Lately it seems like you can’t go a day without seeing news of another round of layoffs affecting workers and companies across the U.S. As companies seek to cut costs, however, they should be wary of the legal risks that come with implementing layoffs hastily or without regard for state and federal employment laws. Running afoul of employment laws can result in costly class action lawsuits. Here are five common class action risks employers face following a layoff:

Federal WARN Act Violations

The Worker Adjustment and Retraining Notification Act (WARN) is a federal law that requires employers to provide employees at least 60 days of advance notice before conducting a mass layoff or plant closing. Generally, an employer is covered under WARN if it employs at least 100 full-time employees.

WARN violations are an easy target for class action litigation because it is relatively easy to determine whether a violation has occurred, and because any violations affect many employees. An employer who violates WARN’s notice requirements is liable to each qualifying employee for back pay and cost of benefits, and it can also be liable for civil penalties and attorneys’ fees.

This post will not address the many technical nuances of WARN. But employers who decide to proceed with a layoff should make sure they have carefully determined whether the layoff triggers WARN and if so, whether they have complied with all its requirements.

A “mass layoff” under WARN occurs when, during any 30-day period, there is a reduction in force that results in an employment loss at a single site of employment for either:

• 50 employees (excluding part-time employees) who comprise at least 33% of active employees; or
• At least 500 employees, excluding part-time employees.

Although the general rule looks at a 30-day period, WARN also has various aggregation rules in place to prevent employers from using repeated small layoffs to avoid WARN’s notice requirements. Consequently, employers need to look back 90 days and forward 90 days to determine whether the aggregated employment losses occurring within any 90-day period trigger WARN.

Employers should also conduct a careful WARN analysis before laying off remote workers. Department of Labor regulations suggest that the “single site of employment” for remote workers is the corporate headquarters to which they report. As a result, companies that lay off remote workers may still have to comply with WARN requirements even though the affected employees are scattered across the country.

State and City WARN Act Violations

In addition to complying with federal WARN requirements, employers should also determine whether they need to comply with similar requirements under various state and municipal laws. These laws have different (and generally more stringent) thresholds than the federal WARN for requiring mandatory notice to employees, with some states requiring notice for layoffs of as few as 25 employees.

Disparate Impact Discrimination

Before initiating a layoff, it is important to ensure that the layoff does not disproportionately affect employees based on race, gender, disability, age, or any other protected characteristic. Otherwise, the layoff may result in a class action discrimination lawsuit.

Employers should carefully determine and document their layoff selection criteria. However, even a seemingly neutral justification for selecting employees may still create a discriminatory impact on a particular group. For example, if an employer targets employees who earn higher salaries, the layoff may result in a disproportionate number of older employees being fired. To prevent disproportionately affecting protected groups, employers should conduct a disparate impact analysis of the proposed group of employees being considered for termination.

Noncompliant Severance Agreements

To minimize risks of liability from a layoff, many employers provide employees with a severance package that includes a release of legal claims in exchange for a severance payment. But the release can only protect from liability if it complies with applicable federal and state laws governing employment, benefits, and tax. If the release is not compliant, it can result in (you guessed it), a class action from affected employees.

If any of the terminated employees are over 40, their release needs to comply with the Older Worker Benefit Protection Act (OWBPA). OWBPA requires that certain language be included in the release and, during a reduction in force, requires that employers give employees 45 days to consider the release and 7 days to revoke the release after signing. OWBPA also requires that employers disclose certain information to employees about the group of individuals included in the layoff.

Retaliation

Although retaliation is typically a more individualized employment issue, if groups or categories of employees engaging in protected activity are targeted for layoff, it can lead to class action litigation or a National Labor Relations Board complaint. For that reason, employers should be careful not to take action that could be construed as retaliation against employees who have, for example, supported or engaged in union activities, complained about discrimination or health and safety in the workplace, engaged in whistleblowing, or recently taken or requested medical or military leave. Employers conducting a layoff should review the list of employees being terminated to determine whether any of them have engaged in protected activity. Employers should also carefully document the decision-making process so that the selection criteria for affected individuals is fully vetted.

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