Effective January 1, 2003, California employers contemplating a mass layoff, business relocation, or facility closing must follow a new set of rules set forth in Labor Code Sections 1400 et seq. The newly enacted California law is a companion to the federal Worker Adjustment and Retraining Notification Act ("WARN"). While closely related in scope and intent to its federal counterpart, the new California law contains a number of significant differences.

Advance Notice. The new law says that a covered employer may not order a mass layoff, relocation, or termination at a covered establishment unless 60 days advance written notice is provided to the employees of the covered establishment, the Employment Development Department, the local workforce investment board, and the chief elected official of each city and county government where the affected business is located. Labor Code Section 1401(a).

Who is Covered. An "employer" is defined under Labor Code Section 1400(b) as any person, association, organization, partnership, business trust, limited liability company, corporation or parent corporation which directly owns and operates a covered establishment. A "covered establishment" is defined under Labor Code Section 1400(a) as any industrial or commercial facility or part thereof that employs, or has employed within the preceding 12 months, 75 or more persons. Notably, the new state law lowers the threshold for coverage (WARN only applies to companies with 100 or more employees) and does not include the important federal distinction which allows employers to exclude part-time employees and new hires in determining coverage. 29 U.S.C. Section 2101(a)(1) and (8). The state law defines "employee" as a person employed by an employer for at least 6 of the 12 months preceding the date on which notice is required. There is no reference to the number of hours worked per week. Labor Code Section 1400(h). Thus, far more employers will be covered by the new California statute.

Covered Events. A "mass layoff" is defined as a separation from a position for lack of funds or lack of work during any 30-day period of 50 or more employees at a covered establishment. Labor Code Section 1400(c) and (d). Once again, this provision lowers the bar of coverage because WARN defines a "mass layoff" as a reduction in force at a single site of employment where at least 33% of the workforce and at least 50 employees (or alternatively at least 500 employees) are laid off for a period of six months or more. 29 U.S.C. Section 2101(a)(3). The Labor Code eliminates the 33% requirement and the often-complex "single site of employment" issue under WARN. Significantly, the Labor Code is silent as to the length of time that employees must be out of work before notice is required. Under WARN, a mass layoff does not trigger notice requirements unless the layoff exceeds 6 months, or constitutes a reduction of work of more than 50 percent during each month of any 6 month period. 29 U.S.C. Section 2101(a)(6).

WARN contains a 90 day look back provision whereby separate employment losses may be considered collectively to determine whether the WARN minimum has been met. The Labor Code does not contain a "look back" rule to capture covered events.

Notably, WARN specifically excludes certain sale of business transactions from coverage where employees are re-employed by the buyer following the sale. WARN also excepts plant closings or mass layoffs resulting from the relocation or coordination of part or all of the employer's business where, prior to the closing or layoff, the employer offers to transfer the employee to a different site within a reasonable commuting distance, or the employer offers relocation and the employee accepts, regardless of the distance. 29 U.S.C. Section 2101(b)(1) and (2). The new Labor Code provisions do not contain similar exclusions.

The new California law also adds a relocation to the list of covered events. A "relocation" is defined as the removal of all or substantially all of the industrial or commercial operations in a covered establishment to a different location 100 miles or more away. Labor Code Section 1400(e).

In lieu of the complex definition of "plant closing" in WARN, a "termination" under California law is defined as the cessation or substantial cessation of industrial or commercial operations in a covered establishment. 29 U.S.C. Section 2101(a)(2); Labor Code Section 1400(f).

Exception to Notice. The new California statute does not apply where the closing or layoff is the result of the completion of a particular project or an undertaking of an employer subject to Industrial Welfare Commission Wage Orders 11, 12, or 16, regulating the Broadcasting and Motion Picture Industries and Certain On-Site Occupations in the Construction, Drilling, Logging and Mining Industries, where the employees were hired with the understanding that their employment was of specific limited duration. Labor Code Section 1400(g)(1). The new provisions likewise do not apply to seasonal employees hired with the explicit understanding that their employment was seasonal and temporary. Labor Code Section 1400(g)(2). Given these exceptions, it is a good idea for employers in this situation to carefully document the temporary nature of the job assignment.

Content of Notice. The notice required by Labor Code Section 1401(b) is identical to that required under the WARN. There are four elements required in the employee notice: (1) a statement as to whether the planned action is expected to be permanent or temporary and, if the entire plant is to be closed, a statement to that effect; (2) the expected date when the plant closing or mass layoff will commence and the expected date when the individual employee will be separated; (3) an indication of whether or not seniority (bumping) rights exist; and (4) the name and telephone number of a company official to contact for further information. Labor Code Section 1401(b). Notably, the statute states that the notice must be written in a language understandable to the employer.

Like WARN, the California statute recognizes that notice is impracticable or impossible in certain instances such as where an employment action is caused by a physical calamity or act of war (the natural disaster exception), or under certain circumstances where an employer is actively seeking capital or business which would prevent a triggering event (the faltering company exception). Labor Code Sections 1401(c) and 1402.5(a), 29 U.S.C. Section 2102(b). If an employer seeks to use the faltering company exception as a defense, it is required under the new law to provide to the

California Department of Industrial Relations a sworn affidavit and verified documentary evidence illustrating the employer's effort. Labor Code Section 1402.5(b). Notably, this exception does not exempt an employer from providing proper notice of a mass layoff. Labor Code Section 1402.5(c). Also, the California law does not include WARN's "unforseen business circumstance" exception. 29 U.S.C. Section 2102(b)(2)(A). Once again, this means that there will be more covered events requiring notice under the California law.

Penalties. An employer found to have violated the California statute faces similar liability to that under WARN, including back pay to the affected employees who didn't get the requisite notice, up to 60 days. This pay is calculated at the average regular rate of compensation received by the employee during the last three years of employment, or the employee's final rate of compensation, whichever is higher, and includes the cost of benefits, including the cost of any medical expenses incurred by the employee that would have been covered under an employee benefit plan. WARN does not contain a benefits add-on. The back pay damages may be reduced by "any wages, except vacation monies accrued prior to the period of the employer's violation, paid by the employer during the violation," any voluntary and unconditional payments made by the employer to the employee not required to satisfy any legal obligation, and any payments made by the employer on behalf of and attributable to the employee for the period of the violation, including those made for health benefits or to a defined contribution pension plan. An aggrieved employee who successfully sues under the new law may also obtain an award of attorneys' fees. Labor Code Section 1404.

The new law also contains a good faith exception to excuse non-compliance. An employer's liability for violation of the California statute may be reduced or eliminated entirely if the court determines that the employer conducted a reasonable investigation in good faith, and had reasonable grounds to believe that its conduct was not a violation of the law. Labor Code Section 1405.

The new law also adds on civil penalty of up to $500.00 for each day of the violation (maximum $30,000). However, an employer can avoid this penalty by paying all applicable employees all amounts for which the employer is liable within three weeks from the date the employer orders the mass layoff, relocation, or termination. Labor Code Section 1403.

California employers are accustomed to contending with different and more far-reaching employment laws. Those facing a covered event under our new law must be mindful of these new state law requirements and the pitfalls for non-compliance.