Business Law

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WARN Act Does Not Apply if Terms of Employment Remain the Same
Everett F. Meiners, Partner, Parker Milliken Clark O'Hara & Samuelian, Los Angeles Contributing author to Advising California Employers and Employees published in December 2005 by CEB.

Introduction
The Facts
First Impression Interpretation
Caution on Application of Ruling

Introduction
The First District of the California Court of Appeal recently issued a decision (MacIsaac v Waste Management Collection and Recycling, Inc. December 12, 2005, A108599) of first impression relating to The California Worker Adjustment and Retraining Notification Act (WARN). Under WARN, certain employers must give 60 days notice of a “mass layoff” to the employees and certain government officials. Failure to give notice requires the employer to pay each employee for the period of time the notice was not given, up to 60 days pay. Employees who have more than 75 employees are subject to the WARN statute which defines a “mass layoff” as the layoff of 50 or more employees during any 30-day period. The MacIsaac case eliminates the obligation to give that notice in certain circumstances.

This case is important not only to employment attorneys, but also to business attorney who are contemplating the acquisition of one company by another and the acquiring company is continuing the employment of the employees of the acquired company.

The Facts
In this case, Waste Management, operating under the name Empire Waste, decided to sell its contract to collect waste with the City of Santa Rosa (City) to North Bay Disposal Corporation (North Bay), agreeing that as part of the sale of the contract, North Bay would continue to employ all the Empire Waste employees at their old rate of pay and with all fringe benefits. At the closing, the employees were transferred from Empire Waste to North Bay and continued to operate the same equipment with the same hours of work and without loss of any pay. A total of 42 employees were transferred to North Bay.

Within less than 30 days after transferring the employees, Empire Waste had a company wide reduction in force of 20 other employees. The termination of these employees was described by the court as being “separate and distinct from the employee transfer occasioned by the sale to North Bay.”

Of the 42 transferred employees, all accepted the transfer and reported to work at North Bay except for the plaintiff, Stanley MacIsaac. MacIssac ultimately filed this action on his own behalf and as a representative of other employees, contending that the number of transferred employees along with the terminated employees exceeded 50 employees within a 30 day period and Empire Waste was therefore obligated by WARN to have given 60 days notice of the transfer/termination to all employees and the governmental agencies. As a result of the failure to comply with WARN, MacIsaac purported that Empire Waste was required to pay 60 days of pay to all 62 employees

These events occurred within the first 60 days after WARN became effective on January 1, 2003. Since that time, conservative counsel have advised their clients to give the WARN notice even though the acquiring company is hiring all of the selling companies employees at the same rate of pay and upon the same terms and conditions.

First Impression Interpretation
In reviewing this case, the court first noted that they had found no other California case construing the terms of WARN and only a couple of secondary legal authorities. Thus, the court relied on standard rules for interpreting statutory language. It noted that the statute defines a “mass layoff” as “a layoff during any 30-day period of 50 or more employees at a covered establishment.” In addition, it defines a “layoff” as “a separation from a position for lack of funds or lack of work.”

The court found the phrase “a separation from a position” to be significant. The court noted that Empire argued that since the transferred employees continued to work in the same positions after the sale, they were not “separated from” their positions. The court concluded that the definition of layoff was “unambiguous” and required “a separation from a position . . ..” The court found that “the determining factor is whether the employee has been separated from ‘a position,’ not whether the employee is separated from an ‘employer.’”

The court concluded that in this case the employees had not been “separated from a position” because there was a seamless transfer of the employees from one employer to another. The transferred employees did not lose any pay by reason of the transfer to the new employer. They continued to perform the same job, for the same wage and benefits, as they had with the prior employer. Since the court concluded that the transferred employees could not be counted in determining whether the WARN notice requirements had been meet, that left only the 20 employees as having been terminated and under WARN that was not a sufficient number to trigger the notice requirements. Thus, there was no WARN event and the plaintiff’s cause of action failed.

Caution on Application of Ruling
The court was very clear that their holding was limited to the specific facts in this case.  Namely, that the transferred employees “retained their former positions with no change in the terms of their employment.” The court noted that the situation might be different if the transferred employees had been hired at a significantly lower wage or with inferior terms and conditions. 

However, the MacIssac decision specifically relieves employers of the obligation to give the WARN Act notice if the employees are hired by the new owner with the same terms and conditions as previously provided by the seller.

Sales and Mergers of California Businesses