COVID-19/Coronavirus, Employment Law

COVID-19 FAQ: Reduction in Force/WARN

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Last updated March 16, 2020.

This general guidance is based on U.S. federal employment law and the current medical assessment of COVID-19. State and local laws may apply, and medical assessments may change, resulting in different conclusions.

Reduction in Force/WARN

  • Answer 1. Maybe. Assuming the company is an employer (as defined by the federal Worker Adjustment and Retraining Notification (WARN) Act, a layoff exceeding six months is an “employment loss” and requires notice if the employment loss constitutes a “mass layoff” or “plant closing” (also as defined by the federal WARN Act). Additionally, a reduction in hours of work of an individual employee of more than 50 percent during each month of any 6-month period could be an employment loss, triggering notice under the WARN Act if the employment loss results in a mass layoff (as defined by the WARN Act).

  • A2. Maybe, depending on the specific circumstances. There are three general exceptions when notice is not required, but otherwise would be: (1) “Faltering Company” (which applies to plant closings only); (2) “Unforeseeable Business Circumstances” (which applies to plant closings and mass layoffs), and (3) “Natural Disaster” (which applies to plant closings and mass layoffs). Each exception is extremely fact dependent. Under the Unforeseeable Business Circumstances exception, the inquiry is whether an event or business circumstance precipitating the employment loss is “reasonably foreseeable” at the time notice should have been given. If the event/circumstance is caused by a sudden, dramatic, and unexpected action or condition outside the employer’s control, that may satisfy the “unforeseeable” definition. Notably, even if an employer qualifies under any of these exceptions, it still should give as much notice as is practicable, including a brief statement of its basis for reducing the notification period.

  • A3. No. Employers also should consider state mini-WARN acts, as well as state, county, and local laws and ordinances that may require notices for certain workforce reductions or changes.

  • A4. Any employee who loses eligibility for health coverage due to a termination in employment or reduction in hours should be offered coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA), generally for up to 18 months. This obligation generally applies to employers with 20 or more employees and applies to medical, dental, vision, and prescription drug coverage, as well as to health reimbursement arrangements, health flexible spending accounts, wellness plans, employee assistance programs, and on-site/off-site clinics that are governed by the Employee Retirement Income Security Act (ERISA).

  • A5. If an employer must close its business and ceases to provide a group health plan to any employees in the company or any affiliated businesses, then COBRA coverage may end earlier than the mandatory minimum 18-month period. In that case, employees may be left to pursue coverage options through private individual policies, a spouse’s employer, or public programs, such as the Affordable Care Act exchanges, Medicare, or Medicaid.

  • A6. Yes, an employer may choose to subsidize health coverage, either by subsidizing the cost of COBRA coverage or by relaxing eligibility requirements so that employees who may no longer meet the minimum hours requirement can continue to be treated as eligible for coverage. If an employer chooses to do so, it should carefully consider the amendments needed to its plan, and coordinate in advance with any insurance companies, particularly any stop loss or reinsurance providers, to ensure continuity of coverage.

  • A7. Usually not. It depends upon the presence of and, if applicable, terms of the employer’s severance plan. If an employer has a written severance plan, the employer should review its terms prior to conducting the RIF and consider the procedure required to amend the plan if it intends to make any changes before the RIF. When an employer considers establishing a new severance plan in conjunction with a RIF, it should consider whether ERISA will apply to the plan. If so, the plan will be subject to a number of requirements relating to participant notices, claims procedures, and the application of ERISA rights to the benefits.

  • A8. In some cases, a RIF can cause a partial termination of a retirement plan. This can occur when there is a significant reduction in participation in the plan due to a company-initiated event. The general rule of thumb is that a reduction of 20 percent or more in plan participation triggers a partial plan termination, requiring full vesting of the affected participants.

 

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