Hooters Sued under the WARN Act for COVID-19 Closures Prompting Important Question: Should Closed Restaurants Provide WARN Notices to Employees?

April 21, 2020

Less than a month after Hooters laid off over 700 workers in Florida, two of those laid off filed an action in federal court seeking class certification and damages for an alleged failure to comply with the WARN Act. While the suit has questionable legal basis, it should raise concerns about the legal landscape for companies going forward. The case is entitled Ashton Scott and Amanda Seals v. Hooters, Inc., 20-cv-00882, M.D. Fla.

What does the WARN Act Require?

Governors across the country are ordering wholesale shutdowns of restaurants and bars. What obligations if any arise under the WARN Act to companies who must follow those orders? Specifically, does compliance with these state orders constitute either a “plant closure” or a “mass layoff” to trigger a company’s WARN Act obligations?

Generally, the WARN Act requires 60 days’ notice to employees and relevant government authorities in the event of an anticipated “plant shut-down” or “mass lay off”. This law was enacted to stabilize the impact of sudden job losses upon affected employees and the community at large, and offer an opportunity to help laid off workers find new jobs quickly. The notice requirement also serves to provide essentially a 60-day transition pay for employees from the time they learn that they will lose their jobs.

A “plant closing” is any shutdown of a single site of employment, or one or more facilities or operating units within a single site of employment, if the shutdown results in an employment loss at the single site of employment during any 30-day period for 50 or more employees excluding part-time employees.

A “mass layoff” is a reduction in force that is not the result of a “plant closing” but nevertheless results in an employment loss at a single site of employment during any 30-day period where either one of the following occurs:

1. Excluding part-time workers, at least 50-499 employees are affected and those affected employees amount to at least 33 percent of the total workforce at a single site of employment, excluding part-time employees; or

2. The number of affected employees at a facility totals at least 500, excluding part-time employees.

The Impact of the Unforeseen Circumstances Exception.

One may ask, how could employers be responsible for providing a 60 day WARN notice when they have been ordered by the Governor to shut down with only 24 hours’ notice? The short answer is that they are not responsible. The WARN Act does not require employers to give WARN notice in three exceptional circumstances: 1) the “faltering enterprise” exception, 2) the “unforeseen circumstances” exception, or 3) the “natural disaster” exception.

A declared “state of emergency” due to a global pandemic and an order from the Governor to shut down with 24 or 48 hours’ notice should likely constitute either “unforeseen circumstances,” a “natural disaster” or both. Accordingly, businesses who send employees home because of the government ordered shut-downs may well likely be exempted from WARN Act notice requirements for the initial business closing.

That said, the company may want to provide notice within a reasonable time after the shutdown or layoff depending on what the company expects to happen in the future. Theoretically, while the need to shut down and order layoffs may have been unforeseen initially at the time right after the government order, the foreseeability in the future either of continuing layoff or potential rehire might become clear enough for employers to give notice later. Even if not required, it may be the courteous and caring thing to do.

What Should a WARN Act Notice Say?

These are unstable and uncertain times. How can one give notice about what one does not know will occur, if ever? The answer is to do your best and use common sense. And, of course, look at the statute.

When giving a layoff or shut down notice to employees, an employer covered under the WARN Act must satisfy the basic notice requirements for the affected employees by stating 1) the nature of the plant closing/mass layoff (i.e. is the planned closing expected to be permanent or temporary, is the entire plant closing or is it a mass layoff, etc.), 2) the expected date of the plant closing/mass layoff and the expected date when the individual employee will be separated (or, in this case, when it occurred), 3) the existence of bumping rights or lack thereof, and 4) a company official to contact for further information. In addition, in these times, your notice should also give more discussion on the potential time frame of closure/layoff and a candid disclosure that job losses might be permanent given the very uncertain nature of these times. If the employer is relying on an exception to the 60-day notice requirement, for example the natural disaster or unforeseen business circumstances exception the WARN Notice must also provide a statement of the reason that the employer is reducing the 60-day notice.

