The Worker Adjustment and Retraining Notification Act, commonly called the WARN Act, is a federal law that requires covered employers to provide advance notice before conducting certain significant employment actions, including plant closings and mass layoffs. In the context of M&A transactions, the WARN Act creates obligations and risks that both buyers and sellers must understand and address in their transaction documents. Violations of the WARN Act can result in significant liability — up to 60 days of back pay and benefits for each affected employee — and the question of who bears that liability in an M&A context is a recurring source of dispute.

The Federal WARN Act’s Basic Requirements

The federal WARN Act applies to employers with 100 or more full-time employees, or 100 or more employees who in the aggregate work at least 4,000 hours per week (excluding overtime). Covered employers must provide at least 60 calendar days of advance written notice to affected employees (or their union representatives), to the state dislocated worker unit, and to the chief elected official of the unit of local government where the employment site is located, before conducting a plant closing or mass layoff.

A plant closing occurs when an employment loss is suffered by 50 or more employees during any 30-day period at a single site of employment, resulting from the permanent or temporary shutdown of a single employment site or facility, or the shutdown of one or more operating units within the site. A mass layoff occurs at a single site of employment during any 30-day period when the employment loss affects either at least 500 employees, or at least 50 employees (excluding part-time employees) representing at least 33 percent of the active workforce at the employment site. Employment loss includes layoffs, terminations, and certain furloughs or reductions in hours.

Exceptions to the 60-Day Notice Requirement

The WARN Act provides three exceptions that can reduce or eliminate the 60-day notice requirement: the faltering company exception, the unforeseeable business circumstances exception, and the natural disaster exception. The faltering company exception applies when a company is seeking capital to avoid a shutdown and the notice would have prevented the company from obtaining that capital. The unforeseeable business circumstances exception applies when the plant closing or mass layoff is caused by business circumstances that were not reasonably foreseeable 60 days before the closing or layoff. The natural disaster exception applies to closings or layoffs directly resulting from a natural disaster.

When one of these exceptions applies, the employer must still provide as much notice as is practicable and must explain in the notice why the full 60 days was not provided. An employer who relies on an exception incorrectly remains fully liable for WARN Act violations, and courts have interpreted these exceptions narrowly. The unforeseeable business circumstances exception is the one most commonly invoked in M&A contexts — for example, when a deal is announced and closed quickly and post-closing layoffs were not foreseeable 60 days before the deal was announced. However, courts have held that this exception is not automatically available simply because the layoff decision was made after signing; the unforeseeable circumstances exception applies to the business circumstances that caused the layoff, not to the timing of the decision.

WARN Act Obligations in Asset Sales

The WARN Act has specific provisions governing asset sales that are important in M&A. When a business is sold as a going concern asset sale, the seller has the obligation to provide WARN notice for any plant closings or mass layoffs that occur up to and including the date of sale. The buyer has the WARN obligation for any closings or layoffs that occur after the sale. This allocation — seller responsible for pre-closing actions, buyer responsible for post-closing actions — is clear for layoffs that are clearly associated with one side of the closing line.

The complexity arises when layoffs straddle the closing date. If the seller begins laying off employees before closing and continues the layoffs after closing, the respective responsibilities of the buyer and seller for those employees’ WARN claims can be difficult to disentangle. The purchase agreement should clearly specify which party has WARN responsibility for employees in various categories and should provide indemnification for WARN liabilities consistent with the responsibility allocation. Sellers should seek to complete any pre-closing WARN obligations (including providing the required 60-day notice period to run before closing if layoffs are planned) before the transaction closes, to limit their ongoing exposure after closing.

State Mini-WARN Laws

Many states have enacted their own WARN-equivalent statutes with different and often more stringent requirements than the federal law. The California WARN Act, for example, applies to employers with 75 or more employees (versus 100 for federal), applies to temporary layoffs as well as permanent ones, does not include the 33 percent threshold for mass layoffs (a layoff of 50 or more employees at a single location triggers the obligation regardless of their share of the workforce), and in some respects does not incorporate the federal exceptions. New York, New Jersey, Illinois, and other states have similarly enacted mini-WARN laws with important variations.

In transactions involving businesses with operations in multiple states, WARN analysis must be conducted on a state-by-state basis. The most restrictive state law will govern employees in that state, and compliance must be tailored accordingly. Companies that are planning post-closing workforce reductions must identify all applicable state mini-WARN laws and plan the notice and compliance process to satisfy all of them simultaneously.

WARN and Post-Closing Integration Planning

One of the most significant practical intersections between the WARN Act and M&A is the tension between the buyer’s integration planning and the WARN Act’s notice requirements. Buyers who want to begin the integration process — including consolidating operations, eliminating redundant positions, and closing underutilized facilities — immediately after closing must plan the WARN notice process before they can implement those changes. A buyer who decides on post-closing integration decisions only after closing and then wants to immediately implement workforce reductions will find itself unable to do so for 60 days (or the period required by applicable state law), during which the employees must continue to be paid.

Best practice is for the buyer to conduct integration planning during the pre-closing period, subject to the gun-jumping restrictions that limit the buyer’s ability to direct the target’s operations before closing, and to identify any workforce actions that will trigger WARN obligations as part of that planning. If the buyer intends to implement significant workforce reductions shortly after closing, the WARN notice (or equivalent notice under applicable state law) can sometimes be served before closing, provided that the requisite conditions have been satisfied and the timing complies with all applicable legal requirements. This allows the WARN notice period to run during the pre-closing gap and the workforce action to be implemented promptly after closing. This planning should be reviewed by labor and employment counsel before implementation.