WARN Act Risks Loom for Employers Re-Hiring or Un-Furloughing Employees to Receive Paycheck Protection Program Funding

Enacted as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, the federal Paycheck Protection Program (PPP) provides forgivable loans to businesses with 500 or fewer employees that have been adversely affected by the coronavirus pandemic. These loans can be used during an eight-week period, starting with the first disbursement of funds to the borrower, for payroll costs, rent, utilities, and mortgage interest. If used properly during this eight-week period, the entire loan (principal and interest) can be forgiven. At least 75% of the loan must be used for payroll costs.

Employers accepting funding under PPP and bringing employees back onto the active payroll with PPP loan funds, however, are confronting challenging Worker Adjustment and Retraining Notification (WARN) Act compliance issues. For example, if an employer will be unable to reopen because of continuing financial conditions or on-going government-ordered shutdowns after spending its eight weeks of federal funding, must it give WARN-compliant notice to employees at the time of re-hire or before? The answer may be yes.

Small businesses that are covered by the federal WARN Act (typically those with 100 or more full-time employees, as defined by WARN) must provide advance notice to employees for covered “employment losses.” Layoffs or furloughs at the end of a PPP loan may qualify under federal WARN if covered employers re-lay off or re-furlough as few as 50 countable employees at a single site of employment. In such scenarios, employers generally must give 60 days’ advance notice of the layoff. Lower employer and layoff thresholds and longer notice periods apply in many states with mini-WARN Acts.  For example, in New York, an employer with 50 countable employees can trigger NY WARN with as few as 25 countable employment losses at a single site of employment.

When many of these employers laid off or furloughed employees in March or early April in response to the pandemic, they likely did so with fewer than 60 days’ advance notice, either anticipating that they would recall employees within six months and therefore would have no WARN obligation in most states, or relying on the unforeseeable business circumstances (UBC) exception that exists in the federal WARN Act and many, but not all, of the state mini-WARN Acts. That UBC exception allows employers to provide WARN notice with less than the required 60 days’ advance notice (longer in some states) for “plant closings” and “mass layoffs” caused by business circumstances that were not reasonably foreseeable at the time full notice would have been due. It does not excuse notice, but instead allows employers to give notice of a plant closing or mass layoff as soon as is practicable.

But potential plaintiffs might claim that the UBC exception is not available to an employer at the end of the eight-week PPP loan period, because the employer could or should know now that they will not be able to retain most, if not all, of the employees they placed back on payroll with PPP loans when the government assistance runs out. In other words, they might argue that circumstances underlying the potential future second layoff or furlough of employees after PPP funding runs out is currently foreseeable. If employers fail to provide WARN-compliant notices in advance of the post-PPP layoff, they could be liable for substantial sums. Plaintiffs might also argue that, even if an employer wants to rely on the UBC exception, notice is required as soon as practicable before the layoff, and that time would be at or before the time of recall.

This dilemma is particularly acute in New York, Maine, and the Virgin Islands where employers must give 90 days’ advance notice of a WARN-triggering event. Thus, an employer in these locations that accepts PPP funding and re-hires employees using that funding could theoretically have to give notice of a layoff 30 days before it even re-hires or un-furloughs employees for the eight-week PPP period, and could be liable for at least 30 days’ pay and benefits at the end of the PPP period for having failed to provide such notice.  

Recognizing this dilemma, late in the evening on April 17, 2020, New York Governor Andrew Cuomo issued Executive Order No. 202.19, modifying the NY WARN Act from April 17 through May 17, 2020, to allow businesses that receive PPP funding to provide WARN notice “as soon as practicable but not necessarily within ninety days,” if a business receiving the PPP funding provided the WARN notice “required” when it “initially laid off employees.” In essence, the governor created a UBC-like exception for employers that will receive PPP funding but cannot give the full 90-days’ notice under New York law. The executive order does not relieve employers of the obligation to provide WARN notice, but potentially shortens the notice period.

We understand that efforts may be underway on the federal level and in other states to address issues that arise when employers accept PPP funding and try to comply with federal and/or state WARN Acts. Until then, there may be creative solutions to comply with WARN notice obligations when re-furloughing or re-laying off employees after exhausting PPP funds. These solutions are fact and jurisdictionally specific, and employers should consult counsel about their particular situation and the potential solutions.

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.