Wednesday, January 26, 2011

9th Circuit Expands Reach of WARN Act, Defines "Voluntary Departure"

The Worker Adjustment Retraining Notification Act (“WARN”) is a law that requires "covered employers" (usually those with 100 or more employees) to give 60 days’ advance notice before ordering a “plant closing” or “mass layoff.” A "plant closing" is the permanent or 30-day or longer shutdown of a single employment site resulting in an “employment loss” for 50 or more employees. A "mass layoff" is a reduction in force creating an employment loss in any 30-day period for a substantial proportion of the workforce, but at least 50 employees. If a "covered employer" fails to give proper notice under the WARN act, the penalty is back pay and benefits for the period of the violation (i.e., up to 60 days), which can be devastating to an employer if, for example, they had to pay out for 125 employees who each earn $1,000/week (125 x $1,000 x 8 weeks= $1,000,000.00).

A recent decision from the Court of Appeals for the Ninth Circuit involved a chain of automobile dealerships, Gee West, that only gave 11 days' notice to its 150 employees in the Seattle, Washington area. Employees immediately stopped reporting for work in substantial numbers, presumably to seek replacement employment. By the date of closure, only 30 employees remained. Gee West argued that the 120 employees who abandoned employment after the announcement of the impending closing had voluntarily departed, thereby excluding them from WARN’s application only to employees experiencing an “employment loss.” Gee West argued that not only did those 120 employees not qualify for WARN damages, but that, with only 30 employees experiencing an employment loss on the plant closing date, there were insufficient affected employees to trigger Gee West’s WARN notice obligations. The 9th Circuit saw it quite differently.

The 9th Circuit held that employees who separate from employment because the business is closing have not “voluntarily departed” within the meaning of WARN. Instead, because at the time notice was required they could reasonably have been expected to experience an “employment loss” upon closure of the business, they must be counted to reach the WARN notice threshold and are eligible for WARN damages to the extent notice was not given. However, the 9th Circuit also held that some employees who depart after insufficient notice of an impending plant closing or mass layoff could still be voluntary departees excluded from WARN coverage. The court cited as examples persons who leave during the notice period because of pregnancy, health, or a better job opportunity. By extension, persons who separate by retirement (instead of resignation) for reasons unrelated to the notice of impending plant closure or mass layoff would also not be counted against the WARN notice threshold or be eligible for WARN damages. These exceptions are fact-intensive and must be determined on a case-by-case basis in the trial court. The employer would have the evidentiary burden of proving the exceptions.

The case is Collins v. Gee West Seattle LLC, Case No. 09-36110 (9th Cir., filed Jan. 21, 2011).

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