Expand Layoff Notice Protections

Summary of provisions

Section 1 amends the definitions section to:

(a) define the term "affiliate" (b) change the definition of "employment loss" to include workers who resign in anticipation of a facility closing, relocation or mass layoff; (c) change the definition of "employer" to include affiliates of the employer; (d) change the definition of "mass layoff" to include employees not physically stationed at the facility and reduce the employee threshold test to twenty or more employees-; (e) strike the definition of "part-time employee"; and (f) change the definition of "plant closing" to re-title it as "facil- ity closing", to reduce the employee threshold test to twenty or more employees, and to eliminate the part-time employee exception.

Section 2 conforms certain provisions to recognize the change from the definition of "plant closing" to "facility closing."

Section 3 eliminates the faltering business and unforeseeability exceptions to the notice requirements and associated liability and

penalties for violations, and adds a new exception for declared states of emergency.

Section 4 amends section 860-d to require that an employer specify an expected date of recall at the outset of the layoff in order to rely on the unforeseeability exception with respect to mass layoffs of less than six months which are extended to more than six months.

Section 5 conforms certain provisions to recognize the change from the definition of "plant closing" to "facility closing."

Section 6:

(a) removes the sixty-day cap on the number of days of back pay for which an employer is liable when there is a WARN Act violation; (b) excludes from the list of payments which reduce an employer's back pay liability any payments from an employer to a third party or trustee (such as health benefits or pension benefits); (c) strikes current paragraph 6 of section 860-g of the labor law, which allows the commissioner of the Department of Labor to reduce an employer's back pay liability to its workers upon application by the employer to prove that the violation was in good faith and that the employer had reasonable grounds for believing that its actions or omis- sions did not constitute a violation; and (d) provides that the attorney general may enforce provisions of the WARN Act that establish an employer's liability to employees when there is a WARN Act violation.

Section 7 sets the effective date.

Justification

The WARN Act is a fundamental workers' rights law which recognizes the dramatic consequences of mass layoffs for workers' livelihoods. By requiring that significant prior notice be given to workers of facility closings and mass layoffs, instituting rights to back pay in such situ- ations, and setting penalties for violations, workers are given some measure of protection when businesses close or implement major job cuts. Notwithstanding these rights, many mass layoffs nonetheless result in violations for which employees are not properly compensated.

Unfortunately, current law allows parties with financial interests in a business to use corporate shields or other sophisticated tactics to avoid some of the obligations of the WARN Act that fall on the employer, even if those financial actors effectively exercise control over the business. Not infrequently, control of the employer in these situations is in the hands of one or more entities controlled by private equity firms, banks, or other financial interests who are not in danger of failing to pay their medical bills because they have lost their sole source of income. Such investors may, in fact, stand to gain financially as a result of job cuts. These types of business strategies have been well-documented in examinations of the private equity industry.

A series of high profile cases in recent years has highlighted the financialization of companies by private equity firms and other strate- gic investors in order to extract investor payouts from businesses, often to the detriment of the businesses themselves. Such behavior may involve significant reductions in spending on personnel, the conse- quences of which are disproportionately borne by the non-management workers. Some of the most recent high-profile examples of major layoff situations resulting from private equity activity include vast layoffs by Toys "R" Us and Sears in 2018, and Shopko and Payless Shoes in 2019. Specific examples in New York include layoffs resulting from the closure of Tops Friendly Markets stores in 2018 and the closing of the Doral Arrowwood Resort in 2020.

This last example is emblematic of the shortcomings of New York's WARN Act. The Doral Arrowwood, located in the Village of Rye Brook, informed its approximately 275 employees on Christmas Eve of 2019 that it would be shutting down on January 12, 2020, just 19 days later. The New York State WARN Act requires 90 days' notice in such situations. These employees, many of whom worked for the hotel for decades, were faced with the prospect of being unemployed in short order, putting most of them at significant personal financial risk. Although they were due back pay, the complicated nature of the legal proceedings regarding the ownership of the hotel, and the loopholes and exceptions present in the WARN Act, allowed numerous opportunities for the lenders and other financial investors to challenge workers' WARN Act rights. The hotel had been subject to the recent entrance of a new lender who asserted vari- ously that the workers should not receive back pay when the remaining assets of the company were distributed to the various claimants due to certain WARN Act loopholes, or in the alternate, that other financial investors were responsible. While the complicated ownership and lending structure was being sorted out in a foreclosure proceeding, the employ- ees were forced to the sidelines, uncertain if they would receive anything.

