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White-collar workers laid off amid the financial crisis are using the 20-year-old plant-closing law to sue their former employers

Forbes - Ashlea Ebeling
Published: November 26, 2008

An obscure federal law passed 20 years ago to protect manufacturing workers is making a comeback--as laid-off financial and service sector employees use it to sue for severance pay.

The federal WARN (Worker Adjustment and Retraining Notification) Act requires employers to either give a full 60 days notice before closing a plant or engaging in a mass layoff or to pay dislocated workers 60 days of wages and benefits, including health insurance premiums. If employers give only 30 days notice, then they must pay 30 days severance.

WARN has been widely ignored by employers and the Department of Labor has no power to enforce it. But some states have already adopted their own, tougher versions, and labor advocates could push for a tightening of the law early in the next Congress. Significantly, a 2007 effort to strengthen the law boasted President-elect Barack Obama as an original co-sponsor in the Senate.

Meanwhile, employees have one practical remedy under the existing federal WARN law: filing a class action suit seeking back severance pay, plus attorney's fees.

In recent weeks, the New York City employment law firm of Outten & Golden has filed WARN lawsuits on behalf of, among others, ex-employees of Lehman Brothers, clothing retailer Steve & Barry's and Bill Heard Chevrolet, the nation's largest chain of Chevy dealerships before it collapsed in September. In all, the law firm now has 25 WARN suits pending. "In my experience, companies seldom comply with their WARN obligations," says René S. Roupinian, a lawyer with the firm.

In fact, a 2003 study by Congress' Government Accountability Office found that employers provided WARN notices for only one-third of the 1,974 mass layoffs and plant closings that appeared to be subject to WARN in 2001.

The WARN Act applies only to companies with at least 100 employees. Notice is required if, in a 30-day-period, a company lays off either 500 or more workers in one location or 50 or more workers making up at least a third of the workforce in a single location. For plant closings, notice is required if 50 or more workers lose their jobs in one location.

In the current economic climate, some of the companies dumping workers without warning end up filing for bankruptcy. In such cases, employees with a WARN claim have priority over other unsecured creditors, but stand behind secured claims by bondholders and the like, says Roupinian.

Plaintiffs' lawyers, however, are looking for other ways to collect when companies go bust. WARN lawsuits against private equity firms that bought out a bankrupt company and banks that lent to it are becoming more common. In January, a Michigan federal district court judge denied a bank's motion to rule against such a claim without a full trial. The judge said the evidence could support a finding that the bank exercised enough control over the bankrupt company to be liable under WARN.

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Still, the WARN Act--passed in 1988 by a Democratic Congress with a veto-proof margin (it took effect without then-President Ronald Reagan's signature)--is a comparatively weak weapon for workers.

So labor advocates are looking to put more teeth in the federal WARN Act early in the next Congress.

* * *

In 2007, the House passed a package toughening WARN, but the measure never came to a vote in the Senate. Sen. Sherrod Brown, D-Ohio, introduced the bill, with then Sen. Obama, D-Ill., and Sen. Hillary Clinton, D-N.Y., as his original co-sponsors. Last May, Brown chaired a Senate Health, Education, Labor and Pensions committee hearing on potential reforms to WARN, including giving the Department of Labor and state Attorney Generals enforcement powers.

Under the House-passed changes, the 60-days notice would be expanded to 90-days notice (or 90-days severance pay); the one-third of the workforce requirement would be eliminated (meaning any layoff of 50 or more employees at a single site would be covered); and the penalty for lack of sufficient notice would be increased from simple back pay to double back pay. Laid-off employees are now routinely asked to waive their rights under WARN in exchange for whatever severance they do get. But under the changes, a waiver would be void unless a worker was represented by an attorney when he signed it.

* * *

Meanwhile, states have been adopting their own tougher WARN laws. A New Jersey WARN Act that took effect on Dec. 20, 2007, entitles employees who didn't get WARN notices to severance pay of one week for each year of employment.

New York passed its own WARN Act this past August that takes effect Feb. 1, 2009. It applies to employers with as few as 50 full-time employees, and in the case of a layoff of as few as 25 employees. That makes it more difficult for employers to circumvent the law by ordering staggered layoffs--a common employer trick to avoid the federal WARN act is the 49-person layoff. More importantly, the New York law grants enforcement power to the state's Department of Labor. California, Hawaii, Illinois, Maine, Tennessee, Wisconsin and the U.S. Virgin Islands all have their own WARN acts too.

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