One now-shuttered digital media startup learned a hard lesson about the importance of complying with the requirements of the federal Worker Adjustment and Retraining Notification Act and its New York state-equivalent.
JAF Communications Inc., operating as The Messenger, agreed to pay $4.5 million to class members for failing to provide advance notice of their mass layoff before the company shut down Jan. 31, 2024. The parties’ joint motion for settlement approval is pending in the U.S. District Court in New York.
The Federal WARN Act
The federal WARN Act, 29 U.S.C. § 2101 et seq., requires employers with 100 or more full-time employees to provide at least 60-days’ notice to affected employees before a mass layoff or plant closing, including managers and supervisors, hourly workers, salaried workers, employee representatives such as union officials and at-will employees. Employers with 100 or more full- and part-time employees who collectively work a combined total of at least 4,000 hours per week, excluding overtime, are also covered. Employers also must send notice to the local government where the mass layoff or plant closing is occurring and the state dislocated worker unit.
A “plant closing” is a temporary or permanent shutdown of a single site of employment that had 50 or more employees during any 30-day period. A mass layoff is any loss of employment at a single site of employment affecting 500 employees or affecting 50 or more employees and at least 33% of full-time employees. Plant closings or mass layoffs that affect two or more groups at a single site of employment during any 90-day period may still be covered by the WARN Act unless the employer demonstrates that the group terminations are for separate and distinct reasons and are not attempts to evade WARN Act requirements.
The WARN Act does provide exceptions to the notice provision for faltering companies (plant closings only), layoffs due to unforeseeable business circumstances and layoffs resulting from a natural disaster. Layoffs because of strikes or lockouts, plant closings of temporary facilities or short-term projects and mass layoffs ordered by the government also are excluded from the act’s provisions.
The federal WARN Act does not require employers to provide severance benefits, but the provision of unconditional payments could mitigate employer liability for WARN Act notice requirements. Penalties for noncompliance include up to 60 days’ back pay and benefits to each affected employee, plus fines up to $500 per day for failure to notify the local government.
State WARN Act Equivalents
Eighteen states have enacted their own “mini-WARN Acts” or related state laws, and at least 13 states laws expand on the protections given under the federal WARN Act: California, Connecticut, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, New Hampshire, New Jersey, New York, Vermont and Wisconsin. Most of these states include relocation of a business or section of business as a triggering event.
Many state laws are more stringent than the federal WARN Act. Some have lower employee thresholds or fewer exceptions to providing notice. Maine, New Jersey and New York require 90 days’ notice instead of 60 days. Hawaii, Maine, New Jersey and Connecticut require severance payments or other benefit coverage for affected workers. Delaware, Maine, New Jersey and Utah have higher potential penalties than the federal WARN Act.
JAF Communications’ WARN Act Settlement
The Messenger, which launched in May 2023 with approximately 300 employees and offices in New York City, Washington, D.C. and West Palm Beach, Florida, terminated 20 employees Jan.2, 2024. Less than a month later, The Messenger terminated its remaining employees. None of the employees received written notices. The terminated employees filed a class-action lawsuit the next day in the Southern District of New York, alleging violations of both the federal and New York WARN Act notice requirements. When the court certified the class, it included all employees who worked at, received assignments from or reported to any of The Messenger’s sites, not just its New York office. The class included remote employees as well.
Although The Messenger contested the inclusion of its D.C. and Florida employees, the court declined to exclude them at the class certification stage because whether a “single site of employment” meets the threshold to trigger the WARN Act’s notice requirements is a merits question that should not be decided at a later stage. The Messenger also alleged that it had not violated any WARN Act requirements because it was a “faltering business,” which allows businesses that are actively seeking capital to reduce the notice period from 60 days. The court declined to address this affirmative defense, as it was not part of the class certification analysis.
Subsequently, The Messenger and the representative employee for the class agreed to a settlement of $4.5 million, representing approximately 66% of the potential maximum damages. One of the factors considered in the settlement was that JAF Communications had discontinued its business and turned all its assets over to a trustee pursuant to an agreement in an assignment for the benefit of creditors action in Delaware. The settlement avoids what would be a potentially lengthy and costly trial and permits class members to lodge a claim for the settlement with the trustee in Delaware.
Takeaways for Employers
Employers facing potential mass layoffs or who are considering relocating or closing one or more of their operational locations should consult with an attorney regarding whether they may be covered by the federal or a state WARN Act. Determining the number of employees at a single site of employment is a fact-dependent analysis and, as demonstrated by The Messenger’s settlement, a failure to comply with WARN Act requirements can be a costly mistake.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
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