Companies, Workers Tangle Over Law to Curb Layoffs

Ianthe Jeanne Dugan
July 6, 2009

Severe U.S. job cuts have exposed weaknesses in a federal law meant to cushion the blow of mass layoffs.

The Worker Adjustment and Retraining Notification act, or WARN, is designed to let workers and their communities brace for big layoffs by providing 60 days of notice. But a number of companies say that amid the greatest and swiftest downturn in decades, providing early warning can be unrealistic. Many employers have invoked exceptions in the law that allow them to dismiss workers with little or no notice.

In recent months, dozens of employee groups have challenged abrupt terminations in federal courts, including mortgage-company employees in Arizona, telemarketers in West Virginia and mill workers in Alabama. Attorneys say that in the past year their WARN caseloads have as much as tripled.

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WARN represents one piece in the crazy-quilt of laws and programs designed to aid jobless Americans — a system that helps some more than others. Unemployment-insurance programs vary from state to state. Separate federal programs give richer benefits to certain workers, such as those who have lost jobs to foreign competition. Notice rules vary, too: Companies that don’t fall under WARN typically aren’t required to provide their workers with notice at all. Workers and employers alike can find the system baffling to navigate.

WARN, which took effect in 1989, requires companies to give notification to employees and local government before a “mass layoff,” which it defines as 50 full-time workers, constituting at least one-third of the staff at a single location, or any layoff of more than 500 people. It applies to companies with more than 100 employees. The notice is intended to give workers time to look for employment and local governments a chance to provide group job counseling and training.

The law provides numerous exceptions. Companies deemed “faltering” don’t have to give notice if they think an announcement would hurt their efforts to raise new capital. Employers can also avoid providing warning, the law says, if layoffs were due to natural disaster or changes in business circumstances that weren’t “reasonably foreseeable.”

Companies contacted about specific pending action declined to provide details of their defenses. But broadly, corporate-defense attorneys say WARN gives employers the chance to seek funding so job cuts can be avoided. They say many companies need the law’s protections as they try to remain profitable.

States Industries Inc. of Eugene, Ore., complied with the law but acknowledged it could be hard for some companies to do likewise. In January, the wood-paneling maker announced it would close a North Carolina plant in March, giving advance notice to 75 workers, a cushion it could provide because the parent company wasn’t shutting down. It says it hopes it can rehire some of them.

“From the human perspective it’s nice to have a 60-day notice,” says Kristee Neumann, States Industries’ human-resources director. “From a business standpoint…to provide a 60-day notice when your boat is sinking is a pretty difficult request.”

Adds Norma Zeitler, who oversees the labor and employment practice at Barnes & Thornburg LLP in Chicago: “With the economic climate as it is, the clients we work with often don’t know 60 days in advance that they are going to have to have a layoff.”

Workers’ advocates argue that WARN’s exceptions are too easy to invoke, and that the law lets companies stagger layoffs to avoid triggering the rule. It doesn’t provide for punitive damages, so the most employees can recover is two months of pay and benefits.

“There are too many loopholes and weak penalties,” says Jack Raisner of New York law firm Outten & Golden, whose firm handles WARN cases and whose caseload doubled in the past year.

Jerry Lintz of Waterford, Mich., says he was terminated from his job at USA Jet Airlines while on vacation.

James Brudney, who helped draft the act as then-chief counsel of the Senate Subcommittee on Labor, notes the initial WARN legislation was vetoed by President Ronald Reagan. The law that eventually passed, Mr. Brudney says, had lower penalties than the original, provided a shorter notice period, raised the threshold of a mass layoff and gave the Labor Department no power to investigate possible violations.

Late last month, Sen. Sherrod Brown, an Ohio Democrat, and representatives of both parties introduced a bill that would empower the Labor Department to enforce WARN, double its maximum penalties, apply the law to smaller worker groups and raise the notice period to 90 days. Several states, including Hawaii and New York, have recently enacted their own versions of WARN with stricter penalties and narrower exemptions than the federal law.

Since the recession began in December 2007, the U.S. Department of Labor says 3.8 million people lost jobs in about 37,000 mass layoffs, which it defines as groups of 50 or more. In May, 312,880 workers were part of mass layoffs, the highest level on record.

Only a small portion appear to be receiving the two-month cushion. The most recent look by the Government Accountability Office, in 2003, showed that one-quarter of mass layoffs met all the conditions for a WARN filing. Of those cases, only about one-third of companies gave the proper notice. Companies file WARN notices with their states, and there is no national database.

It’s too early to know how the recent big wave of WARN lawsuits will play out. Attorneys say these matters are often settled before a decision is issued, and employers frequently agree to pay workers less than two months’ wages without admitting  wrongdoing.

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Tiara Yachts, a Michigan-based maker of luxury power boats, laid off about 100 of more than 700 workers beginning last June. “They walked me to my desk and walked me to my car, just like I was being fired,” says Rich Mills, 45 years old, who was earning $17.21 an hour building boats. He says a lawyer he contacted said he didn’t have a case, because fewer than one-third of the company’s employees had been laid off.

In October, as the luxury-marine industry continued to slide, Tiara laid off about 200 employees. More than three months had elapsed since the earlier layoffs began, so these employees also weren’t covered. In February, Tiara temporarily laid off 300 more workers. The law doesn’t apply to such furloughs unless they last more than six months.

Human-resources director Steve Busch says Tiara was aware of WARN but that the law didn’t affect its timing. “The selection of numbers was based on need,” he said. “It was a coincidence more than a strategic effort.”

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Jerry Lintz, a 47-year-old USA Jet pilot, says he was laid off over the phone while on vacation with his wife and two children, and panicked thinking about the $4,400 he had just spent on a water-conditioning system for his Waterford, Mich., home.

“Had I been given 60 days notice, I would have put the house on the market the following day,” he says. “I wouldn’t have spent the money on house improvements and…vacation