Similarly, when giving notice to relevant government authorities, an employer under the WARN Act should provide local and state officials notice that 1) identifies the location of the affected site(s), 2) identifies the number of anticipated layoffs, 3) explains the nature of the plant closing/mass layoff, 4) discloses the expected date of first employment separation and the schedule for subsequent separations, 5) discloses the job titles/categories of the layoffs, 6) states whether bumping rights will exist, 6) identifies affected unions, including the name of each union/employee representative and the name and address of the chief elected officer of each union, and 7) provides the name and telephone number of a company contact person who can provide additional information.

Importantly, when you give notice during these uncertain times, you should clearly state that you do not believe the WARN Act requires it given the unforeseen circumstances and potentially many other reasons that the statute may not technically apply (i.e., the numbers of employees affected may not reach the level of a “plant closing” or a “mass layoff”). Be clear that in this context you are giving notice only as a courtesy because you care and respect your employees and seek to provide reasonable cooperation with the community. You should not, however, accept that the WARN Act imposes any duties upon employers in this current situation.

What will happen to Hooters?

The plaintiffs allege that Hooters gave only one notice on March 25 about the layoffs and gave no justification as to why it did not give notice sooner. They also allege that Hooters could have taken advantage of the Payroll Protection Program under the CARES Act but that it opted instead to simply cut off their employees.

Plaintiffs’ theory that Hooters should have given notice sooner than March 25 is weak. The pandemic and the national state of emergency took everyone by surprise. The WARN Act does not require clairvoyance. Indeed, it expressly carves out an exception to providing WARN Act notice in the event of unforeseen circumstances. Anyone who has experienced the sudden tidal wave of pandemic, states of emergency, and economic shutdown would understand that fact. Indeed, governors across the country typically gave no more than 1 or 2 days’ notice when ordering the shutdown or substantial restriction of dine-in restaurant operations. In Florida, where this suit was filed, the governor’s order on March 17 was effective immediately. While the governor’s order called upon restaurants to try to stay open and expand their take out operations, it appears clear that Hooter’s efforts for one week to make a go of that model was not sustainable. In light of such swift change in circumstances, the alleged March 25 notice hardly seems unreasonable.

Plaintiffs’ suit also appears premature. Plaintiffs have not even been unemployed for 30 days, which is the minimum amount of job loss necessary in order for the WARN Act to apply. Moreover, in such a short time, Hooters arguably has not yet had enough time to sort through the unforeseen circumstance enough to provide meaningful notice of anything. That said, Hooters may well sort through the fog in just the next several days. Such subsequent notice, given the pace of change, within a mere month of the sudden need for mass layoff, may well satisfy any notice requirement that Hooters may need to make. In that event, plaintiffs’ case may well become moot.

It is also by no means clear whether Hooters layoff constituted either a “plant closing” or a “mass layoff” as those terms are defined in the WARN Act. There is no “plant closing” unless it affects at least 50 full time employees, and there can be no “mass layoff” unless it affects 50 full-time employees who are also 1/3 of the employees at the closed facility or at least 500 at the facility where the layoffs occurred. Given that Hooters restaurants likely employ less than 50 full time employees at each restaurant, and given that they are all likely separately managed as stand-alone facilities, the WARN Act case may fail simply because the numbers do not add up to include the Hooters layoffs, even though well over 500 employees were affected.

Plaintiffs also decry Hooters’ failure to take out a PPP/SBA loan to pay employees during the 60- day covered period. While Hooters was not required to take out such a loan, the allegation does suggest that had they done so and used the 8 week “covered period” for the loan under the CARES Act as its WARN Act notice period, it could have avoided the lawsuit as a practical matter.

In the end, Hooters may win, but not without cost. This may well be another case where mere compliance with legal requirements is not enough to manage a workforce.