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Reductions in Workforce

Employers should discuss any Reduction in Force with HRO’s Professional Staff. In addition to the legal requirements, Companies should consider carefully the process and timing of any Reduction in Force. HRO can help you with all aspects of the termination process including: the termination interview, final pay calculations, protecting the employer and other employee from departing employee sabotage and violence, outplacement and support for the surviving employees. HROs will provide the expertise to ensure a smooth process and minimize any risk exposure to your Company and the remaining employees.

Older Workers' Benefit Protection Act

If you provide severance and a release to any employee who is 40 years old or older, the release must comply with the Federal Older Workers' Benefit Protection Act ("OWBPA"). If the release does not comply with the OWBPA, it will be invalid. The employee will be able to keep the money and still sue you. The OWBPA requires: a special reference to the OWBPA in the release itself; the employee has up to 21 days to consider the release; and the employee has up to 7 days to revoke the release after execution.

There are additional OWBPA requirements for group layoffs. If you offer severance and a release to two or more employees, and any of the employees are 40 years old or older, the release must also comply with additional special requirements under the OWBPA, including: a 45-day review period, instead of 21 days; and the release must contain a list of all employees in the affected departments, their ages, and whether they were laid off.

Warn Act

The Federal Worker Adjustment and Retraining Notification Act ("WARN") generally requires that a covered employer provide 60 days' notice of a plant closing or mass layoff. It is designed to provide protection to workers, their families, and communities.

An employer is generally covered under the WARN Act if the employer has 100 or more full-time employees. "Full-time employees" are defined as those who are employed for an average of 20 or more hours per week, or who have been employed for at least 6 months prior to the required notice date. Part-time employees, independent contractors, and employees of subsidiaries are not included in this calculation under the WARN Act.

A "plant closing" is a shutdown of a single site of employment, or one or more facilities or operating units within a single site of employment, that results in an employment loss during any 30-day period for 50 or more full-time employees. A "mass layoff" occurs when, in the absence of a plant closing, an employment loss affects 33% of the full-time employees, but not less than 50 employees in total, at a single site of employment, or any loss affecting 500 employees in total over a 30-day period. The definition of "single site" is complicated, and requires a detailed factual and legal analysis.

Normally, the determination of the number of employees impacted is measured over a 30-day period. However, if two or more groups suffer employment losses at a single site of employment within 90 days of each other, and each group is fewer than the minimum required to trigger the WARN Act, the two groups will normally be combined, which will then trigger the WARN Act anyway.

Covered employers must provide at least 60 days' written notice of the plant closing or mass layoff. In the alternative, they may give 60 days' pay in lieu of notice. The notice requirements are very technical and complicated, and require notification to workers, government, and/or unions.

There are exceptions to the notification requirements of the WARN Act: (1) "Faltering company": where a company is actively seeking capital or business which, if obtained, would enable the company to avoid or postpone a shutdown; but only if the employer has a reasonable and good faith belief that giving the required notice would preclude the employer from obtaining the needed capital or business; (2) "Unforeseen business circumstances": where a plant closing or a mass layoff with less than 60 days notice is necessitated by business circumstances that were not reasonably foreseeable at the time that the notice would have been required; i.e., a dramatic and unexpected condition that is outside the employer's control; sudden termination of major contract by the employer's principle client; a strike at the company's major supplier; an unanticipated and/or dramatic economic downturn; a government ordered closing on employment's site without prior notice; and (3) "Natural disasters": which actually cause the plant closing or mass layoff. The burden is always on the employer to prove these exceptions apply. Even where an employer relies upon these exceptions, the employer still must provide as much notice as is practicable.

Special rules apply in the event of a sale of a business. The seller must comply with notice requirements for any plant closing or mass layoff up to and including the effective date of the sale, and the purchaser must comply with notice requirements of any plant closing or mass layoffs that take place after the day of the sale. Agreements should be reached between the seller and the purchaser concerning their respective obligations under the WARN Act as part of the sale of the business.

However, the WARN Act is not triggered by the mere sale of a business if employees continue to work for the purchaser after the sale; since the employees do not experience any "employment loss" even though they are technically terminated by the seller.

Also, employees will not experience an employment loss if a plant closing or mass layoff is a result of the relocation or consolidation as part of the employer's business, provided that: (1) the employer offers to transfer the employee to a different location that is within a reasonable commuting distance; and (2) the break in employment that the employee will experience will not exceed 6 months.

The penalties for violations of the WARN Act are severe: potential class action lawsuit in federal court; award of back pay, front pay, and lost benefits; civil penalties, up to $500 for each day of violation; and payment of attorneys' fees. Since the potential damages for federal violations of the WARN Act are substantial, employers should ensure that they are complying with every aspect of the WARN Act.