Mass Layoffs: The WARN Act and Employment Liability

The Worker Adjustment and Retraining Notification (WARN) Act is a critical federal statute designed to protect workers, their families, and communities by requiring most employers with 100 or more employees to provide notification 60 calendar days in advance of plant closings and mass layoffs. For insurance professionals preparing for the complete EPLI exam guide, understanding the triggers and liabilities associated with this act is essential for assessing employer risk.

Advance notice provides workers and their families some transition time to adjust to the prospective loss of employment, to seek and obtain alternative jobs, and, if necessary, to enter skill training or retraining that will allow these workers to successfully compete in the job market. Failure to adhere to these notice periods creates significant legal exposure, which is a primary focus of Employment Practices Liability Insurance (EPLI) underwriting and claims management.

Determining whether an employer is subject to the WARN Act requires specific calculations that often appear on the practice EPLI questions. Generally, the act applies to business enterprises that employ:

• 100 or more full-time employees (excluding those who have worked less than 6 months in the last 12 months and those who work an average of less than 20 hours a week); OR
• 100 or more employees (including part-time) who in the aggregate work at least 4,000 hours per week (exclusive of hours of overtime).

It is important to note that regular federal, state, and local government entities which provide public services are not covered by the WARN Act. However, private for-profit and non-profit organizations, as well as public and quasi-public entities which operate in a commercial context and are independent of regular government, are covered.

While the 60-day rule is strict, there are three primary exceptions that allow for shortened notice periods. Even when these apply, the employer must still give as much notice as is practicable and provide a brief statement of the reason for reducing the notice period.

• Faltering Company: This applies only to plant closings. If an employer was actively seeking capital or business which, if obtained, would have avoided or postponed the shutdown, and they believed that giving notice would have precluded them from obtaining the capital, they may be exempt.
• Unforeseeable Business Circumstances: This applies to closings and layoffs caused by business circumstances that were not reasonably foreseeable at the time notice would have been required (e.g., a sudden, dramatic, and unexpected termination of a major contract).
• Natural Disaster: This applies when a closing or layoff is a direct result of a natural disaster, such as a flood, earthquake, or drought.

An employer who violates the WARN Act is liable to each affected employee for an amount equal to back pay and benefits for the period of violation, up to 60 days. This liability can escalate quickly in a mass layoff involving hundreds of individuals. Furthermore, an employer who fails to provide notice to a unit of local government may be subject to a civil penalty of up to $500 for each day of violation.

From an insurance perspective, most standard Employment Practices Liability Insurance (EPLI) policies contain a specific exclusion for liability arising out of the WARN Act or similar state laws. However, there is a nuance: while the actual back pay and statutory penalties are typically excluded, some policies may provide defense costs for such claims, or coverage may be available via a specific endorsement or sublimit. Risk managers often look for 'Wrongful Termination' definitions that might overlap with the procedural failures of a layoff, though insurers are careful to separate systemic business decisions from individualized discriminatory acts.