Are employees entitled to notice before a layoff?

A company official asked the following question: Our company has a major contract that will be coming to an end soon. Are we obligated to give any advance notice to our employees regarding possible layoffs? What are the consequences if notice is not given?

This question raises a number of potential legal issues. In general, the most noteworthy of these issues arise under the Worker Adjustment and Retraining Notification (WARN) Act (29 U.S.C. : 2101, et seq.) Some of those issues are discussed below. However, a complete answer to the question in a specific case would require an interpretation of several other items, including the company's general employment policies, the agreements with individual employees, any collective bargaining agreements and any applicable state laws.

Congress passed the WARN Act in 1988 to protect workers, their families and communities from the effects of large-scale, local job losses by requiring advance notice of those layoffs in some circumstances. WARN is applicable to employers of at least 100 full-time employees.

Under the act, a covered employer must give its workers or their union at least 60 days' notice before closing a plant or a "mass layoff." A mass layoff is a reduction in force that results in an employment loss at a single site during any 30-day period of either 500 or more employees, or 50 or more employees if that number represents at least 33 percent of all employees. [29 U.S.C. : 2101(a)(3).]

The statute includes an exception for unforeseen circumstances. Thus, "an employer may order a plant closing or mass layoff before the conclusion of the 60-day period if the closing or mass layoff is caused by business circumstances that were not reasonably foreseeable as of the time the notice would have to have been given." [29 U.S.C. : 2102(a)(1).] In such circumstances, the employer "shall give as much notice is as practicable and at that time shall give a brief statement of the basis for reducing the notification period."

The test for determining whether this exception applies involves a highly factual inquiry, which must be made on a case-by-case basis. According to regulations promulgated by the Labor Department: "An important indicator of a business circumstance that is not reasonably foreseeable is that the circumstance is caused by some sudden, dramatic and unexpected action or condition outside the employer's control." [20 C.F.R. : 639.9(b).] An example might be a customer's "sudden and unexpected termination of a major contract with the employer."

In Loehrer v. McDonnell Douglas Corp. [98 F.3d 1056 (8th Cir. 1996)], the Navy's cancellation of its A-12 aircraft program was found to be sudden and unexpected even though the program had been suffering numerous and serious problems for many months before the cancellation. The court noted that the case involved the "rather unique, politically charged area of defense contracts." Under the facts of the case, the court concluded that the contractor's reluctance to provide a WARN notice to its employees, even after issuance of a cure letter, was "in accord with what would be expected from a reasonable defense contractor."

(See also Halkias v. General Dynamics Corp., [137 F.3d 333 (5th Cir. 1998)], in which, notwithstanding problems, cancellation of the A-12 contract was no more than a possibility, for which notice was not required, as long as the secretaries of Defense and the Navy continued to express support for the program.)

By comparison, it is likely that a court would find that notice is required when a sufficiently large contract is nearing the end of the contractual period and all the available options have been exercised. It is less likely that notice would be required if an option period remained available.

If the required notice is not given, the affected employees may sue for back pay. Alternatively, the employees' union may bring the suit. [See United Food & Commercial Workers Union Local 751 v. Brown Group Inc., 517 U.S. 544 (1996), in which a union has standing to sue notwithstanding statutory silence on the issue.]

Congress did not specify the time period within which a suit has to be instituted. Accordingly, courts must look to state law for the most analogous statute of limitations. Generally, the statute of limitations on actions for breach of an employment agreement will be considered the most analogous statute. [See North Star Steel v. Thomas, 515 U.S. 29 (1995).]

There has been some disagreement among the courts on how to measure the back pay that may be owed. Most courts have measured damages by the number of working days within the portion of the 60-day notice period for which the violation was found. However, some courts have awarded damages for every calendar day. [See, generally, Breedlove v. Earthgrains Baking Cos., No. 97-2057 (8th Cir. April 9, 1998).]

The statute also grants the courts the discretion to reduce the damages for which the employer is liable if the employer can show that its failure to give the required notice "was in good faith" and that it "had reasonable grounds for believing" that it had complied with WARN. [29 U.S.C. : 2104(a)(4).] Both parts of this test must be satisfied before a reduction may be ordered. [See Kildea v. Electro-Wire Products Inc., No. 96-1891 (6th Cir. May 13, 1998), in which an employer's actions may be reasonably compliant with the statute but not in good faith.]

-- Peckinpaugh is a member of the government contracts section of the law firm of Winston & Strawn, Washington, D.C.