Laid-off techies invoke old law

In these tough times, unemployed workers are turning to the WARN Act, which requires companies to give employees 60 days notice before mass layoffs.

Margaret Kane
Margaret Kane Former Staff writer, CNET News
Margaret is a former news editor for CNET News, based in the Boston bureau.
4 min read
A relic of the recessions of the 1970s and 1980s may help the laid-off techies of today.

The Worker Adjustment and Retraining Notification Act, which requires companies to give employees 60 days notice before mass layoffs or a plant closing, was originally intended to help blue-collar workers deal with plant shutdowns. Now, laid-off tech workers are finding out that it can apply to them as well, and they're taking action.

The WARN Act could become an issue for the tech sector as an increasing number of companies shed workers, lawyers say. So far, workers have filed suits against several companies, including bankrupt grocery e-tailer Webvan and out-of-business information-technology services provider Inacom.

Lawyers for Webvan and Inacom did not return phone calls.

"There's a common misconception that protections of WARN extend only to blue-collar employees, when in fact the protections extend to all employees of companies with more than 100 people," said attorney Adam Levin, a partner at the Labor & Employment group at Mitchell Silberberg & Knupp, in Los Angeles. "There are a considerable number of high-tech companies (that have) given WARN notices."

For instance, so far this year in California, 16 companies have given notice, and roughly one-third of those are in the high-tech sector, according to the Web site for the state of California's Employment Development Department. Last year, companies filed about 400 notices, which include multiple filings by individual companies. Each state has its own list.

Companies that haven't given proper notice are being taken to task by those employees.

Probably more commonly known as the plant-closing act, the law was passed in 1988 and went into effect in 1989. It was originally intended to give factory workers some notice before companies shut down a plant, and to help local authorities prepare themselves for the strain the unemployment could cause to the local economy.

But the specifics of the law make it applicable to many high-tech companies.

It requires companies with more than 100 workers to give employees at least 60 days notice of a plant closing or mass layoffs. A plant closing is defined as the shutdown of a single site in which 50 or more employees lose their jobs. Mass layoffs occur when a company lets go 500 workers over 30 days, or 33 percent of the work force, if that means at least 50 people.

Violators of the act can be forced to pay damages and civil penalties. For former employees, that can mean back pay.

That's what former employees of at least two high-tech companies are hoping for. Former Webvan and Inacom employees have filed suits against their respective companies, which have both gone bankrupt.

Employees aren't the only ones taking an interest; last year the Connecticut attorney general filed suit on behalf of 106 employees of Walker Digital, an intellectual-property lab owned by Priceline.com founder Jay Walker.

The technology industry has seen its fair share of layoffs over the past year. And some have come without the sort of notice that would seem to be required under this act; it's not uncommon to hear of entire departments being told at 9 a.m. to have their desks cleaned out by lunch. So why haven't there been more complaints about violations?

"Before this past year when all the layoffs started happening, people weren't even paying attention to WARN. A lot of people weren't even aware it was an issue," said attorney Wendy Lazerson, a partner in the San Francisco office of Holland & Knight. "So some employees signed releases that gave waiver to all claims."

Exceptions to the rule
Now that the layoffs have picked up, more employees and companies know about the act. But unfortunately for the workers, the few exceptions specified in the act apply to many tech company layoffs.

The biggest factor for them is probably size. While start-ups have gone belly-up right and left, many are small and therefore don't meet the employment requirements of the act.

The other exceptions go to the heart of the high-tech world. The act excuses companies for which the mass layoffs are an "unforeseen business event." In a typical case, a key customer suddenly announces it is canceling a contract. With no advance notice from that customer, the company can't be expected to give employees advance notice.

"Webvan took the position that it was unforeseen and could not have been anticipated," Lazerson said. "The employees are saying, 'Hey you must have seen this coming, just look around.'"

Another exception is designed to help a company possibly prevent the layoffs in the first place. If a company is actively searching for funding, it's not required to give notice until absolutely necessary.

"Giving the notice can be a self-fulfilling prophecy, particularly in high-tech. Suppliers get concerned, you may lose employees who you'd hope to keep," said Luis Salazar, a bankruptcy attorney with Greenberg Traurig in Miami. Companies are given more time "if they think they can postpone the layoff or put it off altogether if they can get new money," he said.

But some companies simply plead ignorance.

"Companies that tend to violate are usually companies that are recent start-ups or are owned by one or two entrepreneurs who have a company large enough to qualify but which may not be very large," said Mark Fancher, senior staff attorney at the Maurice and Jane Sugar Law Center for Economic and Social Justice, which is representing the Inacom employees. The Sugar Law Center is part of the National Lawyer's Guild project that focuses almost exclusively on WARN Act cases.

"A lot of companies that don't comply don't do it because they may not have ever heard of it," Fancher said. "Or they read through it and presume because of ignorance or arrogance that they won't have to comply or will get away with it."