This post was co-authored by Labor + Employment Group lawyer Christopher Costain.
As tariff talks continue to heat up and fuel heightened economic uncertainty, manufacturers are left to determine how to best manage their workforces while continuing to meet customer demands. Manufacturers seeking to weather the economic pressure may consider exploring ways to reduce labor costs whether by reorganizing, layoffs, restructuring, or other mechanisms. However, manufacturers that are considering actions to reduce their workforce should engage in careful planning and diligence to ensure that they comply with all applicable federal and state laws to minimize the legal and employee relations risks associated with such actions. Below, we will address several key legal considerations related to layoffs.
The Worker Adjustment and Retraining Notification Act
The Worker Adjustment and Retraining Notification Act (WARN Act) is a federal statute that guides employers through the process of eliminating existing jobs while also providing workers with sufficient time to prepare for the transition period and to seek new employment or training opportunities. The WARN Act requires covered employers (generally those with 100 or more full-time employees) to provide employees 60 days advance notice before “closing a plant” or conducting a “mass layoff.” A “plant closing” is a permanent or temporary shutdown resulting in the loss of employment for at least 50 employees during a 30-day period at either a single employment site or multiple facilities operating within a single employment site. A “mass layoff” is a reduction in force that is not the result of a plant closing, and results in an employment loss at a single employment site during a 30-day period for either 50 employees who comprise 33% of the manufacturer’s active employees, or at least 500 employees. Covered employers that do not comply with the WARN Act or qualify for an exception can be liable to affected employees for lost wages and benefits.
The WARN Act also includes a 90-day aggregation rule where employers must look ahead and back 90 days to determine whether there were any other employment losses. If there are two group employment losses at a single site of employment in that 90-day period, the groups will be aggregated together and the WARN Act will be triggered, even if neither group alone is large enough to trigger the act’s requirements. This is particularly important when companies are considering layoffs on a rolling or gradual basis.
To successfully comply with the WARN Act’s requirements, and minimize legal risk, manufacturers should carefully determine which workers may be impacted; evaluate whether the selection may cause a disparate impact or other risk of discrimination claims; document the decisions made once they are final; and carefully review whether the layoff may implicate WARN or an equivalent state law. If WARN is implicated, then several steps should be taken to ensure compliance with WARN’s notice and other provisions.
Even if WARN is not implicated, manufacturers engaging in layoffs should ensure that they have thoroughly analyzed their decisions in relation to disparate impact and that the decisions regarding the employees selected and not selected are based on legitimate, non-discriminatory reasons and supported by objective data. It is crucial to understand why each employee was selected and, if there was a choice between multiple employees working in the same role, exactly why the employees were selected.
In addition to the requirements of the federal WARN Act, manufacturers should be mindful that certain states have their own WARN Acts, known as “Mini-WARN Acts,” which often impose additional, more stringent obligations on employers than their federal counterpart.
The Older Workers’ Benefit Protection Act
Another important federal law manufacturers should be mindful of when preparing for layoffs is the Older Workers’ Benefit Protection Act (OWBPA), which was passed in 1990 and amends the familiar Age Discrimination in Employment Act of 1967 (ADEA). Under the OWBPA, manufacturers offering a severance package to two or more employees in exchange for a release of claims, including those arising under the ADEA, must provide employees, ages 40 and older, at least 45 days to consider whether to sign the agreement (although they can sign at any time within that 45-day period) and seven days after the date they sign to revoke their acceptance.
The severance agreement must also include a disclosure of the “decisional unit” of workers who were considered for the exit incentive or termination program, including their job titles and ages, and whether they were selected or not selected for layoff. The OWBPA disclosure ensures that workers aged 40 and older are provided with sufficient information to make a knowing and voluntary waiver of their claims under the ADEA.
Manufacturers considering layoffs should carefully analyze which workers are eligible for the severance package, identify those who are selected and those who are not, and document the decision-making process so that the decision-making unit is clearly defined and can withstand scrutiny in the future.
Manufacturers should consult competent employment counsel for assistance with preparing separation agreements that comply with the ADEA and the OWBPA, as well as identifying the appropriate decision-making unit, under attorney-client privilege.