Washington D.C. Employment Law Update : Washington D.C. Employment Lawyer & Attorney : Littler Mendelson Law Firm : Virginia, Tyson's Corner

Mass layoffs or plant closings trigger employer advance notification and other requirements under the WARN Act. This law generally requires employers with more than 100 employees to give their workers 60 days’ notice of an impending mass layoff or plant closing. On July 30, 2012, however, the DOL issued Training and Employment Guidance Letter (TEGL) No. 3-12, which offered guidance on the applicability of WARN to potential layoffs by federal contractors affected by sequestration, which initially would have occurred on January 2, but was postponed as part of the fiscal cliff deal. Notably, the letter stated that employers would not be obligated to provide WARN notices under the federal WARN unforeseeable business circumstances exception until specific layoffs or facility closures became reasonably foreseeable. Two months later, the Office of Management and Budget (OMB) issued a memo stating that compensation, litigation and other costs resulting from federal WARN Act liability for those employers who followed the DOL guidance letter would qualify as allowable costs and be covered by the contracting agency. As Notestine testified, however, there are three main problems with these guidance documents.

First, the TEGL fails to disclose that this guidance is not binding on the federal courts that have the jurisdiction to enforce the WARN Act and assess significant penalties on employers for noncompliance. Notestine said that there is no way to determine the amount of – if any – deference a federal court would afford the TEGL.

Second, while the guidance relies on the Act’s “unforeseeable business circumstances” exception to allow employers to forego the provision of advance notice, it fails to mention that employers are required to provide “as much notice as is practicable,” as well as a statement explaining why they were unable to give notice sooner. “Failure to give this required brief statement in the written notice has very severe consequences: The statutory exception becomes unavailable.”

Third, Notestine remarked that there are “numerous other areas of liability” other than that created by the federal WARN Act. Several states, for example, have “mini” WARN statutes with different notice and eligibility requirements. Notestine explained that the mini WARN laws in New Jersey and California, for instance, do not provide notice exemptions for unforeseeable circumstances. Thus, employers may be obligated to provide notice under state law even if they are not arguably required to do so under federal law.

Notestine concluded that: “the guidances issued to employers by the DOL and OMB regarding WARN compliance have done little to reassure” him that employers will be relieved of WARN Act obligations. Employers who are found in violation of this statute are subject to “harsh penalties,” which justifies caution in relying on the DOL TEGL guidance.

Further, Notestine noted that in the past the DOL has “consistently advocated providing as much notice as possible,” and that the agency is “now taking a very different position.” He mentioned that at a May 2008 hearing conducted by the Senate Committee on Health, Education, Labor and Pensions, then-Senator Barack Obama urged employers to provide as much notice as possible when facing the serious risk of a plant closing. Sequestration, Notestine testified, arguably creates such a risk. He stated that “sequestration appears more likely to happen this time around,” and that the chances of an employer claiming that a plant closing is unforeseeable “lessen every day.”

Subcommittee Chairman Tim Walberg (R-MI) agreed that the DOL’s guidance “is misleading, incomplete, and may result in workers not being notified of pending layoffs.” Walberg echoed Notestine’s concerns that the guidance seems to contradict current regulations that require employers to provide notice of impending layoffs/plant closings when they are reasonably foreseeable, and that it “creates the impression that those who follow it will be immune from future litigation. Nothing can be further from the truth.”

Jane Oates, the Assistant Secretary of Labor for the Employment and Training Administration – the DOL sub agency that issued the controversial TEGL in the first instance – claimed that the guidance still applies to the current threat of sequestration. She clarified, however, that if employers get more specific information from government agencies indicating that sequestration will be more of a certainty, then they should revise their plans. Oates recognized that the DOL does not have WARN Act enforcement authority, but said that the agency does have the statutory authority to issue regulations that “articulate clear principles and guidelines.”

Oates also defended the TEGL on the grounds that before the first threat of sequestration, her agency received information that the goal was to avoid this occurrence, and agencies had not yet announced which contracts would be terminated. Therefore, issuing blanket WARN notices would have been speculative, she testified. She explained further that the TEGL does not suggest that federal contractors do not need to take sequestration into account, but that providing WARN notices to those not likely to lose their jobs would have caused “disruption.”

Ross Eisenbrey, Vice President of the Economic Policy Institute, testified that he believed what the DOL did “was completely appropriate” since giving guidance is part of its responsibility, and that providing a WARN notice at the time would have been premature. He noted, however, that the Congressional Budget Office (CBO) estimates that if the current sequestration were to occur, approximately three-quarters of a million jobs will be lost.

A complete list of panelists and links to their testimony can be found here.

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The Problem

A sudden sequestration of the revenues that fund job positions with federal contractors and specifically in the defense industry would likely compel these employers to layoff immediately a large number of employees and potentially close facilities. Since many employers are aware of the risk that these actions may occur, these employers are trying to determine how to comply with WARN, which requires 60-days advance notice to employees of covered plant closings or mass layoffs.

The DOL’s New Guidance

In response to this concern, the DOL’s Guidance Letter maintains that there are a number of contingencies which may prevent layoffs or facility closures. For instance, the Guidance Letter notes it is possible the budget issue may be remedied and sequestration avoided altogether. Or, if sequestration did occur, it could be implemented over time as provided by BBEDCA. Further, some contracts would be considered discretionary and others non-discretionary, and even then some workers would be able to keep their jobs. Thus, the DOL Guidance Letter indicates that conditional WARN notices sent in advance of sequestration in order to comply with the WARN Act would unnecessarily and against the spirit of the law cover too many employees. The DOL Guidance Letter asserts that the conditional notices would not be legally compliant because it would be impossible for them to contain accurate content due to the unknown variables currently existing regarding sequestration.

