California employers are facing the prospect of unanticipated layoffs – also known as furloughs and reductions in force – in response to government mandates and directives concerning the COVID-19 pandemic. Decisions must be made in the absence of clear guidance regarding whether these actions implicate the Federal Worker Adjustment and Retraining Notification Act (WARN Act) and/or California's WARN Act (Cal-WARN).
On March 17, 2020, California Governor Gavin Newsom issued an Executive Order providing welcome clarity regarding some aspects of how Cal-WARN will apply to this rapidly developing situation.
Application of Cal-WARN
Cal-WARN prohibits an employer from ordering a mass layoff, relocation, or termination (substantial cessation of operations) at a covered establishment without giving 60 days' advance written notice.
Specified threshold issues must be satisfied before Cal-WARN is triggered.
First, the event must occur at a covered establishment, which is a facility, or part thereof, in California that, within the preceding 12 months, has employed 75 or more persons regardless of how many are currently employed or were employed at one time. Second, the event must meet the definition of a mass layoff, relocation, or termination below.
- To qualify as a mass layoff, there must be 50 or more employees at a covered establishment who are separated from a position for lack of funds or lack of work during any 30-day period. “Employees” means current employees who have been employed for at least six of the last 12 months (including full and part time employees).
- To qualify as a relocation, there must be the removal of substantially all of the industrial or commercial operations in a covered establishment to a different location 100 miles or more away.
- To qualify as a termination, there must be a substantial cessation of industrial or commercial operations in a covered establishment.
If the threshold requirements are met, then the employer must give written notice of the mass layoff, relocation, or termination to the employees affected by the order, the Employment Development Department, the local workforce investment board, and the chief elected official of each city and county government where the event occurs.
Cal-WARN makes certain exceptions to the 60-day notice requirement, then no notice would be required:
- When the closing or layoff is the result of the completion of a particular project or undertaking of an employer subject to Wage Orders 11, 12 or 16, regulating the Motion Picture Industry, or Construction, Drilling, Logging and Mining Industries, and the employees were hired with the understanding that their employment was limited to the duration of that project or undertaking;
- When the employees are employed in seasonal employment and were hired with the understanding that their employment was seasonal and temporary;
- When the layoff, relocation, or termination is necessitated by a physical calamity or act of war;
- When the employer is actively seeking capital or business, that if obtained would enable the employer to avoid or postpone the relocation or termination, and the employer reasonably and in good faith believed giving the Cal-WARN notice would preclude the employer from obtaining the capital or business. Notably, this exception applies to relocations or terminations, but does not apply to mass layoffs.
Prior to the Executive Order, to avoid the 60-day notice obligation, employers with layoffs related to COVID-19 had to rely on the uncertain proposition that the pandemic is a "physical calamity." Now, regardless of the answer to that question, employers laying off or furloughing employees on or after March 4, 2020 for reasons related to the pandemic can avoid liability by providing the notice specified in the Executive Order.
Cal-WARN COVID-19 Executive Order Requirements
On March 17, 2020, Recognizing that the COVID-19 situation has caused many employers to close "rapidly without providing their employees the advance notice," Governor Newsom issued Executive Order N-31-20, temporarily suspending some sections of Cal-WARN (Labor Code §§ 1401(a), 1402, and 1403) for all covered employers who order a mass layoff, relocation or termination that is "caused by COVID-19-related business circumstances that were not reasonably foreseeable as of the time that notice would have been required."
The Executive Order is retroactive to March 4, 2020. The Order directs the Labor and Workforce Development Agency to issue guidance to the public by March 23, 2020.
Employers who seek to avail themselves of the Executive Order protections must:
- (i) Give "as much notice as is practicable" and provide a brief statement of the basis for reducing the notification period; and
- (ii) Provide notice to all affected employees, the California EDD, the local workforce investment board, and the chief elected official of each city and county government within which the termination, relocation, or layoff occurs; and
- (iii) For notices given after March 17, 2020, in addition to the other required elements, include the following statement: "If you have lost your job or been laid off temporarily, you may be eligible for Unemployment Insurance (UI). More information on UI and other resources available for workers is available at labor.ca.gov/coronavirus2019."
The Executive Order is only applicable to Cal-WARN. The independent requirements of the federal WARN Act are not changed by this Order and must be analyzed concurrently with Cal WARN when evaluating layoffs, furloughs, shutdowns, relocations, and other reductions in force.
Davis Wright Tremaine attorneys will continue to monitor changes to California law in response to the pandemic. California employers contemplating staffing reductions and other such responses should contact experienced employment counsel for guidance on the complex requirements of WARN and Cal-WARN, as well as other California laws.
The facts, laws, and regulations regarding COVID-19 are developing rapidly. Since the date of publication, there may be new or additional information not referenced in this advisory. Please consult with your legal counsel for guidance.
DWT will continue to provide up-to-date insights and virtual events regarding COVID-19 concerns. Our most recent insights, as well as information about recorded and upcoming virtual events, are available at www.dwt.com/COVID-19.