WARN ACT DECISION- Confusion for Employers?

March 2011

WARN Act: Accepting severance means departure was voluntary, says Seventh Circuit

Employees who accepted severance packages didn’t count toward the number of affected employees that would be entitled to 60 days’ notice of a plant closing or mass layoff under the Worker Adjustment and Retraining Notification (WARN) Act, ruled the Seventh Circuit U.S. Court of Appeals.

The court found that the departures were voluntary, even though some employees had only a couple of days to weigh the severance offer. The court noted with approval that the offers were accurate, no managers pressured employees to sign, and employees had seven days to change their minds after signing (Ellis v. DHL Express, Inc., 7th Cir, Jan. 2011).

Do you know the law?

In the more than two decades since WARN was enacted in 1988, courts and employers have treated voluntary departures in a fairly consistent manner. However, the Ninth Circuit Collins decision and the Seventh Circuit Ellis decision-rendered within 10 days of each other-create new confusion about what types of employee separations should be counted as an “employment loss” under WARN.

In Ellis, the Seventh Circuit concluded that hundreds of union-represented employees who accepted a severance package did not suffer a WARN “employment loss.” After DHL announced its plans to stop offering U.S. domestic shipping, the company negotiated severance agreements with the union that represented workers at certain affected facilities.

Employees who participated signed a release and resigned their employment in exchange for severance pay and benefits; those who did not participate retained their seniority status and recall rights, as well as the right to bring legal claims against their employer, but received no severance pay.

Consistent with the DOL’s treatment of voluntary departures as explained in the preamble accompanying the final WARN regulations, the Seventh Circuit evaluated traditional evidence of voluntariness. The court stated that the employees were in an “unenviable position,” but concluded that those who accepted the severance package had done so voluntarily. After excluding those separations that were voluntary, the remaining involuntary “employment losses” were insufficient to trigger WARN’s notice requirements. Consequently, the Seventh Circuit upheld the district court’s grant of summary judgment in the defendants’ favor.

In Collins (Collins v. Gee West Seattle, 9th Cir, Jan. 2011), the Ninth Circuit majority took a much different view, based on the majority’s holding that employees who stop working because a business is closing are not voluntary departures under WARN. The employer in Collins issued a written memo to employees stating it was actively pursuing the sale of the business but, if the sale was not successfully consummated, the employer would terminate the employment of all but a few designated employees. Thereafter, large numbers of employees stopped reporting to work, and the employee departures actually forced the employer to cease business sooner than previously announced because the small number of remaining employees prevented the employer from continuing operations.

Although the number of employees displaced by the actual shutdown in Collins were not sufficient to constitute a “plant closing” under WARN, the plaintiffs asserted that employment losses were experienced by all of the employees, including those who stopped working after the employer’s announcement of a sale and potential shutdown. The district court rejected the plaintiffs’ claims and granted summary judgment to the employer.

The Ninth Circuit majority in Collins reversed the lower court, and held that “if an employee leaves a job because the business is closing, that employee has not ‘voluntarily departed’ within the meaning of the WARN Act. Rather, that employee has suffered an ’employment loss.'” Rather than applying WARN’s “employment loss” definition, the Ninth Circuit majority focused on WARN’s definition of “affected employees,” which includes all those who “may reasonably be expected to experience an employment loss as a consequence of a plant closing.” 29 U.S.C. § 2101(a)(5).

The Ninth Circuit majority asserted that “how many positions will be eliminated by the closing” provided the “starting point” for determining the “actual or reasonably expected employment loss” resulting from a plant closing. In the court majority’s view, an employee’s departure should not be considered voluntary under WARN if it is based on the “unexpected and urgent need to find new employment.” Rather, according to the majority, an employee departure should be deemed voluntary only if “there is some evidence of imminent departure for reasons other than the shut down.”

Applying the Ninth Circuit Collins standard of voluntariness-turning on each employee’s actual “reason for departing”-places employers in the impossible situation of making a determination as to whether a departure is voluntary more than 60 days before any eventual shutdown (i.e., before employees have even decided whether to leave voluntarily in advance of any shutdown’s implementation). The Ninth Circuit majority in Collins did not acknowledge this practical difficulty, as evidenced by a cryptic statement (by the court majority in a footnote) that “an employee’s reason for departing is a factual inquiry better suited for district courts.”

Implications for Employers

All employers face substantial challenges when attempting to determine, prior to major restructuring decisions, whether advance notices are required under WARN or state law variations on WARN. Under WARN, this type of determination must be made more than 60 days prior to significant changes, because the statute requires the issuance of written notices at least 60 days before any “plant closing” or “mass layoff.”

Under some state laws, the amount of required notice is even longer-for example, the New York state version of WARN requires 90 days’ advance notice. WARN determinations also require employers to evaluate the anticipated duration of projected layoffs (since only layoffs exceeding six months in duration are considered an “employment loss” under WARN).

Finally, employers evaluating WARN obligations must determine how many employment losses will occur within up to 90 days of one another (since WARN provides that successive groups of employment losses-each insufficient to trigger WARN-may be aggregated over a 90-day period unless the employer can demonstrate, among other things, that the different groups result from “separate and distinct actions and causes”).

For the time being, employers may wish to consider taking the following actions:

  • All employers implementing workforce reductions within the Ninth Circuit should be careful, especially when dealing with planned shutdowns, to regard all employees at a particular site as experiencing “employment losses” under WARN, even if large numbers of employees participate in exit incentive programs or otherwise terminate their employment on a voluntary basis.
  • Employers in other jurisdictions, either under WARN or similar state law notice statutes, should more carefully consider the possibility that a reviewing court or state agency may adopt reasoning similar to that utilized by the Ninth Circuit majority in the Collins case.
  • Employers should monitor future developments, including the potential appeal of the Ninth Circuit Collins case, and the treatment of similar WARN issues in future cases.
  • WARN has always provided that voluntary notices are encouraged, even when not required under the statute. Employers should err on the side of issuing 60-day WARN notices, particularly when it appears that a particular shutdown or workforce reduction may be close to reaching the “plant closing” or “mass layoff” thresholds established in WARN.

For more information on WARN Act compliance consulting, contact Facet at  1-888-868-8973

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About facetteam
FACET is a human resources consulting firm specializing in the four phases of the Talent Management Cycle: Attract, Retain, Develop, and Transition. The Group's practice specifically addresses facilitation of smooth career/life transitions for individuals leaving organizations as well as career management, leadership training and coaching for employees whose assignments within organizations are impacted by change or other organizational needs. By application of several directions of pursuit, the corporation accomplishes a single goal: maximum utilization of human resource potential and productivity through efficient hiring, training and career development. The Facet Group was founded in 1981 and is headquartered in Lafayette, Louisiana. As an ARBORA GLOBAL PARTNER, The Facet Group shares a parallel philosophy of the highest quality and standards with other owner invested firms. Through this network, we provide services worldwide. To address organizational needs outlined by its clients, The Facet Group offers a comprehensive package of workplace consulting services, focusing on providing high quality, creative programs which favorably impact the bottom line.

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