There are both federal and state WARN Act statutes. The current New York WARN Act in some instances goes beyond what the federal WARN Act provides. But it needs to go much further. The economic reverberations ensuing upon the onset of the COVID-19 pandemic and the resulting mass unemployment only underscore the fragility of many workers' financial situations and the need for augmented protections. Furthermore, private equity firms have been identified as actively looking for companies which are in financial distress due to the COVID-19 pandemic. Given this anticipated surge in private equity deals and evidence of past wrongs done by strategic investors, the state has a heightened duty to protect against further economic loss to workers in these difficult times.

At the same time, the sudden economic effects of the COVID-19 emergency on businesses are akin to the consequences of a severe natural disaster, but currently there is no clear exception in the case of layoffs direct- ly caused by a pandemic. This bill makes a number of commonsense chang- es to the New York State WARN Act to renew this state's commitment to protecting workers in situations involving major employment losses. Among the most notable of these changes are the following:

1. ELIMINATE DEPARTMENT OF LABOR DISCRETION TO REDUCE EMPLOYER BACK PAY LIABILITY.ct.

Current law allows an employer the opportunity to prove to the Depart- ment of Labor that a WARN Act violation was in good faith and that the employer had reasonable grounds for believing that its actions or omis- sions did not constitute a violation. If the Department of Labor is convinced that such an argument has merit, it may reduce the liability of the employer to its workers. This provision is contrary to the goal of protecting workers embodied by the WARN Act and should be removed. Whether the violation was in good faith or bad faith, the workers still suffer the same harm and therefore should still receive the same compensation.

The bill does leave intact this exception with respect to fines by the Department of Labor for violations, as these fines are separate and apart from an employer's liability to its employees for back pay.

2. ELIMINATE FALTERING BUSINESS AND LACK OF FORESEEABILITY EXCEPTIONS; ADD EXCEPTION FOR DECLARED STATES OF EMERGENCY.ct.

Workers are the parties most harmed when there is a mass layoff, but that harm is magnified when they do not receive the legally required notice of such an event, regardless of the reason for that violation. Recognizing this, the WARN Act provides for back pay to those workers when they do not receive adequate notice.

In the context of the WARN Act, a business should not be exempt from liability for back pay in the case of a facility closing because the business was faltering and trying to find funding at the time when notice was required. The same applies for unforeseeable events. In neither case is the harm to the worker reduced. Such provisions encour- age disproportionate distribution of remaining resources to investors, despite the fact that investors are more likely to be able to bear the financial impact of the situation. The workers likely have only this one job, which is often their sole source of income. When weighing these competing interests, it is proper to support those who are at the great- est disadvantage, and for that reason these exceptions should be removed.

On the other hand, one exception appears to fall short. The consequences of the COVID-19 outbreak have made clear that a pandemic can be more devastating than a flood, earthquake, or drought. The current list of force major exceptions does not include states of emergency, but merely refers to natural disasters. This bill corrects this inconsistency to ensure that employers are exempted from the WARN notice requirements and liability for noncompliance in the case of layoffs due to the COVID-19 pandemic.

3. REVISE THE DEFINITION OF EMPLOYER TO INCLUDE BUSINESS AFFILIATES AND CONTROLLING INVESTORS AND LENDERS.ct.

Liability in WARN Act situations falls on the employer. Accordingly, strategic financial actors sometimes seek to escape WARN Act liability by setting up corporate shields in the form of a variety of multiple-en- tity ownership structures, exerting financial pressure without formally establishing management control, shifting significant debt to the busi- ness, and other financial or legal measures to avoid being categorized as the "employer" under the WARN Act. By expanding this definition to include those entities that exert indirect control or make decisions that ultimately lead to the mass layoff, relocation, or facility clos- ing, we deter some of the tactics used to escape the legal obligation to pay workers when there is a violation.

