Valuing Payments in Lieu of WARN Notice

The Worker Adjustment and Retraining Notification Act (the WARN Act) generally requires an employer with 100 or more full-time workers to provide 60 days' notice to employees who will be affected by a mass layoff or plant closing at a single site of employment. If an employer violates the notice requirement, each terminated employee is entitled to damages equal to: 1) back pay; and 2) benefits under employee benefit plans subject to the Employee Retirement Income Security Act of 1974 (ERISA), for the period of such violation up to 60 days (which, according to a majority of courts, is calculated based on the number of working days in such period). The WARN Act's notice requirement does not, however, mandate that employers continue to employ employees during the notice period, and the regulations promulgated by the U.S. Dept. of Labor (the DOL) explicitly state that the WARN Act does not dictate the nature of work to be performed ' or whether work must be performed ' after notice is provided. Further, the DOL has recognized that providing employees with full pay and benefits in respect of the 60-day notice period effectively precludes any damages under the WARN Act.

As a result, in lieu of providing notice of termination, many employers pay employees an amount equal to base salary and benefits for 60 days, and terminate them immediately. As a technical matter, this approach is not impermissible; nonetheless, employers often fail to take into account all elements of compensation and benefits when valuing payments in lieu of notice. This article addresses certain elements of such payments that are often overlooked by employers.

'Back Pay' Includes More Than Simply Wages

Under the WARN Act, damages for failure to provide notice include “back pay” for the notice period, and thus the sufficiency of any payment in lieu of notice must focus on the scope of “back pay.” The WARN Act and regulations promulgated thereunder do not, however, define “back pay” and the courts have, therefore, been tasked with delimiting the scope of the term. Courts have uniformly included wages as an element of back pay, but many have further extended its reach. Relying on the definition of “back pay” in other federal statutes such as Title VII, the Age Discrimination Employment Act and the National Labor Relations Act, certain courts have found that “back pay” also encompasses other elements of compensation that an employee would have earned had he or she continued to work during the notice period. For example, in United Mine Workers of Amer. Int'l Union v. Midwest Coal Company, No. TH 99-C-141-T/H, 2001 U.S. Dist. LEXIS 18180 (S.D. Ind. Aug. 31, 2001), the district court held that, in addition to wages, aggrieved employees were entitled to overtime, vacation pay and birthday pay. The court emphasized that the calculation of damages under the WARN Act should be “based on the wages the employee would have received absent the plant closing or [with] deferral of the layoff until after the 60 day notice period.” Similarly, in Local Joint Executive Board of Culinary/Bartender Trust Fund v. Las Vegas Sands, Inc., 244 F.3d 1152 (9th Cir. 2001), the court stated that the WARN Act is equivalent to “business interruption insurance” and provides employees with a “stream of income” for the 60-day notice period. The court noted that the source of such “stream of income,” whether paid by the employer or by customers through tips, or as regular or holiday pay, was irrelevant. The court acknowledged, however, that in order to receive damages encompassing such other compensation, terminated employees must be able to prove the amount of tips they would have received and their entitlement to holiday pay. In contrast, however, in United Mine Workers of America v. Eighty-Four Mining Co., 150 Fed. Appx. 345 (3rd Cir. 2005), the Third Circuit held that vacation, holiday and birthday pay are not components of “back pay.” The court noted that the computation of “back pay” focuses on historical compensation and is not concerned with pay that the employee would have received during the notice period.

Therefore, while the courts are not in complete agreement, when determining the appropriate value of “back pay,” employers should give consideration not only to wages, but all other forms of compensation typically received by the affected employees.

'Benefits' May Include Those Under ERISA and Non-ERISA Plans

Unfortunately, the compensation-related components of “back pay” only present half the story regarding payments in lieu of notice. Under the WARN Act, employers are also required to provide employees with payment in lieu of benefits under plans subject to ERISA. Furthermore, some courts have held that, while not explicitly required under the WARN Act, benefits under plans not subject to ERISA can be an element of “back pay,” which must be included in the payment in lieu of notice.

Benefits Under Plans Subject to ERISA ('ERISA Plans')