Wednesday, December 10, 2008

Union sit-in illustrates working of WARN Act

Last week, Republic Windows and Doors, a Chicago manufacturer, announced that because Bank of America had cancelled its line of credit, it would be closing immediately. Since last weekend, its employees have been staging a mass sit-in inside the factory in protest the company’s lack of notice of the shut-down. They claim that federal law entitled them to a minimum of 60 days’ notice. (See In Factory Sit-In, an Anger Spread Wide). The employees claim that they will continue to occupy the factory until a resolution is reached.

The federal law that spurred the workers protest is the Worker Adjustment and Retraining Notification Act, which is more commonly known as the WARN Act. The WARN Act generally applies to any employer with 100 or more employees, not counting employees who worked less than 6 months in the last 12 months and employees who work an average of less than 20 hours a week.

It requires a covered employer to give affected employees 60 days’ notice of any plant closing or mass layoff. It is common misconception that WARN requires severance pay. In fact, all it requires is 60 days’ notice to affected employees. However, an employer can bypass the notice by paying employees in lieu of the WARN notice. For example, if a plant shuts down immediately without any notice, all affected employees would be entitled to 60 days’ pay in lieu of WARN notice.

The Republic Windows story raises an important exception under the WARN Act: the unforeseeable business circumstances exception. When the closing or mass layoff is caused by business circumstances that were not reasonably foreseeable at the time that 60-day notice would have been required (i.e., a business circumstance that is caused by some sudden, dramatic, and unexpected action or conditions outside the employer's control), 60 days’ notice under WARN is not required. Instead, the employer is only required to give as much notice as is practicable in light of the unforeseen circumstances.

There is little doubt that Republic Windows is relying on the unforeseeable business circumstances exception for its lack of WARN notice to its employees. Despite (or maybe because of) the current credit crunch, a court would most likely not require Republic Windows to accurately predict Bank of America’s actions. The issue for Republic Windows and its employees will most likely hinge on two facts: when did it first learn that its specific line of credit was in jeopardy, and how long could it have continued operating before shutting its doors. Public and political pressure may end up winning the day for the employees, but my best guess is that Republic Windows is probably on right side of the unforeseeable business circumstances exception.