Normally, the Worker Adjustment and Retraining Notification Act (WARN Act) requires 60 days advance notice of a layoff, but there are several exceptions, including the “Faltering Company” exception.
Well, we’re faltering, you may think, so we don’t have to worry about WARN, but it’s not as simple as that.
Exceptions to the WARN Act Notice Requirements
The WARN Act’s notice requirements do not apply if the conditions of one of the following exceptions are met:
- Temporary facility
- Completion of a particular project when the employees involved were hired with the understanding that employment was limited to the duration of the facility or the project
- Strike or lockout
- Faltering company
- Unforeseen business circumstances
- Natural disaster exception
The latter three exceptions pose the most difficulties for employers. Here are some tips for when they actually apply:
Faltering Company Exception
The faltering company exception applies only to plant closings and not mass layoffs. The exception is narrowly construed. In order for it to apply, the employer must have been actively seeking capital or business at the time notice would have been required, that was realistically obtainable and, if obtained, would have allowed the employer to avoid or postpone the shutdown.
In addition, the employer must have reasonably and in good faith believed that giving the required notice would have prevented the employer from obtaining the financing or business. This means that the employer must be able to objectively show that it believed that a potential customer or source of financing would have been unwilling to provide business or financing to the new business if the public knew that there might be a closing.
For example, a company might show that the finance or business source would not choose to do business with a troubled company or with a company whose workforce would be looking for other jobs.
Note: This exception will be viewed in a companywide context, so a company with access to financing or with cash reserves may not use it based solely on the financial condition of the plant that is being closed.
Unforeseen Business Circumstances Exception
This exception applies to plant closings and mass layoffs caused by business circumstances that were not reasonably foreseeable at the time that the 60-day notice would have been required.
An important indicator that a circumstance is not reasonably foreseeable is that it is caused by some sudden, dramatic, and unexpected action or condition outside the employer’s control. Examples include a principal client’s sudden termination of a major contract, a strike at a major supplier, or an unexpected and dramatic economic downturn.
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The test for determining when circumstances are reasonably foreseeable focuses on an employer’s business judgment. The employer must exercise the same commercially reasonable business judgment that a similarly situated employer would in predicting the demands of its particular market.
The employer, however, does not have to accurately predict general economic conditions. The determination of whether the exception applies is made on a case-by-case basis.
Natural Disaster Exception
This exemption applies to plant closings and mass layoffs due to any form of a natural disaster. Examples include floods, earthquakes, droughts, storms, tidal waves or tsunamis, and similar events.
The employer must be able to demonstrate that its plant closing or mass layoff was in fact due to the natural disaster. While a disaster may preclude full notice, as much notice as possible must be given. Plant closings or layoffs that are the indirect result of a natural disaster are not covered by this exception, but may fall under the unforeseen business circumstances exception.
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Don’t forget that under the CA version of WARN, the faltering business exception applies only in the case of relocation or closure; it doesn’t apply to layoffs.