To “WARN” or not To “WARN”

Rob Ludlow
Management 3680-03
December 4, 2001

The Worker Adjustment and Retraining Notification (WARN) Act, passed in 1988 became effective on February 4, 1989. This relatively new law directly involves both employers and employees and is exposed to both acclaim and disapproval. Since the recent downturn in the economy, especially in the technology sector, close family members have been subject to mass layoffs. The questions are now raised; What is the WARN Act and it’s provisions? Who does it cover and not cover? Should the Act be repealed, or amended in any way?
The WARN Act of 1988 requires any company with at least 100 employees, that plans to lay off more than 50 workers and more than one-third of its workforce, to give 60 days’ notice of layoffs or plant closings. The statute is intended to give notice of these closings and/or layoffs to the union, to the elected officials of the town or city where the business is located and to the proper state officials. This gives displaced workers a chance to start looking for jobs and gives state agencies a head start in providing reemployment assistance.
What about here in California? Employers in California are covered by the WARN Act if they have 100 or more employees, not counting employees who have worked less than 6 months in the last 12 months and not counting employees who work an average of less than 20 hours a week. Private, for-profit employers and private, nonprofit employers are covered. Regular federal, State, and local government entities that provide public services are not covered, which raises concerns which will be addressed later. Employees entitled to notice under the WARN Act include hourly and salaried workers, as well as managerial and supervisory employees. Business partners are not entitled to notice.
It is important to note that in addition to part time workers, federal, state, and local government exclusions, the following three situations are also excluded: Strikes and Lockouts, Employee Transfers, and Temporary Facilities. Also, the 60 day notice can be reduced under the following three conditions: Faltering Company, Unforeseeable Business Circumstances, and Natural Disasters. For example, only full-time workers must be notified, and even they must have worked at the company for at least six months. Project-based workers can be let go without a WARN advisory once the project is complete. Also, if an employer expected in good faith but failed to land financing or a contract. And of course, natural disasters and other events “not reasonably foreseeable” could excuse a company from making notice.
These exclusions cause criticism. Some believe there is one glaring loophole in that regular federal, state, and local government agencies are generally exempt. If a private business lays off 500 workers, it must give notice to the affected workers or their representatives (such as a labor union) as well as to the state government “dislocated worker unit” and the local government. But if any of those governments lay off 500 or more workers, they can keep quiet about it. Many believe it is unfair that only when the private sector eliminates jobs that Congress wants the public to know.
Another issue at hand is directed towards the changes in the times, specifically within the high tech sector and the dot-com area. It must be understood that even though this law is relatively new, it is argued by many that the act was created for the “old economy” and does not fully address the issues related to the “new economy”. The problem is that WARN has built-in exemptions that happen to be well tailored to today’s Internet and high-tech failures. The Act doesn’t apply to startups with less than 100 employees. The law also excuses unprofitable companies who are dependent on outside financing that suddenly falls through.
For example, a suit was filed January 11, 2001 on behalf of 106 former workers, seeking $1 million in back pay from Walker Digital, a high-tech incubator owned by Priceline.com founder Jay Walker. It seems the company got caught up in the pressures of raising money and overlooked (or more likely ignored) the notification requirements. When the firm finally did notify the state on December 1, the company said they had been looking for additional financing, but on November 18, outside investors advised the company that the money would not be forthcoming. This creates quite a predicament for employers in similar positions, in other words, the company had been snared in a catch-22. Not wanting to spill the beans that it was having financial problems (which could have scared off potential investors), the company took the chance and decided to blow off the notice requirement.
John McLachlen, a labor attorney with Fisher & Phillips in Oakland, Calif., said “A couple of years ago, in the glory days, people who got laid off could just go down the street and get another job, usually a higher-paying one. As jobs become more tight and someone who gets laid off can’t get another job, we’re going to see more litigation.”
Should the act be repealed? No. Is it helpful in its current form? Of course. Could it use some revisions? Probably.
The Worker Adjustment and Retraining Notification Act has done much good. I do not fully understand why government agencies are exempt from the law and I believe they should bear equal responsibility (especially to set an example) to the private sector. The law also fails to address the concerns of the 65 employees that are laid off from a dot-com that has only 85 employees. In my humble opinion, these issues need to be addressed and may constitute a revision to the law.

Bibliography
“The Worker Adjustment and Retraining Notification Act”, U.S. Department of Labor
http://www.doleta.gov/programs/factsht/warn.htm

“WARNing of Layoffs”, Michael P. Bruno, May 29, 2001
http://www.washtech.com/news/software/10068-1.html

“Lessons learned in layoffs”, Matt Hicks, March 12, 2001
http://techupdate.zdnet.com/techupdate/stories/main/0,14179,2693232,00.html

“Jay Walker Pays a Legal Price for Layoffs”, Matt Gallaway, January 23, 2001
http://www.business2.com/articles/web/0,1653,9250,FF.html

“Startups Get A Lesson In Termination Law”, Marcella Bernhard, Jan.16, 2001,
http://www.forbes.com/2001/01/16/0116layoffs.html

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