Warn Act Liability may be Greater than you Think

Originally appeared in Labor Law Newsletter - January 2002

In today's uncertain economy, many employers are re-structuring operations, laying off workers and closing facilities. Employers with 100 or more employees may be required to provide 60 days' advance notice of a "mass layoff" or "plant closing" under the Workers Adjustment Retraining Notification Act ("WARN"). An Employer deciding when to make an announcement regarding a mass layoff or plant closing must, in addition to considering the possible reactions by investors, merger partners, the public, the government, and its own employees, comply with obligations at risk of penalties under WARN. Employers who fail to provide timely notice of an impending mass layoff or plant closing may be liable to their employees for up to 60 days of back pay.

As part of the decision-making process, an employer must determine the expense it would incur if it has to pay back pay to its employees for the number of days it is in violation of the notice requirement. WARN provides that the back pay must be paid at "the average regular rate received by such employee during the last 3 years of the employee's employment" or "the final regular rate received by such employee," whichever is higher. While it appears that it should be simple to determine the potential liability for a WARN violation, the statute never clearly defines the term "back pay." Consequently, if an action is brought against an employer for unpaid WARN damages, the courts have the discretion to define back pay in a way that an employer may not have considered. Some court decisions show that an employer's back pay liability may be greater than expected.

First, while the majority of courts hold that an employer's liability under WARN should be the number of days the employees would have worked during the violation period, a few jurisdictions, most notably the Third Circuit Court of Appeals (with jurisdiction over Pennsylvania, New Jersey and Delaware), have held that the liability is for the number of calendar days during the violation period. In United Steelworkers of America v. North Star Steel Co., 5 F.3d 39 (3d Cir. 1993), the Third Circuit concluded that back pay damages under WARN were intended to be a form of liquidated damages. According to the court, the use of the term "back pay" was meant to establish a measure of daily damages to be multiplied by the number of days during the period of violation and not intended to represent the...