Further, the DOL’s Guidance Letter notes there is an exception to WARN’s 60-day notice requirement where the plant closing or mass layoff “is caused by business circumstances that were not reasonably foreseeable as of the time that notice would have been required.” 29 U.S.C. § 2102(b)(2)(A). Under the “unforeseeable business circumstances exception,” an employer may order the plant closing or mass layoff “before the conclusion of the 60-day period ….” Id. Consequently, the Guidance Letter concludes:

If Federal agencies announce before January 2 [2013], or in the wake of sequestration, specific contract terminations or cutbacks that will require contractors to lay off or separate their employees in less than 60 days, such Federal announcements would be sudden and dramatic, and in such cases, consistent with the WARN Act, employers will not have to provide the full period of notice.

The Guidance Letter also maintains that many agency decisions on how to operate within the constraints of a sequestration order will occur after January 2, 2013 and that in such circumstances an employer’s obligation to provide WARN notice would not be triggered until the specific layoffs or facility closures are reasonably foreseeable.

Immediate Questions About the DOL’s Guidance Letter

On August 2, 2012, the Chairmen of The Committee on Education and the Workforce, The Subcommittee on Workforce Protections and The Subcommittee on Health, Employment, Labor and Pensions in the U.S. House of Representatives jointly wrote the Secretary of Labor to express their concern over the DOL’s conclusions in the Guidance Letter and to inquire about the development of the analysis contained therein (full text of the August 2, 2012 letter to Labor Secretary Hilda Solis is available here). The Chairmen also ask what deference, if any, the DOL expects the courts to show the Guidance Letter. The August 2, 2012 letter from the Chairmen questions both the DOL’s legal basis for the Guidance Letter and its conclusions. The Chairmen also request a list of documents and communications related to the development of the Guidance Letter.

Employer Considerations and Concerns

It is uncertain what legal deference the Guidance Letter will enjoy in the courts. The WARN Act’s implementing regulations state that the DOL “has no legal standing in any enforcement action and, therefore, will not be in a position to issue advisory opinions of specific cases.” 20 C.F.R. § 639.1(d). However, the same regulations also state that the DOL “will provide assistance in understanding these regulations ….” Id. Thus, the DOL is not the entity that enforces the WARN Act, and its regulations disclaim giving advice in specific cases. Further, contrary to the DOL Guidance Letter’s cautionary tone about premature WARN notices, the implementing regulations also admonish employers to consider giving notice in ambiguous circumstances where it is unclear if WARN actually requires notice. 20 C.F.R. § 639.1(e). Instead, the implementing regulations provide that the DOL “encourages employers to give notice in all circumstances.” Id.

As to what WARN actually requires of an employer in the context of potential sequestration, the courts, not DOL, will determine if conditional WARN notices were required and whether any such notices complied with WARN. A court also will have to decide if the unforeseeable business circumstances exception of the WARN Act applies. In recognition of this enforcement reality, the Guidance Letter references case law from the Fifth and Eighth Circuit Courts of Appeal to support its position that WARN notices are not currently required for contractors. The cases support the argument that even with notice that a particular government contract in question is in danger of being terminated, a contractor may, in the exercise of commercially reasonable business judgment, conclude it was not “reasonably foreseeable” that the contract would be terminated. The cases, however, make clear that the analysis of the contractor’s actions is a fact-specific inquiry. Neither of the cases referenced in the Guidance Letter involves sequestration under BBEDCA.

While the DOL’s Guidance Letter attempts to give direction to contractors that WARN notices are not presently required or permissible for business changes related to anticipated or actual sequestration under BBEDCA, a contractor still must make an individualized assessment of its particular situation and must be confident it can defend its position in court. What legal protection, if any, will be afforded employers who rely on the Guidance Letter is unknown at present, as is what degree of deference the DOL expects the courts will show to the Guidance Letter’s conclusions about WARN’s applicability to the possibility of sequestration and its effect on contractors. As a practical matter, if a contractor finds itself in WARN litigation after January 3, 2013, it cannot hurt to have the DOL on the contractor’s side.

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According to a press release issued by Sen. Sherrod Brown (D-OH), the chief sponsor of the Senate bill, the FOREWARN Act would apply to employers with at least 75 employees, reduced from the current 100-employee threshold required to initiate coverage. Additionally, the Act would reduce the number of laid off employees needed to constitute a plant closing from 50 to 25, and lower the mass layoff trigger. According to Sen. Brown, this lower threshold would protect employees in both manufacturing and service firms. In addition, the FOREWARN Act would require an employer to provide 90-day written notice (up from the current 60-day notice mandate) to employees and appropriate state and local governments before ordering a plant closing or mass layoff. The bill expands the recipients of such notification to the Secretary of Labor, elected officials including the governor, member(s) of Congress, state representatives, and union leaders if applicable. The notification must include the reason for the plant closing or mass layoff, whether the employer has jobs elsewhere, and a statement of each employee’s right to wages and benefits. The bill would also give the DOL the authority to enforce the WARN Act, and would increase employer penalties for violations to double back pay. Under current law, an employer is only liable for back pay.

The FOREWARN Act was first introduced in 2007. Given the current state of the economy and increased unemployment and employer closing rates, this bill could garner more support this time around.

The House FOREWARN Act bill has been referred to House Committee on Education and Labor. The Senate companion bill has been referred to the Senate Committee on Health, Education, Labor, and Pensions.