What is the WARN Act and does it apply if I have to lay off my team?
Takeaway: The WARN Act requires large employers to provide 60 days' advance notice of a major layoff or plant closing; while it rarely applies to early-stage startups, it becomes a critical compliance issue for larger, late-stage companies facing a sudden downsizing.
When a startup is forced to conduct a significant layoff, the primary focus is often on the difficult human and financial aspects of the decision. However, there is a federal law that can impose significant legal and financial penalties if a layoff is not handled correctly: the Worker Adjustment and Retraining Notification (WARN) Act.
The WARN Act is a labor law designed to protect workers and communities by requiring employers to provide advance notice of a major plant closing or mass layoff. While its high employee threshold means it does not apply to most early-stage startups, it is a critical consideration for larger, growth-stage companies that may need to conduct a significant reduction in force.
Who Does the WARN Act Apply To?
The WARN Act's requirements are only triggered for larger employers. It generally applies to any business that has 100 or more full-time employees. (There are some nuances in how part-time employees are counted, which require careful analysis).
What Triggers the Notice Requirement?
If a company is covered by the Act, it must provide a 60-day advance written notice to affected employees before:
A "Plant Closing": The permanent or temporary shutdown of a single site of employment that results in an employment loss for 50 or more employees during any 30-day period.
A "Mass Layoff": A reduction in force that results in an employment loss at a single site for either (1) at least 50 employees who constitute 33% of the workforce, or (2) 500 or more employees.
The Consequences of a Violation
A failure to provide the required 60-day notice can be very costly. A company that violates the WARN Act can be liable for:
Back Pay and Benefits: Providing each affected employee with back pay and benefits for each day of the violation, up to 60 days.
Civil Penalties: A civil penalty of up to $500 for each day of the violation.
State-Level "Mini-WARN" Acts
To make matters more complex, a number of states, including California and New York, have their own "mini-WARN" acts. These state laws often have lower employee thresholds and different notice requirements than the federal law. For example, California's WARN act can apply to companies with as few as 75 employees.
This means that even if your startup is not large enough to be covered by the federal WARN Act, you must still check to see if you are subject to a state-level law before conducting any significant layoff.
For any growth-stage company that is contemplating a major reduction in force, it is absolutely essential to consult with employment counsel well in advance. They can help you determine if the federal or any state-level WARN acts apply and can help you structure the layoff process in a way that is compliant and minimizes legal risk.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.