Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
Maryland recently enacted amendments to its Economic Stabilization Act to require that an employer implementing a “reduction in operations” must provide 60 days’ advance notice to employees and others, and also provide continuation of health, pension, severance and/or other benefits to affected employees on terms yet to be developed by the state secretary of labor. These significant obligations are triggered by the closure of all or a portion of operations affecting as few as 15 employees, as well as by relocations of operations. The change was enacted on May 7, 2020, as a result of Governor Hogan’s decision not to veto legislation passed in March. The new law will be effective on October 1, 2020.
The Terms of the Amendment
The law replaces prior voluntary guidelines, and implements three critical changes: (1) mandatory 60 days’ written notice, (2) mandatory continuation of benefits, and (3) orders of compliance and fines for violations.
These now-mandatory obligations apply to any person or entity that employs at least 50 employees and operates an industrial, commercial, or business enterprise in Maryland. The law does not specify whether employees outside of Maryland are counted toward this employer coverage test.
Obligations under the law are triggered by a “reduction in operations,” which is considerably broader than the triggering events under the federal Worker Adjustment and Retraining Notification (WARN) Act or any other state equivalent. A Maryland “reduction in operations” includes (1) a relocation of part of an employer’s operations, and (2) the shutdown of a workplace, or portion of operations, that reduces the number of employees by at least 25% or 15 employees, whichever is greater, over any three-month period.1 With respect to the relocation trigger, the law does not specify whether 25% or 15 employees must have their employment terminated, or whether the relocation must involve a significant distance.
- Mandatory 60 Days’ Notice
Employers are obligated to provide 60 days’ written notice of a reduction in operations (RIO) to the following persons and entities:
- All employees at the workplace that are subject to the RIO;2
- Each exclusive representative or bargaining agency [sic] that represents employees at the workplace that is subject to the RIO;
- The Division of Workforce Development’s dislocated worker unit; and
- All elected officials in the jurisdiction where the workplace that is subject to the RIO is located.
Whether the law requires notice to all employees at the workplace, or only those the employer expects to lay off, is not clearly addressed.
- Continuation of Benefits
The state secretary of labor is directed to develop regulations that shall include the continuation of benefits, such as health, severance, and pension, that an employer facing a reduction in operations should provide to employees whose employment will be terminated.
- Orders and Fines
The amendment empowers the state secretary of labor to issue both orders compelling compliance and fines for violations of the notice requirement. Where a violation is found, the new law requires that the secretary issue an order compelling compliance, and gives the secretary discretion to assess a civil penalty up to $10,000 per day (up to a potential total of $600,000).3 Factors taken into consideration when determining the penalty are (1) the gravity of the violation, (2) the size of the employer’s business, (3) the employer’s good faith, and (4) the employer’s history of violations under the law. In contrast to this potential $600,000 penalty exposure, federal WARN and most other state WARNs carry a maximum monetary penalty to governmental entities of $30,000. The Maryland law does not expressly address whether it authorizes private rights of action, or instead requires that all claims must be presented to the state secretary of labor.
The Amendment Appears to Lack Important Protections Present in Federal WARN and Other State WARNs
The amendment fails to expressly state important exceptions and clarifying provisions that are a part of federal WARN and most other state WARN statutes. Those differences include that the Maryland law:
- Does not provide an express exception or allow shortened notice for natural disasters such as the COVID-19 pandemic, or unforeseeable business circumstances such as an unexpected customer cancellation or even a government shutdown or shelter-at-home order.
- Does not provide an express exception or allow shortened notice for faltering businesses trying to raise capital but unable to disclose that they might have to close.
- Does not expressly specify that employers have the flexibility to implement short-term furloughs without incurring liability.
- Does not provide an express exception for a sale of a business, when employees really do not lose employment but move from the selling employer to the buying employer.
- The law states that WARN notice shall be given to all elected officials in the jurisdiction where the workplace is located. “Jurisdiction” is not defined. Even assuming this will be interpreted, in parallel to federal WARN, as referring to the county and, if applicable, the city, town, or village, the law still seems to require that the employer locate and notify every elected official of the relevant municipality. The City of Baltimore, for example, has 18 elected officials.
- The law copies erroneously from federal WARN in its definition of employees who are not counted for WARN purposes, by stating their length of employment is judged in “the immediately preceding 12 months,” rather than during “the 12 months preceding the date on which notice is required.” This raises the possibility that under the Maryland law an employee may be credited with service through the employee’s termination date, rather than through the notice date 60 days earlier as under federal WARN and in other states. This subtle difference has the potential to create surprise and unanticipated liability for employers.
Employers should carefully review this new law with experienced counsel before implementing reductions in force or relocations of jobs within Maryland on or after October 1, 2020.
1 To calculate whether this minimum is exceeded, the statute does not count persons who work on average less than 20 hours per week or have worked for the employer for less than 6 months in the immediately preceding 12 months.
2 If notice is due, the statute requires notice to employees regardless of hours of work or tenure.
3 No penalty may be assessed before notice and hearing is provided to the employer.