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Lawyers WARN of More Scrutiny for Employers

Tresa Baldas

The National Law Journal

July 2, 2009

As Congress considers a tougher, layoff notification law, employment lawyers are warning employers to brace for more scrutiny and potential litigation involving how they execute mass layoffs.

On Capitol Hill, members of both the House and Senate are considering amending the Worker Adjustment and Retraining Notification (WARN) Act -- the federal law that mandates layoff notices -- by requiring more and smaller employers to notify workers of mass layoffs or plant closings, and doubling penalties for failure to do so.

Under the proposed law -- known as the Federal Oversight, Reform, and Enforcement of the WARN Act (FOREWARN) -- employers with at least 75 employees would be required to provide a 90-day written notice to employees about plant closings or massive layoffs. Current law applies only to companies with at least 100 employees, and imposes a lower, 60-day notice.

The FOREWARN Act also would reduce the number of laid off employees needed to constitute a plant closing from 50 to 25, and lower the mass layoff trigger.

In addition, written notifications must include the reason for the plant closing or layoff, whether the employer has jobs elsewhere, and a statement of each employee's right to wages and benefits. The bill would also increase employer penalties for violations to double back pay. Under current law, an employer is only liable for back pay. "What's going to cause employers perhaps some of the biggest heartburn is the proposal to double the penalties," said Todd Wozniak, a shareholder in the Atlanta office of Miami's Greenberg Traurig who counsels employers on regulatory matters. "All the employers are aware that this is out there and they're concerned about it."

Wozniak said that he expects that employers facing severe financial problems will not be able to afford to keep employees on the pay rolls for the required 90 days, and wind up filing bankruptcy instead to avoid paying the fines for violating the law.

He also explained that employers can be hurt if they disclose layoffs too early, especially in situations where a company is trying to sell all or a portion of the business, or is considering getting out of one line of business. "If you announce it to employees prematurely that you are trying to sell the business, employees may decide to start looking for another job," Wozniak said. "Sometimes you spook 'em out and you send them all looking for jobs, and that can destroy the value of the business."

The FOREWARN Act was first introduced in 2007, then re-introduced on Thursday in the House by Rep. George Miller, D-Calif., and in the Senate by Sen. Sherrod Brown, D-Ohio. Given the wobbly economy and rising unemployment rates, attorneys expect it to pass this time around. "Certainly, any employers who are looking at downsizing ought to be evaluating both the rules that are in effect today, and to be foresighted as to what's coming down the road," said management-side attorney Mark Poerio, partner in the Washington office of Paul, Hastings, Janofsky & Walker. "This will definitely confuse (employers) more. And it'll also raise the stakes significantly as it places a higher burden on compliance."

Wozniak believes smaller companies will be heavily impacted by the proposed bill, as smaller employers would be required to give notice about layoffs, where they weren't before. "Essentially, what's happening is they've expanded the groups of employers who could be tripping into the WARN Act," Wozniak said.

But plenty of employers are already tripping into the WARN Act, but nothing is being done about it, countered employee-rights attorney Jack Raisner, of New York's Outten & Golden, who has seen WARN Act violations rise dramatically over the last year. "The present state of the law is too weak to compel wide-scale compliance. In fact, in inspires widespread avoidance," Raisner said. "What's particularly pernicious is these shutdowns are often accompanied by bankruptcy."

Raisner said that most WARN Act violators are companies that initiate layoffs while at the same time file bankruptcy. "The employee finds themselves not only without their job, but without their insurance," he said, who believes losing health benefits is equally detrimental.

Where the WARN Act should help people prepare for problems, like an operation or future health costs, he said employers are ignoring the law and leaving employees "flat out with nothing." "It's supposed to allow you to arrange your affairs to prepare for a landing," Raisner said of the WARN Act. "The safety net is not very well developed ... There are just innumerable tragedies, which are nightmarish, due to the lack of notice."

Employee rights attorney Murray Schwartz, managing partner of New York's Schwartz & Perry, believes a tougher, federal law regulating layoff activity is long overdue. He noted, for example, that New York provides 90 days notice rather than 60 days notice and applies to employers with a few as 25 employees while the federal law requires a minimum of 50. In this case, he said, the federal government lags behind in protecting employees from the damages of sudden, massive layoffs.

"Strict penalties should be asserted to ensure that the workers are given the broadest opportunity to limit the severe damage that mass layoffs cause," Schwartz said. "The WARN Act should be broadened so as to include more employers, provide greater notice and stricter penalties. This is the least that should be done to protect those that have been ravished by the collapse of our business community."

As for employers' claiming that early layoff notices can financially hurt a company -- particularly those in financial dire straits who need to shut down immediately -- Schwartz doesn't buy it.

"It ill serves employers who complain that economic conditions prevent them from giving adequate notice," Schwartz said.

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