A business closing requires careful planning, especially concerning employee notification. The timing and method of informing employees about an impending closure must align with federal, state, and local mandates to ensure compliance. Correctly managing this transition is important for meeting legal obligations and minimizing potential financial and reputational harm.
Identifying Legal Requirements for Mass Closures
The primary federal legislation regulating mass layoffs and worksite closures in the United States is the Worker Adjustment and Retraining Notification Act (WARN Act). This law mandates advance notice of job losses, allowing employees time to seek new employment or retraining opportunities. The WARN Act applies to employers with 100 or more employees, not including those who have worked less than six months or average fewer than 20 hours per week.
Covered employers include private for-profit, non-profit, and certain public entities that operate in a commercial context. Notification must be provided to affected employees, their representatives, the state’s dislocated worker unit, and the local government’s chief elected official.
State and Local Notice Requirements
Many states have enacted “Mini-WARN” laws that supplement or supersede federal requirements, setting a baseline for notification. These state-level laws often apply to smaller businesses or require longer notice periods. For instance, some state laws apply to businesses with 50 or 75 employees, a lower threshold than the federal requirement of 100.
The scope of these regulations varies significantly. States like New York, New Jersey, California, and Illinois have Mini-WARN laws that may require notification for smaller job losses. New York’s law, for example, requires a 90-day notice period, exceeding the federal standard.
State statutes may also impose additional obligations, such as requiring severance pay or continued health insurance benefits for a specified period. Employers must comply with both the federal WARN Act and any applicable state or local law, following the regulation that provides the most protective terms for employees.
Defining Covered Employees and Triggering Events
The WARN Act is triggered by specific events involving minimum employment losses at a single site of employment. A “plant closing” occurs when a permanent or temporary shutdown results in an employment loss for 50 or more full-time employees during any 30-day period, regardless of the percentage of the total workforce they represent.
A “mass layoff,” distinct from a plant closing, triggers notice under two conditions:
Trigger 1: Large Employment Loss
This involves an employment loss for 500 or more employees at a single site during a 30-day period, regardless of the size of the total workforce.
Trigger 2: Percentage-Based Loss
This involves an employment loss for 50 to 499 employees that constitutes at least 33% of the active employees at that site.
Employees entitled to notice are those experiencing an “employment loss,” defined as an involuntary termination (not for cause), a layoff exceeding six months, or a reduction of work hours over 50% for six months. Covered employees generally must have worked for the company for at least six of the last 12 months and average 20 hours or more per week. Part-time employees are not counted toward the triggering thresholds but must still receive notice if affected.
Calculating the Required Notice Period
Federal law requires covered employers to provide 60 calendar days of advance written notice for any plant closing or mass layoff. This notice must be delivered to affected employees, their union representatives, the state dislocated worker unit, and the local chief elected official. The 60-day period allows workers time to prepare for job loss and for local agencies to prepare reemployment services.
There are three narrowly defined exceptions that allow an employer to provide less than the full 60 days of notice, though they generally do not eliminate the notice requirement entirely:
Faltering Company Exception
This applies only to plant closings where the employer was actively seeking financing or business that would have avoided or postponed the shutdown. The employer must also reasonably believe that giving notice would have prevented them from obtaining the needed capital.
Unforeseeable Business Circumstances
This covers closings or layoffs caused by a sudden, dramatic, and unexpected action outside the employer’s control that was not reasonably foreseeable 60 days prior. Examples include a major customer’s unanticipated cancellation of a large order.
Natural Disaster Exception
This applies when a closing or layoff is the direct result of a flood, earthquake, or storm.
Even when these exceptions apply, the employer must still provide notice “as soon as practicable” and include a brief statement explaining the reason for the reduced notice period.
Consequences of Failing to Provide Adequate Notice
Failure to provide the required advance notice results in significant financial penalties. The primary liability is back pay and benefits for each affected employee for the period of the violation, up to a maximum of 60 days. Back pay is calculated based on the employee’s regular rate of compensation.
The benefits component includes the cost of medical expenses that would have been covered under an employee benefit plan during the employment loss. Employers may also face civil penalties of up to $500 per day for failing to notify the local government unit. This penalty can often be avoided if the employer pays the full liability amount to each aggrieved employee within three weeks of the closure or layoff.
Affected employees or their representatives have the right to bring individual or class-action civil suits in federal court. The court may allow the prevailing party to recover reasonable attorney’s fees as part of the awarded costs.
Best Practices for Employee Communication and Transition
Beyond meeting the minimum legal notice period, a business closing requires a thoughtful communication strategy to manage employee morale and preserve the company’s reputation. The announcement should be delivered clearly, ideally in person by senior leadership, to convey transparency and respect. Providing the news in a consistent, written format ensures all employees receive the same information regarding the closure timeline and final employment dates.
To support affected employees, businesses often provide severance packages, even if not legally required, to smooth the transition. Offering outplacement services, such as resume writing assistance, job search training, and interview coaching, also demonstrates support. These services help employees quickly re-enter the job market.
Maintaining productivity during the notice period is a common challenge. Businesses can address this by offering retention bonuses or incentives for employees who remain until their final day. Clear, frequent communication about the status of benefits, final paychecks, and health coverage helps reduce anxiety and allows employees to focus on their next steps.