One of the most financially devastating errors made in purchasing, selling, remodeling, or restructuring a hotel facility is failure to give notice to laid-off employees as required by federal, state or local Worker Adjustment and Retraining Notification Act (WARN) statutes. Although the costs of noncompliance can run into the millions of dollars, these important statutes are frequently overlooked. Penalties for failure to notify employees in advance of a closing or layoff can amount to 60 days’ wages and benefits for each laid off worker. Also, some state employee notice laws require even longer notice and carry higher penalties: up to 90 days’ pay and benefits for each employee. Hotel buyers, sellers, owners, and management companies should be aware that each may be held liable for failure to give notice, depending on the circumstances.

Failure to give proper and timely WARN notice makes an employer liable to each employee for back pay and benefits over the period the employee was unnotified, up to 60 days. The dollar costs of WARN noncompliance are likely to be highest for operations that are already in financial trouble, since larger layoffs affect more employees and increase the employer’s total exposure to penalties. Also, because any closing of six months duration can trigger WARN’s notice requirements, shutdowns for remodeling and other temporary closings should be carefully scrutinized to determine whether WARN notice is required.

Although WARN does apply to the hospitality industry, some of WARN’s provisions can be ambiguous when implemented in a hotel context. For example, the number of part time, temporary and short term workers in many hospitality operations presents one difficulty: How should a midsize or smaller employer determine whether it is exempt from WARN by virtue of having fewer than 100 employees? When an operating hotel is purchased or sold, additional WARN issues are raised. When the buyer plans to replace some or all of the seller’s employees, both buyer and seller must be alert to the possibility that WARN may require 60 day advance notice of terminations.

This article is intended as a preliminary guide for hotel and resort owner, owner-operators, managers and lenders concerned about compliance with WARN. Because it cannot predict and discuss every possible factual situation in which employee notice might be required this article does not minimize the need for qualified legal advice on these notice requirement when a temporary or permanent closing or other significant layoff is contemplated.

Introduction to Employee-Notice Statutes

Since 1989, WARN has required employers to notify workers at least 60 days before a plant closing or mass layoff that may affect their jobs. WARN was a legislative response to the increase in plant closings and mass layoffs in the mid-1980’s. Because abrupt and unannounced layoffs were though to aggravate the economic and social difficulties created by large scale job termination, Congress enacted WARN to require employers to notify employees in advance of such events. To allow state and local agencies to assist workers in retraining and reemployment whenever possible, WARN also requires that employers notify the state employment agency and the head of local government.

Despite the “plant closing” language, WARN also applies to nonindustrial employers: Most enterprises with 100 or more employees will be required to give advance notice under WARN if they displace 50 or more workers. Limited exceptions to WARN may allow shorter notice when necessary to obtain financing, or when the closing was not foreseeable. Any layoff, termination or shutdown of operations that affects 50 or more full-time employees may trigger WARN’s notice requirements.

When union workers are involved, employers should be aware that the notice requirements of WARN do not supersede collective bargaining agreements with unions regarding layoff notice or severance pay. WARN has the same relationship to state statutes: It functions as a floor, not a ceiling. WARN imposes minimum requirements that may be increased by contractual or state-law provisions, but never decreased. In addition, a unionized employer must ordinarily bargain over the effects of a closing, such as order of layoffs and in some circumstances must also bargain over the actual decision to close. These requirements are not superseded by WARN.

WARN notice must be specific: The layoff date and the names and positions of workers who will be laid off must be included, along with other information. Represented employees may be notified through their union. Employers must also give similar notice to the Sate Dislocated Worker Unit and to local government.

Buyers, Sellers, Manager, Owners: Who is Responsible for Giving WARN Notice?

When a facility is sold the seller is responsible for giving notice of layoffs or closing that occur up to and including the date of closing, and the buyer is responsible for notice of layoffs or closing occurring thereafter. If the seller learns that the buyer plans to lay off some or all of the seller’s employees, the seller can give WARN notice with the buyer’s permission but responsibility for such notice remains on the buyer. The Department of Labor (DOL) regulations recommend that buyer and seller arrange to give proper notice when negotiating the sale.

