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Employees are often the last to know about a possible company bankruptcy, and frequently do not even find out until after the petition has been filed. However, hiding news of the bankruptcy may expose a company or management to claims by the employees. In the Bloomberg Law article “Keeping Employees in the Dark about a Looming Bankruptcy: Know the Risks,” Member Mark Horoupian discussed employers’ obligations under the Worker Adjustment and Retraining Notification (WARN) Act.
The WARN Act requires businesses to give 60 days’ advance written notice to affected employees in case of either a permanent or extended plant closing, or a mass layoff. The federal WARN Act applies to businesses with over 100 employees, while many states have their own versions with lower thresholds (California’s WARN act applies to businesses with at least 75 employees).
Failure to give 60 days’ notice under the WARN Act exposes companies to damages equaling the employees’ wages and benefits for each day of the 60-day window that the notice was not given; a court may also award employees their attorneys’ fees. Even more troubling is the fact that violating the WARN Act could open members of management to personal liability.
The tendency to want to keep employees from finding out about an impending bankruptcy is understandable—news of financial distress isn’t good for morale, as to many people, bankruptcy means the end of their jobs. However, it’s important to keep the WARN Act, and its potential consequences, in mind.