Check with counsel before you act.

The unexpected and, in many ways, unforeseeable challenges facing employers in responding to COVID-19 are likely to become especially significant to employers in California who are contemplating short-term or long-term layoffs. It is worth reminding employers of a three-year-old decision by the California Court of Appeal holding that temporary layoffs may be covered under the state’s Worker Adjustment Retraining and Notification Act.

Back in 2017, a California appellate court ruled that Cal-WARN, which requires 60 days' notice of “mass layoffs,” applies to temporary layoffs and furloughs. The case involved a shipbuilding company that laid off about 90 employees for three to five weeks during a decline in work. The employees were notified on the day that the layoff began. Their union sued for violation of Cal-WARN. The trial court ruled in favor of the union, and the appellate court affirmed.

The appellate court concluded that, unlike the federal WARN Act -- which defines a “mass layoff” as one lasting more than six months -- California’s WARN Act does not include a requirement that a layoff be more than six months. Any layoff involving 50 or more employees in a 30-day period requires 60 days' notice under California law, according to the court. The court also observed that, unlike federal WARN, Cal-WARN does not have an “unforeseen business circumstances” exception to the notice requirement. Thus, temporary layoffs caused by unanticipated downturns in business, even if caused by COVID-19, may be covered under Cal-WARN if 50 or more employees are affected.

The impact of the 2017 case in the COVID-10 scenario means that California employers are exposed to WARN Act liability under state law for layoffs involving 50 or more employees regardless of the duration. If 60 days' notice is not provided, the employer can be sued for pay and benefits lost by each affected employee up to a maximum of 60 days. For example, if employees were given no advance notice of a layoff lasting 30 days, they each could recover pay and benefits for 30 days.

Is COVID-19 a "physical calamity"?

As mentioned previously, California’s WARN Act does not have an “unforeseen business circumstances” exception to the notice requirement.

However, the California statute does provide that “an employer is not required to provide notice if a mass layoff, relocation, or termination is necessitated by a physical calamity or act of war." Neither “physical calamity” nor “act of war” has been interpreted under California law. It is also not clear that a California court would consider the COVID-19 pandemic to be a “similar effect of nature” to “floods, earthquakes, droughts, storms, tidal waves or tsunamis...,” as referenced in the regulations about natural disasters under federal WARN.

An employer may not have the resources or time to provide a WARN notice in this uncertain environment. It may wish to take a calculated risk that the “physical calamity” exception might apply, or that the state legislature will provide relief.

However, employers considering layoffs in California should consult with counsel to

• Decide whether to provide all or some of the required Cal-WARN notice for temporary layoffs of 50 or more employees, or to provide pay and benefits eligibility for as long as possible up to 60 days.
• Ensure compliance with the WARN notice requirements themselves (notice must be given individually to each employee, their union if any, and various state and local government agencies).