Hotel chains are often owned an managed by separate entities and both owners and managers should be alert to WARN issues. The party that actually operated the business has primary responsibility for giving WARN notice: This will normally be the manager or management association; however, if the managing entity fails to fulfill its notice obligations under WARN, hotel owners may also be held liable. Similarly, if a hotel goes into conservatorship, the original management will normally be responsible for notice, but courts have indicated that a trustee or conservator that actually took control of operations could be liable for WARN violations.

One way to avoid confusion is to clearly allocate responsibility for WARN notice ahead of time in the management agreement. The same precautions can be taken when drafting a purchase/sale agreement and the DOL regulations encourage this practice.

Checklist: When Does the Federal WARN Statute Apply?

Each time a transaction that could displace employees is contemplated, the employer must answer three threshold questions to determine whether WARN requires 60-day advance notice:

1. Does the employer qualify by having at least 100 employees? An employer is covered by WARN if it has 100 or more full-time employees at the time notice is required to be given (not at the time of the layoff or closing). Since even temporary employees count toward this threshold, employers operating close to the 100 mark should begin to think 60 days ahead and give notice of qualified events to employees who are likely to be terminated or laid off. 2. Does the event qualify as a mass layoff or plant closing by affecting at least 50 employees? WARN defines a “mass layoff” as one that results in employment loss over any 30 day period for 50 to 499 full-time employees, if those employees amount to at least 33% of the employer’s total full-time work force, or 500 or more full-time employees without regard to the percentage of employer’s work force affected. Under WARN, a “plant closing” is the permanent or temporary shutdown of a single site of employment or one or more facilities or operating units within a single site of employment, which results in employment loss for 50 or more employees. The closing of one hotel in a chain, for example, would be considered a plant closing because it shuts down a single site of employment. A casino-hotel that shuts down its casino gaming but continues to operate as a hotel may also be “closing a plant” if the casino and hotel are separately staffed. The difference between a plant closing and a mass layoff is important for two reasons. First, WARN requires notice of a plant closing when 50 employees will be affected, whether or not the closing reduces the employer’s work force by one third. Hotel chains with 150 or more employees should be aware that temporary or permanent shutdown of a location will trigger WARN’s notice requirements more readily that the termination of an equal number of employees at multiple locations. In addition, the limited WARN exception for “faltering companies” applies only to plant closings, not to mass layoffs. 3. Doe the event cause a qualified employment loss? Unless each of the 50 employees experiences employment loss as a result of the mass layoff or plant closing, WARN notice is not required. WARN defines “employment loss” as: (1) termination other than discharge for cause, voluntary departure, or retirement, or (2) layoff for more than six months, or (3) reduction of more than 50% in an employee’s work hours during each month of any six-month period. An employee who is offered a transfer within reasonable commuting distance, with no more than a six month break in employment does not experience an employment loss under WARN.

Part-Time, Temporary and Laid-Off Employees

Part-time employees do not count toward either the 100-person employer threshold or the 50-person event threshold of the federal WARN statute. WARN defines a part-time employee as one who has worked for the employer: (1) fewer than 20 hours per week, averaged over the previous 90 days or the worker’s period of employment, whichever is shorter, or (2) fewer than 6 of the 12 months prior to the date on which notice is required.

The partime category includes all new hires: All employees hired within the previous six months will be considered part time employees under this definition. Even recent hires who work a full time schedule are considered part time since they will not have worked 6 of the last 12 months prior to the notice date.

It is important to remember that part time employees are not exempt from the notice requirements of WARN, in spite of the preceding. Once employer and event thresholds have been met, even part time employees must be given WARN notice if their jobs will be affected. In contrast, temporary employees who work full time must be counted toward both the employer and event threshold, but need not be given WARN notice. (Note that this is the mirror-image of the rule for part time employees.) Previously laid off employees must also be counted toward the threshold if they have a reasonable expectation of being recalled.

