apply to both a "plant closing" or "mass layoff." 29 U.S.C. § 2102(b)(2)(A); 820 ILCS 65/15(a)(2).
Even if Exception to 60 Day Rule Applies, Employer Still Required to Give "As Much Notice As Is Practicable"
Both Illinois and Federal law require, that even if an employer is excused from providing 60 days notice due to the "faltering business," "unforeseen business circumstances" or "natural disaster" exceptions, the employer "shall provide as much notice as is practicable and at that time shall provide a brief statement of the basis for reducing the notification period." 29 U.S.C. § 2102(b); 820 ILCS 65/15 (d). That requirement was recently upheld by a federal court in Chicago, holding: "even if [the employer] qualified for the unforeseen business circumstances or faltering company exceptions, it was still required to provide WARN Act notice as soon as was practicable." Newman as Trustee of World Marketing Trust v. Crane, Heyman, Simon, Welch & Clar, No. 17 c 6978, 2020 WL 374693, *5-6 (N.D. Ill. Jan. 22, 2020). The Newman Court cited U.S. Department of Labor regulations which instruct that "as much notice as is practicable . . . may, in some circumstances, be notice after the fact." Id. at *6 (quoting 20 C.F.R. § 639.9). The Newman Court also highlighted that fact that the notice, even after the fact, must "contain a statement explaining the basis for reducing the notice period." Id. at *6.
1. For example, while Illinois and the Federal WARN Act require 60 days notice, New York requires 90 days notice.
2 The Federal WARN Act applies to employers with 100 or more employees (or equivalents). New York requires a WARN notice for employers with 50 employees shutdown of a single site of employment, if the shutdown results in the loss of employment for 50 or more "full-time" employees. 820 ILCS 65/5(f).