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What HR Professionals Need to Know About the WARN Act

Nov 18, 2022
Morning Brew

Shoulder pads and oversized blazers aren’t all that’s back from the 1980s. This month, a labor law that’s been on the books since the Reagan administration has been getting fresh attention.

Twitter employees have accused their new boss, Elon Musk, of violating the Worker Adjustment and Retraining Notification (WARN) Act of 1988, as well as a similar California policy, when he laid off 3,700 workers, or around 50% of the company, without notice.

With layoffs predicted to pick up steam before the holidays, we broke down what this law says, and how HR can stay compliant.

The basics. The WARN Act generally requires businesses with 100 or more full-time employees to provide 60 days’ notice before conducting a mass layoff at a single site of employment. Remote workforces aren’t out of scope: According to the Department of Labor (DOL), the site of employment for remote workers is the location “to which they are assigned as their home base, from which their work is assigned, or to which they report.”

Why haven’t I heard of this? Companies can conduct mass layoffs without notice if they provide affected workers 60 days of severance pay, or if they qualify for one of three exceptions.

The first exception, the “faltering company” standard, states that leaders don’t have to give notice if they believe, in “good faith,” that doing so would spook investors and preclude them from raising capital that could avoid cost-cutting actions “for a reasonable period.”

Employers can also argue the layoffs were triggered by an “unforeseeable business circumstance” or a natural disaster that prevented them from giving 60-day notices. While economic crises, including recessions, can qualify as unforeseeable business circumstances, according to the DOL, a company would have to “prove why it could not plan 90 days in advance.”

Isn’t every company conducting layoffs a “faltering company”? Bill Finegan, a labor and employment attorney at Munsch Hardt, told HR Brew that most leaders believe they qualify for one or more exceptions as layoffs, he said, tend to signal that “things are happening that are just not good within the company.” But meeting the actual exception threshold is difficult by design. To qualify as a “faltering company,” companies must argue a counterfactual—how the business community would have responded should they have disclosed.

“If you go back to the intent of the statute…it should be an exacting standard because we want to provide these employees with time to prepare for the inevitable job loss,” Finegan said. “To get their lives in order [for] what…could be a devastating hit to their economic position.”

Where does this leave Twitter? This isn’t the first time Musk has been accused of violating the WARN Act. He was sued by a group of laid-off employees at Tesla earlier this year for allegedly flouting the law. But he may have learned his lesson: After announcing layoffs at Twitter, Musk tweeted:

“Everyone exited was offered 3 months of severance, which is 50% more than legally required.”—SV

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