The Worker Adjustment and Retraining Notification Act (“WARN”) requires an employer with 100 or more full-time employees to provide 60 days’ notice to all employees who will be affected by a mass layoff or plant closing at a single site. If the WARN notice requirement is violated, each affected employee is entitled to damages equal to compensation and benefits as defined under the Act for a period of 60 days. Nothing under the WARN Act, however, requires employers to continue to employ affected employees during the 60 day notice period. Subsequently, employers may “pay in lieu” of providing WARN notice.  

Before “paying in lieu” of notice, employers should consider all of the necessary elements in valuing the requisite payments under WARN. Failure to properly compensate affected employees may result in litigation, attorneys’ fees, and civil penalties. For these reasons, it is important to heed the following five “Warnings” when paying in lieu of providing WARN notice:

1. Properly count the 60-day period. Affected employees are entitled to 60 days of compensation and benefits. Some jurisdictions require that damage calculations be measured by 60 work days rather than 60 calendar days, which can significantly affect an employer’s calculation of back pay and benefits under WARN.

2. Back pay may not be equivalent to current pay. Back pay is defined under the WARN act as the higher of “the average regular rate received by such employee during the last three years of the employee’s employment” or the “final regular rate by such employee.” If an employer simply uses an affected employee’s current rate of pay to compute back pay, the employer may inadvertently violate WARN.  

3. Benefits may include non-ERISA benefit plans. Benefits are defined under WARN to include all benefit plans that are subject to ERISA. Benefits, however, may also include non-ERISA benefit plans. Some jurisdictions require that non-ERISA benefit plans such as vacation pay policies and/or equity incentive plans be included in computing payments in lieu of providing notice.  

4. Benefits also include the cost of medical expenses. Benefits also include “the cost of medical expenses incurred during the employment loss, which would have been covered under an employee benefit plan if the employment loss had not occurred.” To avoid liability under WARN, employers might want to consider extending health insurance coverage.

5. Health benefits may not be extended to terminated employees. The applicable health insurance plan may not allow an employer to extend coverage to terminated employees. Employers faced with this situation may want to consider paying for the employees’ COBRA premiums for 60 days.

Employers are well-advised to take precaution and seek counsel when considering “paying in lieu” of providing WARN notice. There are a number of risks associated with valuing payments under WARN that can inadvertently lead to legal claims.