4. EXTEND THE REACH OF THE WARN ACT.ct.

Currently, the WARN Act only applies to employers that have 50 full-time employees, or in the alternate, employees working, in the aggregate, at least 2,000 hours per week. Whether an employee is part-time or full- time, and how many total hours of employee work done for an employer does not change the basic premise that an employee has an employment relationship with the employer, and it may be the only job they have. This bill recognizes this circumstance in the context of the WARN Act by capturing those employers who would otherwise have WARN Act duties but for the fact that their 50 or more employees do not collectively work 50 forty-hour weeks. By broadening the definition of "employee," and by lowering the threshold for applicability, the WARN Act will cover many more businesses than it does now, and thereby protect many more workers.

In addition, changes to the definition of "mass layoff" simplify the determination for what is a mass layoff by reducing it to a twenty-em- ployee test. Currently, a mass layoff involves a situation in which a facility does not close down, but (i) at least 33%- of the workforce (which must constitute 25 or more employees) is laid off, or (ii) 250 or more employees are laid off. For example, an employer of 70 employees could lay off 24 employees--more than one-third of its workforce--and yet not satisfy the test of a mass layoff. Perhaps more dramatic is a situation in which a very large employer (750 employees or more) could lay off up to 249 employees without such situation constituting a mass layoff.

As a final matter, this bill clarifies that many workers that are not necessarily stationed at a particular job site nonetheless have their employment tied to its operations, and may lose their job as a conse- quence.

5. EXTEND THE MAXIMUM PERIOD OF LIABILITY TO THE FULL 90-DAY NOTICE PERIOD.ct.

Although the New York State WARN Act requires employers to provide at least 90 days of notice prior to a mass layoff, relocation, or employ- ment loss, an employer's back pay liability to its workers for a violation is currently limited to only 60 days. As a result, workers receive the same back pay whether the notice is 60 days late or 90 days late. This results in a perverse situation in which an employer has much less incentive to give any notice at all if it plans a mass layoff, relocation, or employment loss within 30 days. The civil penalty of $500 per day for 30 days ($15,000 total) is a pittance to many employ- ers, even those in enough financial trouble to consider a workforce reduction.

Of more practical importance to the workers in many situations is the fact that they are suddenly without a paycheck, and therefore without a means to make rent, feed their families, or pay their medical bills. In this context, while an additional 30 days of violation means little financially to the employer under current law, those 30 days are crit- ical to a worker who needs to immediately find a new job, especially because this issue only occurs in circumstances in which notice is given less than 30 days from the date on which the worker will be laid off. With such limited time to find new employment, every day counts.

By extending the number of days of back pay for which an employer is liable to the full 90-day notice period, this bill will eliminate the current mismatch of incentives by linking the employer's financial liability for back pay to the full period of violation, thereby encour- aging employers to give as much notice as possible at a time when it is arguably most crucial to their workers.

6. PROVIDE FOR EXPLICIT ATTORNEY GENERAL ENFORCEMENT OF BACK PAY LIABILITY.ct.

One of the most significant barriers to workers receiving the back pay they are due in WARN Act situations is that the employer is in financial trouble, and a number of more organized claimants with greater resources (e.g. banks) are also vying for what value remains in the business. Currently, while the workers, labor representatives, and local munici- palities can bring an action and the Department of Labor can use admin- istrative proceedings to address the issue of back pay, the Attorney General does not have express authority to step in to enforce the law to protect workers. Because the scales are tilted against the workers in this way, the state should be given all the tools it needs to move expe- ditiously in order to enforce workers' rights to back pay.

Prior legislative history

None

Fiscal implications

None

Effective date

This act shall take effect immediately.