NOTE: The following article is from the collection of articles in our Automobile Dealership Buy/Sell Newsletters. The newsletter deals with the complex area of buying and selling automobile dealerships. Some of the material may not be up to date because of changes in the law from the date shown at the end of the article. This article is not to be taken as legal, accounting, tax, or other advice. You should consult your own professionals for such advice and for any updating of the information provided.
The sale of an automobile dealership may subject Seller and Buyer to provisions of the Federal Worker Adjustment and Retraining Notification Act (“WARN Act”) which mandates that certain employers must give affected employees a sixty-day notice of a plant closing or mass layoff.
There are certain events that may give rise to the notice requirement. For example, the liquidation of a corporate employer is the most common event that would trigger the notice requirement. However, a corporate acquisition, a reorganization or even the sale of corporate assets may also give rise to a disclosure requirement. Automobile dealers who are contemplating the sale of dealership assets may have a duty to notify their employees in advance of a pending sale if the requirements of the WARN Act are met.
What Employers are Affected by the Act?
The Act was drafted to cover virtually any employer which employs a certain number of workers. For purposes of the Act, the term “employer” means a business enterprise that employs:
1. 100 or more employees, excluding part-time employees; OR
2. 100 or more employees who in the aggregate work at least 4000 hours per week (excluding overtime hours). Thisprovision is designed to pick the employers who use mainly part-time workers as their employees.
It is important to note the term “business enterprise” includes parent and subsidiary corporations. In other words, when there is common ownership and management as well as centralized control of labor relations, parent-subsidiary groups or brother-sister corporations are likely to be found to be a simple employer for purposes of the above definition of “employer.” Therefore, having two corporations each with less than 100 employees but with an aggregate of more than 100 employees is a simple employer for purposes of the WARN Act, where common ownership and management are present.
When is Advance Notice Required?
If a business enterprise meets the above definition of an employer, it must give advance notice of a “plant closing” or a “mass layoff” to its affected employees.
A “plant closing” is the permanent or temporary shutdown of a single site of employment, or one or more facilities or operating units within a single site of employment, if the shutdown results in an employment loss of 50 or more employees (excluding part-time employees) during any 30-day period.
A “mass layoff” is defined as a reduction in force which is not the result of a plant closing, and results in an employment loss at a single site of employment during any 30-day period for either (1) at least 33% of the employees and (2) at least 50 employees (excluding part-time); OR at least 500 employees, regardless of the percentage of the workforce that is affected.
An issue that can arise is whether a business that operates at several different locations constitutes a “single site of employment” as required for purposes of advance notice of a plant closing. For example, if an auto dealer operated facilities in several locations, would the different dealerships be considered a “single site of employment ?” Reported decisions require the sites of employment to be in the same geographic area to be considered a “single sites of employment.” Thus if a dealer had two facilities, one in Pasadena and one in Encino, and he wanted to close down both, it is likely that the two facilities would be considered a single site of employment for determining if the advance notice requirement applied. However, if the two facilities were in San Francisco and Pasadena, they would probably not be considered a single site of employment.
Are There Any Exceptions to the Notice Requirement?
Fortunately, there are a number of exceptions to the notice requirement. First of all, there is no notice requirement if the plant closing or layoff is the result of a relocation or consolidation of part or all of the employer’s business, and prior to the closing or layoff, the employer offered to transfer an affected employee to a different site of employment within a reasonable commuting distance with no more than a six-month break in employment; or the employer offered to transfer the employee to any other site of employment regardless of distance with no more than a six-month break in employment, and the employee accepts within 30 days of the offer
In addition, advance notice is not required if the plant closing or layoff is due to an earthquake, drought, flood or other natural disaster. Advance notice does not apply to government takeovers such when the Federal government takes over a bank or savings and loan. Finally, advance notice does not apply to the closing of temporary facilities or layoff upon completion of a particular project or undertaking, where it was understood by the employees that the project had a limited life.
Are There Circumstances Where the Notice Period Can be Less Than 60 Days?
