Labor: Managing a down economy--The ins and outs of group terminations

Group terminations are governed by a number of federal and state regulations

Group terminations can be an effective tool in managing labor costs in a down economy, but they also present a host of potential issues that could lead to liability. Advance planning and foresight can lead to a well-managed group termination. There are two general legal issues to be aware of in implementing a group termination, each of which will be discussed in brief in this article.

Generally, if your company is planning to terminate more than twenty-five employees at a single time, it is advisable to plan more than 60 days in advance. The reason for this large lead time is the Worker Adjustment and Retraining Notification Act (WARN Act) and its state law equivalents (mini-WARN Acts). The WARN Act requires covered employers who trigger the law to notify government officials as well as employees who are affected by a mass layoff or plant closing at least 60 days in advance of a group termination.  Failure to provide proper notice can result in fines as well as damages payable to each employee for the days they did not receive proper notice in the amount of wages and benefits.    

The WARN Act applies to “mass layoffs” and “plant closings,” two terms that are defined in intense detail in federal and, where applicable, state law.  Generally, a mass layoff under the WARN Act is any workforce reduction that creates an employment loss affecting either:

  • Fifty or more employees and at least 33 percent or more of the employer’s total active workforce at a single site of employment
  • At least 500 or more employees

A plant closing is defined as a permanent or temporary shutdown of a single site of employment, or of a facility or operating unit at a single site, that results in an employment loss for 50 or more full-time employees.

It is also important to recognize that many states have mini-WARN Acts that oftentimes have lower trigger numbers—for example, Wisconsin’s WARN Act can require notice when a trigger number of 25 employees is reached. For that reason, when your group termination reaches a level of more than 25 employees, it is advisable to pay attention to the WARN Act and any applicable mini-WARN Acts.

The threshold for triggering considerations under the Older Worker Benefit Protection Act (OWBPA), an amendment to the Age Discrimination in Employment Act, is even less than 25 employees. OWBPA governs the process by which an employer may secure a valid waiver of an age discrimination claim in a reduction-in-force, voluntary early retirement or other group termination program. Generally, when just two or more employees are part of the same group termination program, special considerations arise under OWBPA. 

Under OWBPA, single employees age 40 or over who are terminated for reasons other than as part of a group termination program must be provided with, among other things, at least 21 days to consider signing the release agreement which contains a waiver of an age discrimination claim. On the other hand, if the employee is terminated in connection with an exit incentive or other group termination program offered to more than one employee, then the employee must be provided with at least 45 days to consider signing the release agreement.

In addition, the employee must be provided with a document which reflects certain information required by the federal regulations. The detail required by OWBPA is exacting and requires proper attention, advance planning and foresight with respect to the group termination process.

Knowing the potential liabilities of the WARN Act, mini-WARN Acts and OWBPA will help manage risk associated with a group termination. More detail on these laws will follow in future installments of this series.

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Tom O'Day

Tom O’Day joined the Milwaukee office of Godfrey & Kahn, S.C. in January 2006 as a member of the Labor and Employment Practice Group. Tom’s...

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