Layoffs And Lawsuits

Layoffs And Lawsuits

Ashlea Ebeling

White-collar workers laid off amid the financial crisis are using the 20-year-old plant-closing law to sue for severance.

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White-collar workers laid off amid the financial crisis are using the 20-year-old plant-closing law to sue their former employers.

An obscure federal law passed 20 years ago to protect manufacturing workers is making a comeback--as laid-off financial and service sector employees use it to sue for severance pay.

The federal WARN (Worker Adjustment and Retraining Notification) Act requires employers to either give a full 60 days notice before closing a plant or engaging in a mass layoff or to pay dislocated workers 60 days of wages and benefits, including health insurance premiums. If employers give only 30 days notice, then they must pay 30 days severance.

WARN has been widely ignored by employers and the Department of Labor has no power to enforce it. But some states have already adopted their own, tougher versions, and labor advocates could push for a tightening of the law early in the next Congress. Significantly, a 2007 effort to strengthen the law boasted President-elect Barack Obama as an original co-sponsor in the Senate.

Meanwhile, employees have one practical remedy under the existing federal WARN law: filing a class action suit seeking back severance pay, plus attorney's fees.

In recent weeks, the New York City employment law firm of Outten & Golden has filed WARN lawsuits on behalf of, among others, ex-employees of Lehman Brothers (nyse: LEHMQ - news - people ), clothing retailer Steve & Barry's and Bill Heard Chevrolet, the nation's largest chain of Chevy dealerships before it collapsed in September. In all, the law firm now has 25 WARN suits pending. "In my experience, companies seldom comply with their WARN obligations," says Rene S. Roupinian, a lawyer with the firm.

In fact, a 2003 study by Congress' Government Accountability Office found that employers provided WARN notices for only one-third of the 1,974 mass layoffs and plant closings that appeared to be subject to WARN in 2001.

The WARN Act applies only to companies with at least 100 employees. Notice is required if, in a 30-day-period, a company lays off either 500 or more workers in one location or 50 or more workers making up at least a third of the workforce in a single location. For plant closings, notice is required if 50 or more workers lose their jobs in one location.