The best way to avoid the pitfalls of these shifting designations is to consider each worker - displacing event in two separate steps:

1. Qualifying. Count all full time employees, whether permanent or temporary. Do not count part time employees, new hires of less than 6 months, or seasonal employees who work less than half the year. If the employee count is at least 100, determine whether at least 50 of those counted are likely to experience a qualified employment loss because of the impending event.
2. Notifying. Once employer and event qualify for WARN, throw out the numbers from the first step, and look again at the entire work force to determine which workers will be affected. Even part time employees who were not counted toward the qualifying thresholds must be notified if they will experience employment loss as a result of the event.

Under federal WARN, the following parties must be given notice of the employment loss 60 days in advance of the layoff or closing:

• State agency. The State Dislocated Worker Unit (in California, this is administered by the Employment Development Department).
• Local government. The chief elected official of the unit of local government. When local government is by an elected board, notice must be given to the chairperson of the board. 
• Representative of union employees.
• Individual non-union employees.

Union contracts or employer policies sometimes grant long term employees whose positions are eliminated by a shutdown the right to “bump” newer employees from their jobs. The existence of such “bumping rights” can make it very difficult for an employer to predict which employees will ultimately be affected by the layoff. The final WARN regulations require notice to the holders of positions to be eliminated and to employees who will actually lose their jobs at the end of the bumping process, if their identify can be reasonably ascertained when the notice is required.

What Must Be Included in the Notice?

At a bare minimum, WARN notice to each of the parties previously listed must contain:

1. Name and address of employment site where closing or layoffs will occur.
2. Start date and schedule of layoffs. 
3. Names and job titles of employees who will be affected. 
4. Statement of whether bumping rights exist. (This may be omitted when notifying union representative). 
5. Name and address of a company official to contact for further information.

Because of the difficulties in designing a WARN notice that is nether too broad nor too limited, experienced employment counsel should always be consulted. Also there are other benefits to legal advice when dealing with WARN compliance issues. Congress has provided a partial defense to liability for an employer that can prove “reasonable grounds for believing” that its act or omission was not a violation of WARN.

Caution: Think Ahead to Foreseeable Circumstances

It is not always possible for an employer to accurately predict when and if substantial layoffs will be necessary. The hotel industry must anticipate and respond to economic and social indicators in a way that is inherently speculative. For example, resort business can be wiped out by unseasonable weather. WARN offers one option in some of these uncertain situations. The “unforeseeable circumstances” exception applies to closings and layoffs that were not reasonably foreseeable when 60 day notice was required. The DOL has provided several examples of circumstances that might be considered unforeseeable:

• A principal client’s sudden and unexpected termination of a major contract.
• A strike at a major supplier’s plant. 
• An unanticipated, dramatic and major economic downturn. 
• A government-ordered closing, with out notice, of an employment site.

An employer might foresee potential layoffs in response to a definite event, such as nonrenewal of a major convention booking. However, until the deadline for renewal arrives, the employer has no way of knowing whether layoffs will in fact be necessary. In such situations, WARN requires conditional notice of the possible layoffs 60 days before the renewal date. In addition to the standard WARN requirements a conditional notice must state the specific condition on which the layoff depends.

What if the Employer is Struggling to Avoid Shutdown?

WARN allows a financially troubled employer to give less than 60 days’ notice under very limited circumstances. The “faltering company” exception applies only to “plant closings,” not to “mass layoffs,” and can be invoked if all four of the following factors are present:

• The employer was actively seeking financing or business 60 days before the event, at the time notice would ordinarily have been required. 
• There was a realistic opportunity for the employer to obtain the capital or business sought. 
• The financing or business sought would have averted the shutdown if obtained. 
• The employer had a reasonable and good faith belief that giving WARN notice would have precluded the financing or business opportunity.

