Layoffs and Business Closures: What to Consider Before Taking Action

Q: Unfortunately, I need to lay off some employees, and possibly close my business. What steps do I need to take to ensure I am in compliance with legal obligations?

A: There are many factors and obligations to consider when laying off multiple employees and/or closing a business. It is best to consider these aspects as early as possible, even if you think layoff/closure is only a possibility.

Obligation for Advance Notice

One of the most important steps is to determine whether the layoff/closure is covered by The Worker Adjustment and Retraining Notification Act (“WARN Act”), or a state equivalent. The WARN Act is a federal law, and applies to employers with 100 or more employees.  Employees who have worked less than 6 months in the last 12 months and/or who work less than 20 hours per week are not counted toward the 100.

The WARN Act requires covered employers to give 60 days’ advance notice of a mass layoff or site closure to employees, the State dislocated worker unit, and the chief elected official of the local government unit in which the layoff occurs. For mass layoffs, employers must give notice if 500 or more employees will be laid off during a 30-day period.  Employers must also give notice if 50 or more employees are laid off, and that group makes up at least one-third of the employer’s workforce.  Similarly, for site shutdowns, employers must give notice if a shutdown will result in an employment loss for 50 or more employees during any 30-day period.  An employment loss is defined as: (1) a termination; (2) a layoff exceeding 6 months; or (3) a reduction in hours of more than 50% in each month of any 6-month period.

Many states impose additional requirements upon employers. In New York, for example, the state WARN Act applies to employers with 50 or more full-time employees in New York State, and covered employers are required to provide 90 days of advance notice.  The obligation for notice is triggered by a layoff of 25 or more employees if that comprises at least one-third of full-time workers, or layoffs of 250 or more full-time employees at a business with 50 or more employees.  New Jersey’s rules mirror the federal law, but the penalties are different.  Pennsylvania does not have any state law requirement.

Ensuring No Discrimination in Layoffs

In addition to WARN Act considerations, when planning a layoff involving multiple employees, it is important to ensure that the company has documented, well-thought out reasons for the layoff, and that it has protected itself against potential claims of discrimination. One helpful way to do so is to analyze the protected categories that the laid-off employees fall under, and determine whether there is any disparate impact upon one particular group.  For example, would the layoff impact more women than men?  Would it impact more workers over 40 than under 40?

When courts examine claims of discrimination in a layoff, they often look at the following factors:

  • whether the business criteria utilized to select employees for termination makes sense, and whether that criteria was applied consistently;
  • whether procedures in personnel policies related to terminations were followed;
  • whether the employees’ responsibilities were fully eliminated – if not, what happened to the responsibilities; and
  • whether anyone was hired to fulfill the terminated employees’ duties.

It is important for employers to think about these types of factors before a layoff is implemented to ensure that the layoff is non-discriminatory, and can be vigorously defended if the need arises.

Proper Payout and Recordkeeping

Prior to the effective date for a layoff/termination, employers should ensure that they have reviewed all obligations (both legal and under employer-specific policies, such as handbooks and employment agreements) relating to termination pay. For example, some employee handbooks provide that unused, accrued PTO will be paid out upon termination, and some employees may be owed severance pay under an employment agreement.  When drafting severance agreements (which employers may want to consider regardless of whether they are obligated by contract to pay severance), employers should ensure that such agreements comply with legal requirements for releases, as well as any requirements by third parties such as insurance carriers.  For example, the Older Workers Benefit Protection Act (“OWBPA”) provides that for a valid release of age discrimination claims, the release must contain specific language, and the employee must be given a specific amount of time to consider the release and revoke their signature.  Employers should also be careful to abide by state laws governing the timing of final pay.

Employers are obligated to maintain many types of records, including employment records, post-layoff/closure. While recordkeeping obligations vary by state, generally they range from 3 to 7 years.

– Jessica Rothenberg