With some exceptions, the Federal WARN Act and its state counterparts require covered employers to provide employees with advance notice of any mass layoffs or plant closings. Although providing at least 60 days advance notice of such events as mandated by WARN is always preferable, in the business world it is not always practicable or even possible for employers to comply. Unless an employer qualifies for one of the few exceptions under WARN (e.g. "unforeseeable circumstances" or "faltering business" exceptions), the only recourse if employees are laid off or terminated with fewer than 60 days notice may be to pay them their wages and benefits for the full 60 day period even if they are not working. Of course, this approach is costly. However, the U.S. Court of Appeals for the Seventh Circuit in Chicago recently discussed one potential method of avoiding or reducing liability for employers who simply cannot provide the requisite 60 days notice - employee severance plans!
In Ellis v. DHL Express Inc. (USA), the court found that employees who voluntarily agree to separate from service in exchange for a minimum 60 days of severance pay are not entitled to WARN notice under either Illinois state or federal law. The key word here is "voluntary" - WARN does not benefit employees who voluntarily separate from service, so these employees are beyond the scope of WARN's protection. With this in mind, employers with existing employee severance plans may be able to use them to offset some or all of the costs associated with WARN notice requirements.
To successfully utilize this approach, employers should be aware of two potential issues. First, while some courts hold that voluntarily providing severance pay either eliminates or reduces WARN notice liability, others hold that severance pay offsets only backpay liability. Second, courts interpret "voluntariness" in this context more narrowly and consider a wide range of factors when determining whether it existed. For example, severance agreements required to be signed within a short period of time and without information about the consequences likely are not voluntary and do not affect WARN notice requirements. Therefore, some plan modifications may be necessary to take advantage of this opportunity.
Employers hoping to eliminate or reduce WARN notice liability through existing severance plans should consider updating their plans using carefully and clearly worded language and conditional waivers. Questions? Please contact WS Attorney Peter E. Hansen at (262) 560-9696, or email pehansen@wesselsherman.com
