Business, Career, Severance pay series

Severance Pay Series: Is the WARN Act Overdue an Overhaul?

Some displaced workers who’ve received inadequate warning of a layoff  are seeking severance pay and have sued under the federal Worker Adjustment & Retraining Notification (WARN) Act, but prior to the recent economic events this law, often described as confusing, is seldom used.

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The two-decade old WARN Act, commonly called the “Plant-Closing Law,” gives employees more protections in unfavorable economic conditions and requires employers to use caution as they plan layoffs.

Generally, employers that have 100 or more workers must give their employees and local and state governments a 60-day advance notice of its intention to close a plant that would cut 50 or more jobs at a work site. They must also give this notice prior to a mass layoff affecting 500 workers or more than one-third of the workforce, according to U.S. Department of Labor.  

The law allows three exceptions to the notice. The first applies to plant closings.  It indicates that the plant’s not liable if the company “sought new capital or business in order to stay open and where giving notice would ruin the opportunity to get the new capital or business.” The second exception is a reasonable unforeseeable business circumstance. The final allowance involves a natural disaster.

Violators potentially must pay employees who aren’t notified 60 days’ compensation, benefits and lawyers’ fees.

The law was rarely used until the recent recession.  Most lawyers found the law puzzling in practice, and undefined terms made it vague. They considered an unforeseeable business circumstance a loophole as well as the fact that some workers don’t even meet the thresholds stated in the law. Employment experts noticed in the Finance & Commerce 2009 story “WARNing Failure: Most Laid-off Workers Not Covered by Notice Law“ that more than 70 percent of the layoffs involved businesses that had fewer than 100 workers or made staff reductions of less than 50 employees.

Lawmakers have worked to address and close these loopholes in the federal law.  Some states, such as New York, have come up with their own versions. For instance, New York lengthened the notice period to 90 days and applied the law to companies that laid off as few as 25 employees.

The federal government tried to give the law a makeover. In July 2009 Rep. George Miller, (D-CA), introduced some changes with the Forewarn Act (H.R. 3042). The amendments included expanding the law to smaller sites and doubling damage amounts, but it stayed in committee at the end of the legislative session.

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