Since the late 1980s, employers conducting large layoffs have had to ensure compliance with the Worker Adjustment and Retraining Notification (WARN) Act. While doing the calculus to determine whether there are WARN notice obligations may be straightforward, typically, complications can arise when the employer is one of several entities in a group of related companies. That was the focus of a recent decision from the U.S. 4th Circuit Court of Appeals (whose rulings apply to all employers in Maryland and Virginia).
WARN Act Basics
The WARN Act requires covered employers—those with at least 100 employees—to provide 60-days’ advance notice prior to implementing a plant closing or mass layoff. The Act defines a “plant closing” as a shutdown of a single site of employment or an operating unit within a single site that affects at least 50 employees. A “mass layoff” is defined as any reduction in force at a single site that affects at least 33% of employees at the site and at least 50 employees total (or one that affects at least 500 employees).
The WARN Act requires that a written notice be provided to the affected employees, as well as certain governmental offices.
Common Factors
In the case before the 4th Circuit, a mining employee had been terminated without notice. The employee later filed a class action alleging violations of the WARN Act on behalf of a class of employees at the mine who had been terminated or had their hours reduced. Rather than sue only his nominal employer, he asserted claims against five corporations. Following a verdict in favor of the class members, the companies appealed on the grounds that they should not have been classified as a single employer for purposes of the litigation.
In its decision, the 4th Circuit reaffirmed the principle that distinct entities may be considered a single employer for purposes of the WARN Act when they have functionally operated as a single business. The court explained that the determination of whether multiple entities acted as a single employer is to be made based on a multifactor framework that centers on the degree of each entity’s independence, with the key factors being:
- Common ownership;
- Common directors or officers;
- De facto exercise of control;
- Unity of personnel policies stemming from a common source; and
- The dependency of their operations.
Turning to the facts before it, the court noted that the companies shared a common office address and that three of them had the same officers, while two had the same directors. Critically, the court noted that the evidence established the companies exchanged employees and machines back and forth among one another, shared management supervisors, and shared a common payroll system. As such, the 4th Circuit concluded that the companies acted as a single employer, and therefore it affirmed the jury’s verdict. Gautier v. Tams Management, Inc.
Bottom Line
The court’s decision underscores the need for employers to carefully evaluate the potential WARN Act consequences of layoffs, including their relationship to other entities that are part of the same corporate family or share a common owner. You should remember that various states, including Maryland, have adopted their own ‘mini-WARN’ statutes that may impose obligations beyond the scope of the federal WARN Act. You are encouraged to always consult with legal counsel regarding any planned reductions in force.
David M. Stevens is an attorney with Whiteford, Taylor & Preston, L.L.P., in Columbia, Maryland, and can be reached at dstevens@whitefordlaw.com.