WARN Act Protects Laid off Employees of Companies in Bankruptcy

August 31, 2016

Being laid off is likely one of the most stressful events employees and their families will face. It means looking for a new job and wrestling with the financial uncertainty that comes with being out of work.

Recognizing this, Congress passed the Worker Adjustment and Retraining Notification (WARN) Act in 1988. This federal law requires companies with 100 or more full-time employees to give written notice 60 days before a mass layoff or plant closing, and thus provides laid-off workers two months to try and find a new job while still employed. If a company fails to give this notice, employees are entitled to up to 60 days of back pay and benefits. WARN protects many types of workers, including those paid hourly or on salary, as well as managers and supervisors.

But what if a company announces a layoff and then immediately files for bankruptcy? Employees may worry they have now lost out on the notice period – and the income that goes with it.

Thankfully, the WARN Act’s protections and obligations are not extinguished when a company files for bankruptcy under Chapter 7 or 11 or 7.

Specifically, a company cannot use bankruptcy to avoid giving proper layoff notices under WARN. If the employer knows, or should have reasonably known, that a layoff was foreseeable, it must give 60 days’ written notice. Similarly, if the business continues to operate while in bankruptcy – for example, during a restructuring the company must adhere to WARN and provide notice 60 days before laying off workers. Likewise, if the business decides to cease operations and liquidate its assets, terminating its employees in the process, written notice to its employees is required. Thus, laid off employees are usually entitled to written WARN notice or pay in lieu of that notice, even if their employer is in bankruptcy.

Workers laid off by a company in bankruptcy protection should not give up hope of receiving the pay and benefits they are owed under WARN. It may seem improbable, but even after a bankruptcy filing, employers often have sufficient money to pay employees their outstanding wage obligations, including WARN pay. In addition, under the U.S. Bankruptcy Code, these claims usually have priority over other unsecured claims.

The key is to act quickly, as the bankruptcy process involves tight deadlines for filing claims.

For more information on the WARN Act and the protections it provides to laid off workers, please visit the Outten & Golden WARN Act website.

(*Prior results do not guarantee a similar outcome.)