Many businesses are struggling with the decision to lay off, furlough or terminate employees. California temporarily has loosened strict notice requirements for businesses subject to the state’s Worker Adjustment and Retraining Notification Act (Cal-WARN).
The Cal-WARN Act is broader and includes more employers than the federal WARN Act –– the state’s employers generally are bound by the broader requirements. The federal WARN Act, however, offers an “unforeseeable business circumstances” exception to the notice requirements. The exception grants states more flexibility in handling layoffs and downsizing as a result of the COVID-19 pandemic. For a complete discussion on the WARN Acts and the implications of lay-offs and furloughs, visit our online eBook, Navigating COVID-19: A Legal Guide for California Employers.
The California WARN Act
The Cal-WARN Act requires employers who have employed 75 or more people within the preceding 12-month period to provide 60 days’ notice to employees before conducting a mass layoff (50 or more employees in a 30-day period), relocation or termination (plant closure or other cessation of operations). It also might apply to employee furloughs lasting fewer than six months.
On March 17, Gov. Newsom signed Executive Order N-31-20 temporarily suspending notice requirements under Cal-WARN in connection with mass layoffs, relocations or termination related to COVID-19. Prior to the suspension, the only possible exception to the notice requirement was if a mass layoff was caused by “physical calamity or act of war.” What qualifies as a “physical calamity” is unknown, so the governor’s executive order provides the clarity many employers have been seeking during this uncertain time.
The order extends an “unforeseeable business circumstances” exception to the notice obligation previously available only under federal law. It may be asserted when the mass layoff or shutdown, according to the Code of Federal Regulations, is caused by “sudden, dramatic, and unexpected action or condition outside the employer’s control.”
To qualify for the unforeseen circumstances exception, employers must comply with other provisions under Cal-WARN:
- The employer’s mass layoff, relocation or termination must be caused by coronavirus-related “business circumstances that were not reasonably foreseeable at the time the notice would have been required.”
- The employer still must provide written notice, per the Cal-WARN Act, to:
- employees affected by the mass layoff, relocation or termination;
- all representatives of employees affected (such as labor unions);
- the EDD, Local Workforce Development Board and chief elected official of each city and county government within which the termination, relocation or mass layoff occurs.
- Explain in writing to the impacted employees and state and local government why full notice cannot be given.
- Notify employees of their eligibility for unemployment insurance benefits.
The Federal WARN Act
Employers that abide by the California law no doubt will have complied with federal standards as well.
Employers typically subject to the federal WARN Act (that is, those with 100 or more full-time employees, subject to certain caveats) must provide 60 days’ notice of an “employment loss” if there is a “plant closing” or a “mass layoff” affecting 50 or more employees over a 90-day period. “Mass layoffs” must affect at least 50 full-time employees and at least 33% of the active full-time employees at a “single site of employment,” unless the layoff affects 500 or more employees, in which case the one-third requirement does not apply.
Under the federal WARN Act, an “employment loss” is: (1) an employment termination, other than a discharge for cause, voluntary departure or retirement; (2) a layoff exceeding six consecutive months; or (3) a reduction in hours of more than 50% during each month of any six-month period.
The last thing any employer knows during the COVID-19 crisis is what the world will look like in 60 days. So the notice exception for “unforeseeable business circumstances” requires employers to provide only “as much notice as is practicable.” Under the applicable federal regulations, “The employer must, at the time notice actually is given, provide a brief statement of the reason for reducing the notice period, in addition to the other elements ….” Notably, during the coronavirus pandemic, the federal WARN Act expressly recognizes that “an unanticipated and dramatic major economic downturn might be considered a business circumstance that is not reasonably foreseeable.”
“An employer who fails to give notice as required by paragraph (1) of subdivision (a) of Section 1401 before ordering a mass layoff, relocation, or termination is liable to each employee entitled to notice who lost his or her employment” for back pay and the value of the cost of any benefits the employee may have been entitled to up to a maximum of 60 days or one-half the number of days that the employee was employed by the employer, whichever is smaller. An employer’s liability may be reduced by specific payments made. (Labor Code section 1402(a)-(c)).
