By Brett Marshall

The Worker Adjustment and Retraining Notification Act of 1988 (the “Act”) was adopted to protect employees, families and communities from significant employment losses. The Act accomplishes this by requiring qualifying employers to provide advance notice of an event that will result in an employment loss. It also penalizes employers who fail to give the required notice.

WARN Act overview 

To qualify as an “employer” under the Act, a business must employ at least 100 full-time workers or at least 100 workers who work a combined 4,000 hours a week. A business that qualifies as an employer may be required to provide advance notice to its employees of an event that will result in an employment loss. Under the Act, there are two main types of employment loss that will trigger an employer’s duty to provide notice to its employees.

First, a “plant closing” will trigger notice requirements. A “plant closing” occurs where an employment site (or one or more facilities or operating units within an employment site) will be shut down, and the shutdown will result in an employment loss for 50 or more employees during any 30-day period. This does not count employees who have worked less than 6 months in the last 12 months or employees who work an average of less than 20 hours a week for that employer.

Second, a “mass layoff” will trigger notice requirements. A “mass layoff” occurs where there is a mass layoff which results in an employment loss at an employment site during any 30-day period for 500 or more employees, or for 50-499 employees if they make up at least 33% of the employer’s active workforce. Again, this does not count employees who have worked less than 6 months in the last 12 months or employees who work an average of less than 20 hours a week for that employer.

Employees who experience a “plant closing” or “mass layoff” must receive a written notice from the employer 60 days before the plant closing or mass layoff occurs. An employer who fails to give the required notice can be liable to each employee for back pay and benefits.

Many states have adopted counterparts to the Federal WARN Act often called “Mini-WARN Acts.” These state laws may vary the requirements of the Federal WARN Act including the number of employees an employer must have to be considered an “employer,” what constitutes a “mass layoff” or “plant closing,” the length of the notice period and penalties for violating the act. For example, the Iowa WARN Act requires employers with twenty-five (25) or more full-time employees to provide at least thirty (30) days’ advance written notice of a plant closing or mass layoff, while the Illinois WARN Act applies to employers with seventy-five (75) or more full-time employees and requires sixty (60) days’ advance written notice of a plant closing or mass layoff. In many cases, the state law counterparts will be more restrictive than the Federal WARN Act.

What this means for M & A

In the context of the sale and purchase of a business, employees are often terminated by the seller and then rehired by the purchaser. The seller is responsible for providing notice of an employment loss which occurs up to and including the date and time of the sale. The purchaser is responsible for providing notice of an employment loss which occurs after the date and time of the sale. Depending upon what has been negotiated in the purchase and sale agreement, a seller will often terminate its employees and a purchaser will rehire the employees nearly simultaneously with the closing, while other times the purchaser conducts a thorough hiring process before determining which employees it will hire. This sometimes takes weeks, or even months. Both of these situations can create unique scenarios that will require careful consideration of whether notice under the Act applies, and both the seller and purchaser will need to be sure that the obligation and liability associated with such notice have been negotiated as part of the purchase and sale agreement.

This article is designed and intended for general information purposes and should not be construed or relied upon as legal advice. Your individual situation will determine what is right for you and you should consult an attorney if specific legal information or advice is desired.

Brett Marshall joined Lane & Waterman in 2012 focusing on corporate and business law. His practice covers the full spectrum of corporate transactions and counseling. Brett routinely provides legal advice and assistance to in-house counsel, boards of directors, committees and executive officers and other management on a wide variety of routine and complex corporate matters, including business formation, reorganization, regulatory compliance, financing and mergers and acquisitions.