You’ve Been Warned: the WARN Act and What You Need to Know

October 13, 2016

We’ve all seen headlines announcing plant closings or mass layoffs, but did you know that such notices are actually required by federal and Wisconsin law? What happens if your business is being sold, and the new company plans to continue operations? These types of situations don’t come up every day, but when they do, it’s important that you know what to look for and how to handle any issues.

When Do You Have to Provide Notice of a Closing or Layoff?

In general, the federal Worker Adjustment and Retraining Notification Act (WARN Act) applies to businesses with 100 or more employees, not counting employees who have worked for the company for less than six months in the last year or employees who work an average of fewer than 20 hours per week (part-time employees). Covered employers are required to provide a 60-day notice prior to a “mass layoff” or “plant closing.”

Under the WARN Act, a plant closing is the “permanent or temporary shutdown” of an employment site (or one or more facilities or operating units within an employment site) that results in an employment loss during any 30-day period for 50 or more employees, not counting part-time employees. A mass layoff is a reduction in the labor force at an employment site during any 30-day period if the number of affected full-time employees meets one of two minimum numbers: (1) at least 33 percent of the workforce and at least 50 employees or (2) at least 500 employees.

If either a plant closing or a mass layoff occurs, the WARN Act requires the employer to send out the 60-day notice to all affected employees or their representatives, the state dislocated workers unit, and the chief elected official of the local government unit before any employees can be terminated or laid off.

Wisconsin has a similar requirement in Wis. Stat. §109.07 that employers provide notice of a business closing or mass layoff. The Wisconsin statute requires a 60-day notice similar to the WARN Act, but the size of the businesses covered by the state law is much smaller. Under Wisconsin’s “mini-WARN Act,” a covered employer is any business that employs 50 or more people in Wisconsin. Because it covers smaller businesses, the Wisconsin statute also defines a mass layoff slightly differently than the WARN Act.

A mass layoff under Section 109.07 of the Wisconsin Statutes is any reduction in workforce that affects (1) at least 25 percent of employees or 25 employees, whichever is greater, or (2) at least 500 employees at an employment site or within a single municipality. New employees who have been employed for fewer than six of the 12 months before notice is required and employees who average fewer than 20 hours of work per week are excluded from the thresholds triggering notice.

Likewise, a business closing requires notice under the statute if the permanent or temporary shutdown of an employment site or one or more facilities or operating units within a single municipality affects 25 or more employees, not including new or low-hour employees. If triggered, the 60-day notice must be provided to any affected employee, any collective bargaining representative for affected employees, the dislocated workers unit, and the highest official of the municipality in which the affected employment site is located.

Those are the very basic rules under the WARN Act and Wisconsin’s state version. If a business is really closing or needs to reduce its workforce, the laws provide a fairly straightforward guide for what an employer needs to do.

Do You Need to Give Notice if Your Business Is Being Sold?

We hope you never need to worry about the WARN Act or Wisconsin’s mini-WARN Act, but what happens when your business isn’t going to close but is being sold to another company that plans to continue operations at the same facility? Often, the companies involved in such a transaction want to give as little notice as possible for a variety of reasons (such as waiting for financing or final details of the transaction to be determined), but how do they comply with the law?

The regulations interpreting the WARN Act state that “notice is only required where the employees, in fact, experience a covered employment loss.” A mere “technical termination” isn’t enough to trigger the WARN Act’s protections. In fact, the 8th Circuit has concluded that if there is no interruption in the plant’s operations when a business is sold, the 60-day notice isn’t required because there hasn’t actually been a loss of employment. However, the 7th Circuit strictly interprets the WARN Act and considers the triggering events for notice to be bright-line, or clear-cut, rules.

The 7th Circuit has explained that the WARN Act “draws a lot of bright lines; it is really nothing but lines,” and those lines “must be enforced consistently.” The practical effect of the 7th Circuit’s interpretation is that any temporary closing of a facility is likely to trigger the WARN Act’s provisions, regardless of how long the facility is closed. Nevertheless, the 7th Circuit does agree with the 8th Circuit that the focus should be on the consequences of a particular action or sale, and it may be willing to approve a situation where a business is sold as a going concern and the buyer continues operations uninterrupted at the same facility.

Case law interpreting the Wisconsin statute is very similar. The Wisconsin Supreme Court has held that the statute’s focus is on the site of employment, not the employer, which means that “a sale of business assets does not bring about a ‘business closing’ within the meaning of this statute unless the old owner’s departure or the new owner’s arrival is accompanied by a temporary or permanent shutdown in the operation of the employment site.” That analysis suggests that Wisconsin courts would follow the 8th Circuit’s practical approach.

Under Wisconsin’s mini-WARN Act, businesses do not need to rely on court cases to find a safe harbor. The Wisconsin statute exempts an employer from the notice requirement if, as a condition of the purchase agreement, the buyer agrees to rehire “substantially all of the affected employees with not more than a [six]-month break in employment.” “Substantially all” means the buyer would hire enough employees to avoid triggering a mass layoff or business closing under the statute.

Bottom Line

If your company finds itself in the unfortunate situation where it needs to close or reduce the workforce, you need to make sure that you review the WARN Act and Section 109.07 and follow their requirements carefully. If your business is being sold, make sure that there aren’t any issues under the WARN Act or Wisconsin law when your employees are transferred from you to the buyer.

This article, slightly modified to note recent updates, was featured in the September 2016 issue of the Wisconsin Employment Law Letter, which is co-edited by Axley Brynelson Attorneys Saul Glazer and Michael Modl and published by BLR®—Business & Legal Resources. Reproduced here with the permission of BLR®—Business & Legal Resources.