How to Ensure Rightful Terminations in California

Part 3: Implementing a reduction in force

By James J. McDonald Jr. April 17, 2018
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This is the third in a four-part series excerpted from the newly released California Employment Law: An Employer's Guide, Revised and Updated for 2018 (SHRM). Part two addressed creating defensible severance agreements, while part one spoke to setting up defensible terminations. Part four will review how to document employee terminations. 

Before implementing a reduction in force (RIF), you should create a matrix containing all employees in each of the departments, locations, or other working units to be affected by the RIF along with their demographic data: race/ethnicity, sex, age, length of service, and any additional information that might increase the risk of terminating a particular employee such as a disability, a pending workers' compensation claim, or a recent return from medical leave. You should then examine the matrix to ensure that the terminations are not adversely affecting older employees or a particular sex, race, or ethnicity. For each employee in a protected classification you should be prepared to defend why that person was chosen for termination versus other employees in the same working unit who are not in a protected classification. If the defense is weak, you should consider reordering the RIF or offering severance to those employees in exchange for a release of claims. 

In reality, almost every RIF will affect employees in one or more protected classifications. This is not a reason to cancel a reduction that is warranted for business reasons, but identifying potential exposure and addressing it beforehand can prevent lawsuits later. 

Federal WARN Act

The federal and California Worker Adjustment and Retraining Notification (WARN) Acts must be considered whenever a large number of employees are terminated in a RIF or plant closing. These two laws differ in some significant respects. 

The federal WARN Act applies to employers of 100 or more full-time employees (or 100 or more full-time or part-time employees who together work at least 4,000 hours per week exclusive of overtime). It applies to the following situations:

  • Plant closings involving 50 or more full-time employees who suffer an employment loss at a single site of employment in a 30-day period.
  • Mass layoffs involving more than 500 full-time employees, or between 50 and 499 full-time employees and at least 33 percent of the workforce, who suffer an employment loss at a single site of employment in a 30-day period. 

"Employment loss" is defined as (a) termination other than for cause, resignation, or retirement, (b) a layoff exceeding six months, or (c) reduction in hours of more than 50 percent in each month of any six-month period. "Full-time" means employees who are employed for an average of 20 or more hours per week and for more than six of the 12 months preceding the date when notice is required. The federal WARN Act also has a "90-day rule," which provides that employment losses for two or more groups of employees at a single site of employment occurring within a 90-day period that individually do not meet the threshold for required notice but would meet the threshold if combined will require WARN notice, unless the employer can prove that the employment losses are the result of separate and distinct actions or causes. 

The federal law requires that at least 60 days' notice (or pay in lieu of notice) be given prior to any covered plant closing or mass layoff. Notice must be given to affected employees individually or to their union if they are represented by a union, to the Workforce Services Division of the California Employment Development Department (EDD), and to the chief elected official of the local jurisdiction in which the plant closing or mass layoff occurred. 

Notice need not be provided to employees who are offered a transfer to another worksite within a reasonable commuting distance, or when a transfer is offered regardless of distance and the employee accepts the transfer. Notice is also not needed when the plant closing or layoff is the result of the completion of a project or undertaking, and the affected employees were hired with the understanding that their employment would be limited to the duration of the project or undertaking. Nor is notice required in the event of a strike or lockout in a labor dispute. Notice is also not required in a merger or acquisition when the employees of the seller are hired by the buyer on the effective date of the merger or acquisition. 

A reduced amount of notice may be given if the employer is actively seeking new business or capital that, if obtained, would have enabled the employer to avoid or postpone the shutdown, and the employer reasonably and in good faith believed that providing timely notice would have prevented it from obtaining the new business or capital. The full 60 days of notice is also not required when the plant closing or layoff is the result of unforeseen business circumstances or a natural disaster. As much notice as possible must still be given in these situations, however. 

California's WARN Act

California's WARN Act applies to "covered establishments," which are industrial or commercial facilities in which 75 or more full-time or part-time employees have been employed at any time during the year prior to the event requiring notice. All employers that own and operate at least one "covered establishment" are covered by the statute. 

At least 60 days' notice is required in the event of a mass layoff, relocation, or termination at a covered establishment. "Mass layoff" means a layoff during any 30-day period of 50 or more employees at a covered establishment, regardless of the percentage of the workforce affected. "Relocation" is defined as a move to another location more than 100 miles away. "Termination" is defined as "the cessation or substantial cessation" of industrial or commercial operations at a covered establishment. 

Unlike the federal WARN Act (which applies only to layoffs exceeding six months in duration), California's WARN Act applies to layoffs and furloughs of any duration that involve 50 or more employees in a 30-day period. Even temporary layoffs of short duration due to a downturn in workflow therefore require 60 days' advance notice if 50 or more employees are affected. Likewise, where seasonal shutdowns occur, such as closing between Christmas and New Year's, or during the summer months, at least 60 days' advance notice of such shutdowns must be given.

WARN notices must be given to the same persons and entities as required by the federal WARN Act, plus to the local workforce investment board and the chief elected official in each city and county in which the plant closing, relocation, or mass layoff occurred. 

WARN notice is not required when the plant closing or mass layoff is the result of a completion of a particular project in the construction, drilling, mining, logging, or motion picture industries, and employees were hired with the understanding that their employment would be limited to the duration of the project. Likewise, WARN notice is not required for seasonal employees who were hired with the understanding that their employment would be seasonal or temporary. 

Notice is not required under California law when the buyer of assets hires enough of the seller's employees such that 50 or more employees do not lose their jobs as a result of the transaction. The employees hired by the buyer must remain in the same positions they had with the seller, and at the same rate of pay and seniority (if applicable) and with the same benefits. 

Notice is not required in the event of a physical calamity or act of war. Nor is notice of a plant closing or relocation required when, under certain conditions, the employer was actively seeking capital or business and a WARN notice would have precluded the employer from obtaining the business or capital. California's WARN Act does not have an unforeseen business circumstances exception. 

Consequences of Failing to Provide WARN Notice

Failure to provide WARN notice when it is required can create substantial financial exposure for an employer. Employees who were entitled to notice but did not receive it may generally recover pay and benefits for the period during which notice was not given, to a maximum of 60 days. Employers that do not provide required notice may also be liable for fines and penalties under both federal and state law, plus attorneys' fees for the employees who sue to collect wages, benefits, and penalties. As these suits may easily qualify as class actions, they are often filed when WARN notice is required but not provided. 

Please visit the SHRMStore to order your member-discounted copy of California Employment Law: An Employer's Guide, Revised and Updated for 2018 by James J. McDonald Jr. 

James J. McDonald Jr., J.D., SHRM-SCP, SPHR, is managing partner of the Irvine, Calif., office of the labor and employment law firm Fisher & Phillips LLP. His practice involves trials, arbitrations and appeals of employment law claims. He also has more than 25 years of experience advising California employers about all aspects of labor and employment law, strategic human resource issues, and how to avoid employment claims and lawsuits. He received his undergraduate degree from New College of Florida and his law degree cum laude from Georgetown University.

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