In most cases, the employer must give at least 60 days advance notice of a plant closing or mass layoff. However, there are certain circumstances where the employer need only give as much notice as is practicable. The employer may order a plant closing or mass layoff before the expiration of the 60-day period if the closing or layoff is caused by business circumstances that were not reasonably foreseeable as of the time the notice would have been required. In addition, a plant closing or mass layoff may be done before the expiration of the 60 day period if at the time the notice would have been required the employer was actively seeking capital or business, which if obtained, would have enabled the employer to avoid or postpone the shutdown and the employer reasonably believed the giving of the notice would have precluded it from obtaining the needed capital or business.
What are the Penalties for Failure to Comply with the Advance Notice Requirements?
Any employer who violates the WARN Act notice requirements shall be liable to each affected employee who suffers an employment loss for back pay and benefits for each day of violation. “Benefits” include the cost of medical expenses incurred during the employment loss which would have been covered under an employment benefit plan if the employment loss had not occurred. The liability for back pay and benefits shall be calculated for the period of the violation, up to a maximum of 60 days, but in no event for more than one-half the number of days the employee was employed by the employer.
Must a WARN Act Notice be Given when a Business is Sold?
In the case of a sale of part or all of an employer’s business, the seller shall be responsible for providing the WARN Act notice for the period prior to the closing of the sale. After the effective date of the sale, the purchaser shall be responsible for providing notice for any plant closing or mass layoff. It is important to note that a sale that does not result in a plant closing or a mass layoff does not trigger the advance notice requirement. Whether a WARN Act notice will be triggered in the event of a sale of a dealership will depend upon the particular circumstances present and whether the selling dealer meets the requirements of an employer under the Act whose employees will suffer a “mass layoff” i.e. an unemployment loss of at least 33% of its work force and a loss of at least fifty (50) full-time employees.
This is illustrated by the following examples:
Example No. 1: Seller has two franchises at the same location. Seller has entered into a sale agreement with buyer to sell the assets of both franchises. At the time of signing the buy-sell agreement, Seller has 110 employees. At the time of closing the buy-sell transaction, Seller terminates its employees and Buyer immediately rehires 90% of Seller’s employees. There is no WARN Act notice requirement since the “employment loss” experienced by the employees falls below the “mass-layoff” notification requirements.
Example No. 2: Take the facts above set forth in Example No. 1 except that at closing of the buy-sell transaction, Buyer only hires 32 of Seller’s employees. In that event, since 78 of Seller’s employees are not hired by the Buyer, Seller would be required to give its employees the 60 day pre-closing Warn Act notice because at least one-third of Seller’s workforce and at least 50 employees experienced employment loss.
Example No. 3: The Seller has two separate dealership locations, one located in Pasadena with 85 employees and one located in Encino with 85 employees. The Seller has entered into a buy-sell agreement with Buyer to sell the assets of the Pasadena dealership but Seller will retain ownership of the Encino dealership. At closing Buyer hires 35 of Seller’s employees at the Pasadena location (i.e. fifty employees are terminated). Whether the WARN Act Notice requirement will be triggered will depend upon whether Seller’s two dealership locations are considered to be a “single site of employment” i.e. dealerships in the same geographical area with common ownership. If Seller’s two dealerships are deemed to be a single site of employment for purposes of the Act because of their geographic proximity, the WARN Act Notice requirements would not be triggered because Seller’s employment loss of 50 employees falls below 33% of Seller’s aggregate work force of 170 employees. However, if Seller’s Pasadena and Encino dealership are deemed to be separate employment sites, and Seller is deemed to be an “employer for purposes of the Act” (an employer with 100 or more employees including both dealership locations), the sale of the Pasadena dealership will trigger the WARN Act notice because one-third of the dealership work force and at least fifty employees at the Pasadena dealership site have suffered an “employment loss.”
The following examples illustrate the importance for both buyers and sellers of large dealerships to address the implications of the WARN Act early on in the buy-sell process. Avoiding the requirements of the WARN Act notice can benefit the seller and buyer by preserving both the confidential nature of the sale agreement and employment stability pending the close of the buy-sell transaction. Since it is most often the case that a buyer of a dealership intends to rehire a substantial number of seller’s employees at closing, the notice requirement can be avoided by mutual agreement between the parties that the Buyer will hire a specified number of seller’s employees at closing. In all events, dealers who meet the definition of a “employer” under the WARN Act should consult with legal counsel in the event of a sale or transfer of their dealership so as to ensure compliance with the requirements of the Act.
This article was written in 2002.