California Relaxes Rules for Mass Layoffs in Wake of COVID-19 Crisis

Oakland, CA – On March 17, 2020, Governor Newsom issued Executive Order N-31-2020, temporarily suspending some of the notice requirements employers must follow prior to planned workforce reductions. Ordinarily, the California Worker Adjustment and Retraining Notification (WARN) Act, which applies to commercial or industrial facilities employing 75 or more employees, requires an employer to provide 60 days’ notice of mass layoffs. A “mass layoff” is defined as one where 50 or more employees are laid off during a 30-day period. Failure to comply with the WARN Act’s strict requirements often results in class action lawsuits seeking back pay, statutory penalties, and attorneys’ fees. Recognizing that some employers have been faced with the difficult decision to abruptly cease operations due to the COVID-19 crisis, Governor Newsom’s Executive Order temporarily waives the usual 60-day notice requirement upon a showing of certain conditions.

An employer seeking to waive the WARN Act’s notice requirement due to the COVID-19 crisis and related business interruption must establish that the layoff was caused by COVID-19-related “business circumstances that were not reasonably foreseeable at the time that notice would have been required.” Importantly, the Order does not dispose of the notice requirement entirely. Rather than the 60-day notice requirement, an employer must provide written notice to the affected employees and certain administrative entities “as soon as practicable.” The notice must include a brief statement as to why the 60-day notification period could not be met, including a statement that the layoff is due to “business circumstances that were not reasonably foreseeable as of the time of the notice would have been required.” Employers must also provide the affected employees with information regarding the availability of unemployment benefits and direct the employees to a link with further information. The temporary suspension of the WARN Act will remain in effect for the period that begins March 4, 2020, through the end of the declared state of emergency. Because Governor Newsom did not issue his Executive Order until March 17, 2020, employers that reduced their workforce prior to that date may not take advantage of the conditional suspension.

On March 23, 2020, the California Labor & Workforce Development Agency (“LWDA”) provided further guidance on WARN Act compliance during the COVID-19 crisis. The LWDA published a list of Frequently Asked Questions in conjunction with the Employment Development Department (“EDD”) regarding Governor Newsom’s March 17 Executive Order. Notably, the EDD and LWDA clarified that the Executive Order does not eliminate the WARN Act’s notice requirement – rather, it only reduces the notice period. An employer is still required to give “as much notice as is practicable” under the circumstances. Moreover, the LWDA seems to suggest (though does not explicitly state) that the COVID-19 crisis may not qualify as a “physical calamity” for purposes of the exemption set forth in Labor Code section 1401, subd. (c), which disposes of the notice requirement altogether if an employer can provide that the COVID-19 crisis is a “physical calamity.” There are no precedential cases interpreting the term “physical calamity” and the agencies have not provided further guidance on what would constitute sufficient proof to apply the physical calamity exemption. The key takeaway from the new guidance issued by the LWDA is that any notice an employer can provide is preferable to no notice at all. Accordingly, any California employer considering a mass layoff or staffing reduction – even if the planned changes are only temporary — should carefully review the state’s guidelines and consider all available options before deciding on a course of action. McDowell Hetherington attorneys will be updating this information as further guidance becomes available. For more information or to discuss concerns specific to your business or geographic region, contact McDowell Hetherington attorneys Jodi Swick, Allison Fernandez, or Colleen Flaherty.