Effective January 1, 2003, California employers contemplating a reduction in force must not only comply with the federal Worker Adjustment Retraining Act (WARN) [29 U.S.C. § 2101 et al.], but also with the new requirements of AB 2957, which will be set forth in California Labor Code sections 1400 through 1408. In many ways the California law is similar to WARN. The key questions that arise as a result of this bill and the key differences between California state requirements and WARN are addressed in this ASAP.

What businesses are covered by this law?

Answer: Any "covered establishment" that plans to implement a mass layoff, relocation, or termination, as defined below. The term "covered establishment" is defined as "any industrial or commercial facility or part thereof that employs, or has employed within the preceding 12 months, 75 or more persons."

There are exceptions to this requirement. It does not apply to a closing or layoff that is a "result of the completion of a particular project or undertaking of an employer" that is covered by Wage Orders 11 (Broadcasting), 12 (Motion Picture Industry), or 16 (Certain On-Site Construction). It also does not apply to seasonal employees who were hired with the understanding that their work would be seasonal in nature. These exceptions are similar to those under WARN. However, unlike WARN, the California statute does not address whether notice is required in the event of a mass layoff, relocation, or termination that results from an economic strike or lockout that is not intended to evade the requirements of the law. WARN specifically provides that such an exception exists.

What is a "mass layoff," a "relocation," or "termination" under this law?

Answer: A "mass layoff" is defined as a "layoff (which is a separation from a position for lack of funds or lack of work) during any 30-day period of 50 or more employees at a covered establishment." A "relocation" is defined as the "removal of all or substantially all of the industrial or commercial operations in a covered establishment to a different location 100 miles or more away." A "termination" is defined as a "cessation or substantial cessation of industrial or commercial operations in a covered establishment."

This is one of the most significant differences between WARN and the new California law. Under WARN the layoff of 50 employees would not trigger a notice requirement if it did not constitute at least 33 percent of the workers at the work site. Likewise, under the California law a "relocation" and "termination" is not tied to a specific number of affected workers. Such an action must affect at least 50 employees to trigger the requirements of WARN. Rather, the California notice requirements are triggered if either of these events affect all, or "substantially all," which is not defined, of the employees at the covered establishment. As a result, there will be situations where California's notice requirements apply, but WARN is not implicated.

When must notice be given?

Answer: 60 days before the mass layoff, relocation, or termination. The time to provide the notice is the same under WARN and the new California law.

What notice must be given?

Answer: The notice must include all of the information required by WARN. A company covered by both laws can provide the same notice to affected employees and comply with state and federal law.

Who receives notice?

Answer: California law requires giving notice to more entities. Under WARN notice must be given to the affected employees, or if they are covered by a collective bargaining agreement, to the affected employees' union representative, the state dislocated workers unit (the Employment Development Department in California), and the chief elected officer of the city or county where the action takes place, depending on which public entity receives higher tax payments from the employer. The California law specifically provides that the notice shall be given to the affected employee, without any mention of his/her union representative. In addition it requires that notice be given to the local workforce investment board and requires that notice be given to the chief elected officer of both the city and county government where the mass layoff, relocation, or termination occurs.

Are there exceptions to the notice requirements?

Answer: Yes. The notice requirements do not apply if the mass layoff, relocation, or termination is the result of a "physical calamity or act of war." These exceptions are very similar to those that exist under WARN.

In situations involving a "relocation" or "termination" but not a "mass layoff," the notice requirements do not apply, or may be reduced, if the Employment Development Department (EDD) determines that all of the following conditions exist: (1) at the time notice would have been required, the company was actively seeking capital or business, (2) had the capital or business been obtained, the company could have avoided or postponed the relocation or termination, and (3) employer reasonably and in good faith believed that giving the notice required would have precluded it from obtaining the needed capital or business. The EDD may not determine that the employer was actively seeking capital or business unless the employer provides the EDD with both of the following: "(1) a written record consisting of all documents relevant to the determination of whether the employer was actively seeking capital or business, as specified by the department, and (2) an affidavit verifying the contents of the documents contained in the record."

This exception is different from WARN due to the documentation requirements and because the California statute does not include an "unforeseeable business circumstance" exception. Under WARN notice times may be reduced if the plant closing or mass layoff is caused by business circumstances that were not reasonably foreseeable 60 days prior to the mass layoff or plant closing.

What are the penalties for a violation of the state law?

Answer: If an employer should have given notice, but failed to do so, it is subject to a civil penalty of up to $500 for each day that it is in violation of the law. The penalty can be avoided provided an employer pays certain amounts to its employees, which is addressed immediately below, within three weeks of the mass layoff, relocation, or termination. This is virtually identical to the requirements of WARN.

What damages can an aggrieved employee recover if an employer fails to provide the required notice?

Answer: An affected employee who did not receive proper notice can recover damages for the period of time of the employer's violation, up to a maximum of 60 days. The damages that can be recovered include back pay at the average regular rate of compensation received by the employee during the last three years of his or her employment, or the employee's final rate of compensation, whichever is higher; and the value of the cost of any benefits to which the employee would have been entitled had his or her employment not been lost, including the cost of any medical expenses incurred by the employee that would have been covered under an employee benefit plan. This is very similar to the damages available under WARN.

The California statute provides that an employer can reduce the amount of damages owed by the amount of any wages that it pays to the employee during the period of the violation, except vacation moneys accrued prior to the period of the employer's violation; or by any voluntary and unconditional payments made by the employer to the employee that were not required to satisfy any legal obligation; or any payments by the employer to a third party or trustee, such as premiums for health benefits or payments to a defined contribution pension plan, on behalf of and attributable to the employee for the period of the violation. The legislation does not address whether the amount of damages can be reduced if the employee(s) that did not receive timely notice earns wages and benefits elsewhere during the 60-day period. We expect that plaintiff's attorneys will take the position that employers who violate the law are not entitled to reduce the amount owed by an employee's mitigation efforts. The answer to this issue will ultimately be decided by a court.

Conclusion

While the new California law tracks WARN in many respects, there are some unique requirements under this new law that will require employers to provide notice more often and to more entities. For this reason any employer that is contemplating a mass layoff, relocation, or plant closing should carefully review the requirements of the California statute and WARN and may wish to seek the guidance of legal counsel to ensure that they fully comply with these laws, and to ensure that they do not incur substantial penalties and damages.

Jody A. Landry is a shareholder in Littler Mendelson's San Diego office. If you would like further information, please contact your Littler attorney at 1.888.Littler, info@littler.com, or Ms. Landry at JLandry@littler.com.