Qualifying for WARN Exceptions: Not as Easy as it Looks

Do not be lulled into ignoring WARN by the exceptions, which are subject to several significant limitations:

• The employer has the burden of proof as to whether the conditions for an exception were met. Doubts will be resolved in favor of the unnotified employees.
• The exceptions only allow the employer to delay notice, not to avoid WARN’s requirements entirely. The employer must still give notice as soon as possible under the conditions that created the exception and must include the required specific information.
• When notice of the layoff or closing is actually given, the employer must briefly state its reasons for reducing the notice period to fewer than 60 days. Reasons for delay not stated in the notice will not be considered by the court in determining whether a WARN exception applies.
• The DOL regulations require the “faltering company” exception to be narrowly construed, meaning that courts will not permit the exception to be used unless the situation conforms precisely to its requirements.

State Plant Closing Laws

The federal WARN does not preempt more restrictive state plant closing statutes. As with union contracts, WARN is a floor, not a ceiling: Thus, WARN does supersede state laws that impose lesser requirements on employers. As contrasted with WARN, state plant closing laws may apply to facilities with fewer employees or to shorter layoffs, and may impose longer mandatory notice periods, higher damages or additional requirements such as severance pay.

As an example, the large concentration of hotels in Hawaii makes its plant closing law of great importance to the hospitality industry. Although Hawaii’s statute only requires 45 days’ notice, it applies to employers with 50 or more employees and covers all permanent closing without regard to number of workers affected. As severance pay, Hawaii also requires employers to make up the difference between each worker’s unemployment benefit and the regular compensation for the first four weeks of the layoff, even if notice is given as required. Hawaii’s penalties are also quite severe: Any deficiency in notice results in damages equal to 90 day’s wages and benefits for each affected employee. Despite Hawaii’s shorter 45 day period, WARN’s 60 day notice is still required for events and employers that are also covered by WARN. Although the process may be costly, some employers may wish to contact the Hawaii Department of Labor, which issues letter opinions on the application of Hawaii’s employee-notice statute to particular situations.

The Virgin Islands, home of numerous resorts and hotels, also has a very broad plant closing statute in effect, which applies even to small facilities. The Virgin Islands’ law covers any employer with 10 or more employees that has been in business at least 1 year and requires 90 days’ notice of any permanent layoff or closing that will terminate 50% or more of a facility’s work force. It also mandates one week of severance pay for every year of the terminated employee’s service, gives employees a right of first refusal to purchase a facility scheduled to close, and grants a 60-day purchase option on the facility to the Government of the Virgin Islands. The Virgin Islands’ statute also allows the government to enjoin violations; a power not available under the federal WARN statute. Employers should be aware that this statute actually empowers the Virgin Islands Attorney General or Commissioner of Labor to stop a closing or layoff that violates its requirements.

Other states have employee-notice laws that resemble WARN more closely, but apply to smaller operations. For example, the notice laws of Massachusetts, Pennsylvania, Tennessee and Wisconsin cover employers with as few as 50 workers. Some state laws also apply to smaller scale layoffs: Wisconsin’s law covers layoffs that affect as few as 25 workers.

In February 1993, the General Accounting Office issued a scathing report to Congress on the low level of WARN compliance. WARN is currently enforced only by federal courts in response to suits brought by employees or unions. However, the GAO report concluded that this level of enforcement is insufficient, and recommended that the Department of Labor be authorized to enforce the notice requirements of WARN. Although Congress has not enacted this recommendation it may yet do so. Even if the current enforcement structure is retained, the GAO’s public findings are likely to result in increased vigilance of WARN violations. Employers that continue to ignore WARN’s requirements do so at their own peril.

Careful advance planning is required to avoid expensive and unexpected WARN penalties. WARN and state plant closing statutes offer employers two alternatives: Provide notice of layoffs. or pay damages equivalent to severance pay and benefits for 60 days or more. Although bringing WARN compliance into the planning stages of purchases, sales and other transactions may take some getting used to providing proper and timely layoff notice will virtually always be less costly that paying wages and benefits over the entire notice period to each employee.