Liability Exposure for Non-Compliance
Failure to provide the required notice to employees can have significant consequences for employers, including liability to all affected employees for up to 60 days of back pay and benefits, as well as reasonable attorneys’ fees. Cal. Lab. Code §§ 1402, 1404. Failure to provide the required notice to the EDD, the local workforce investment board, or the chief elected official of each applicable city and county government may result in civil penalties payable to the state in an amount of up to $500 for each day the employer fails to provide requisite notice, plus reasonable attorneys’ fees. Cal. Lab. Code §§ 1403, 1404. Notably, An employer’s liability may be avoided by a good faith determination notice requirements do not apply or may be reduced by specific payments made. (Labor Code section 1402(a)-(c)).
Employee Furloughs May Require Cal-WARN Notice
Employers considering employee furloughs must be aware that California, unlike Federal WARN, provides for very short permissible furlough periods to avoid notice obligations. In a 2017 California Court of Appeal decision, International Brotherhood of Boilermakers, etc. v. NASSCO Holdings Inc., 17 Cal. App. 5th 1105 (2017), held that furloughs exceeding a de minimis amount of time would trigger an employer’s obligations to comply with Cal-WARN. The Court of Appeal did not, however, provide any guidance on what length of time is considered “de minimis.” The court explained that Cal-WARN’s use of the language “separation from a position” does not suggest that a severance of the employment relationship must occur but instead encompasses a temporary job loss, even if some form of the employment relationship continues and employees are given a specific return date. The court further explained that Cal-WARN lacked any time limitation, unlike federal WARN’s express rule that only a layoff exceeding six months triggers the notice requirement. Thus, the court in NASSCO concluded that a four- or five-week furlough is not de minimis and constitutes a “separation from a position” within the meaning of Cal-WARN, triggering its notice requirements.
Accordingly, employers contemplating furloughs that exceed a de minimis amount of time (less than four weeks) must comply with Cal-WARN’s notice requirements, as modified by N-31-20.
Furloughs & Liability Under California Wage and Hour Law
Even if a furlough is de minimis and does not trigger Cal-WARN, employers risk potential exposure under California Labor Code sections 201 and 203. Section 201 requires employers to pay an employee’s final wages immediately upon termination, and Section 203 imposes a penalty on employers who willfully fail to timely pay final wages in an amount equal to the employee’s daily rate of pay, up to a total of 30 days.
In a 1993 Opinion Letter, the California Division of Labor Standards Enforcement (the “DLSE”) stated that a furlough with a definite return-to-work date that does not exceed 10 days does not result in a termination. In a 1996 Opinion Letter, the DLSE stated that a furlough extending beyond the employee’s normal pay period in which the furlough begins requires the employer to pay final wages under Section 201. Under these opinion letters, a furlough that does not have a definite return-to-work date within the shorter of 10 days or the employee’s normal pay period may be construed as a termination, triggering the requirement to pay final wages under Section 201. Although the DLSE’s opinion letters are not binding authority on California courts, they may nevertheless be considered and cited as persuasive authority in some circumstances.
Under California/federal labor laws, employers should also be cautious placing exempt employees on furlough. While employers generally may reduce the hours of non-exempt employees at any time, exempt employees typically must receive their weekly base salary if they perform any services within the workweek (including any requirement to monitor email or voicemail). If an employee on a furlough actually does perform any work, then the employer will be required to compensate the employee for the entire workweek.
Before an employer considers these more extreme options, you should discuss with your employment practice specialist to ensure compliance with the many other competing labor law obligations under California and Federal law.
For further guidance visit our online eBook, Navigating COVID-19: A Legal Guide for California Employers.
Other Resources Include:
The Labor & Workforce Development Agency (LWDA) provides the following link for guidance: https://www.dir.ca.gov/dlse/WARN-FAQs.html
The U.S. Department of Labor guidance on the Federal WARN Act compliance can be found here: https://www.dol.gov/agencies/eta/layoffs/warn
For questions on this issue or further guidance regarding the impact of COVID-19 on your business, contact Managing Partner Eric De Wames by email at email@example.com