Layoffs could have legal implications for restaurants

Source: Restaurant Hospitality

As restaurant traffic plummets in some markets in response to the COVID-19 virus, some operators are laying off or furloughing workers, or temporarily shutting down operations altogether.

But those short-term solutions could have long-term legal repercussions.

A federal law, the Worker Adjustment and Retraining Notification Act, or WARN, requires many employers to notify local officials as well as employees in advance of large-scale termination.

Employers with 100 or more employees must let them know 60 days in advance if there is going to be a closing or “mass layoff,” defined as a reduction of 33% of the total workforce and 50 full-time employees at a single site for any 30-day period. They also must be notified if their wages are to be decreased by more than 50%. Failure to do so could result in legal penalties.

Not only must the employees be alerted, but also their union representative, if there is one, the local chief elected official, such as the mayor, and the “State Dislocated Worker Unit,” such as the state department of labor.

There are also what Carrie Hoffman, a partner in the law firm Foley & Lardner in Milwaukee, calls “baby WARN Acts,” which apply to smaller companies.

New York, for example, requires 90 days notification if as few as 25 full-time employees are laid off, according to Fox Rothschild in a legal brief provided by the New York City Hospitality Alliance.

However, it’s possible — even likely — that the COVID-19 outbreak could classify as an exception, either as a “natural disaster” or an “unforeseen business circumstance,” said Clarence Belnavis, regional managing partner of law firm Fisher Phillips’ Portland office.

“Arguably the current pandemic would fit within those because it’s an unanticipated event,” he said.

Rothschild agreed, saying that, while “unforeseen business circumstances” tend to be interpreted narrowly, the coronavirus outbreak would likely apply, but advised operators to consult with their lawyers to determine what kind of notice needed to be provided.

Nonetheless, restaurant companies that are subject to WARN Act or “baby WARN Act” regulations still have to inform employees, their union leaders and government officials “as soon as practicable,” according to the regulations.

Hoffman said that, although “as soon as practicable” is vague, restaurateurs should avoid delaying those notifications.

“It is open to interpretation, but as you hem and haw for days and days and days on end, it becomes less defensible,” she said.

“It’s anybody’s guess what courts are going to do with these kinds of issues going forward because we haven’t been in this situation in this country in this way,” she added. “And so what means ‘as soon as practicable’ three years ago when [hypothetically] we were talking about a financial crisis might not be the same as when we’re talking about a health crisis.”

She added that if different restaurants in the same group share staff — such as servers that work shifts at multiple restaurants — then if the total number of employees affected at all of those restaurants exceeds 50 people and a third of the staff, then the WARN Act regulations would be triggered.

Cliff Risman, another partner in Foley & Lardner, added that for these and other pandemic-related legal issues, we’re in uncharted legal territory.

“It’s not like there’s precedent [and] you can open up the books and see what happened the last time,” he said.

That’s also true with non-employee-related issues, such as contracts with suppliers or parties that were booked in advance.

If the coronavirus pandemic is determined by the legal system to be a force majeure or “act of God,” like an earthquake, hurricane or other natural disaster, then suppliers may not be legally responsible for food that wasn’t delivered and party’s canceling their events might be able to get their deposits back

“That issue ripples through everything in the hospitality industry,” he said.