Navigating California’s Legal Layoffs: Essential Guidelines

A Primer on California Layoff Laws

California layoff laws are governed by both federal and state legislation, including the Worker Adjustment and Retraining Notification Act (WARN) and the California WARN Act. While the federal version requires larger employers to provide written notification to affected employees, in cases of plant closings and mass layoffs, California law broadens these definitions considerably.
California layoff laws contain specific rules pertaining to:
• When a layoff occurs, or if a facility is closed
• How the employees must be notified
• What benefits must be offered to affected employees
• Applicable exceptions
The WARN Act
Federal law requires employers with 100 or more employees and who have been employed for at least six months, to receive 60 days’ notice before a company issues any of the following:
• Plant closings
• Mass layoffs affecting at least 50 employees at a site
• Layoffs that result in employment loss for at least one-third of a workforce at a site
• Layoffs that affect 500 or more employees at a site
Any specific state law must be broader than federal law in order to be enforceable.
The California WARN Act
California layoff laws require all employers with more than 75 employees, including full-time, part-time, and temporary workers, to provide affected workers with 60 days’ advance written notice. Layoffs of at least 50 employees within a 30-day time period, with exceptions, are covered by state and federal WARN. California’s law also requires notification of labor unions and local government agencies with jurisdiction over the layoff or facility closure.
State law provides certain exceptions to layoff notification requirements , including:
• Layoffs caused by natural disasters
• Temporary layoffs due to a lack of work
• Layoffs that affect less than 50 employees and that last less than six months
• Layoffs made by companies that employ fewer than 75 employees
• The expiration of a collective bargaining agreement (CBA)
California layoff laws require notification to the California Employment Development Department (EDD) at least 60 days before a layoff, beginning September 1, 2023. AB 2088 requires employers to disclose:
• Layoffs that affect 15 or more employees at a facility
• Layoffs that affect 15 or more employees at separate facilities or sites in a single county or within 30 miles of each other
• Layoffs in a single county that exceed one-third of the total number of employees at the facility or site
The law also provides an exception if the layoff is not for economic reasons. This includes instances where the layoffs were necessary to comply with requirements of local, state, or federal government bodies.
Exceptions to written notification requirements apply, such as when not providing written notice would avoid a significant disruption to operations, the employees already know of their termination date, or the owner or successor of the business has not violated WARN notification requirements.
California’s temporary warning system
California employers may use the Education Code complaint system to submit a written notification about potential layoffs. All notices must include details of the reason for the layoff. This includes factors outside of the company’s control, such as a strike or work stoppage, because affect employees may be:

Requirements for Legal Layoffs in California

In general, a laid off employee is entitled to the same legal rights and benefits as a terminated employee. As a result, many of the requirements explained above apply to layoffs as well. Laying off an employee may also be termed a reduction in force or RIF. A RIF is a reduction in the number of existing employees and is one of four methods that can be used to reduce the workforce through employer-initiated means. The other three methods are a termination, furlough, or leave without pay. (see Cal. Unemp. Ins. Code § 1253(c).) When adopting a layoff policy, employers should also be mindful of the WARN Act. For example, the Federal WARN Act requires employers with 100 or more employees at a single employment site to give 60 days’ notice to employees affected by a mass layoff of 500 or more employees within a 30-day period or 50 or more employees who work at an employment site with 50 or more employees. (Cal. Unemp. Ins. Code §§ 1400-1402). In addition, employers must give the Employment Development Department written notice of the mass layoff within 60 days and the local government where the layoff will occur. (Cal. Unemp. Ins. Code §§ 1400-1402 and 1407.) Many California employers have no problem providing the requisite notification to the terminated employees of the layoff. However, if, after sending out a notice of layoff, certain employees might attempt to rescind their notice or find other legal grounds to seek to be reinstated, an employer should consult with counsel to determine the best course of action. It is also important to note that any severance or termination package offered in connection with a layoff should not be conditioned on the employee’s agreement to waive any claims arising from the layoff even if a valid release of claims is given. On the state level, the California Worker Adjustment and Retraining Notification Act (CWARN Act) applies to employers with 75 or more employees at a particular worksite. (Cal. Unemp. Ins. Code § 1400 et seq.) The CWARN Act requires employers to provide former and current employees with written notice 60 days before a mass layoff, relocation, or termination. (Cal. Unemp. Ins. Code § 1401.) California employers who do not comply with the CWARN Act may face a penalty of up to $500 per day for each day of violation. (Cal. Unemp. Ins. Code §§ 1400, 1405.) Employers should abide by the same types of procedures when laying off a small group of employees. There is no requirement under California law that an employee be replaced in order to limit the layoff. That means that an employee whose responsibilities are eliminated may be replaced by another employee whose duties and responsibilities are outside the scope of the terminated employee’s position. Employers should take great care not to ask for voluntary resignations during a layoff and instead proceed with the layoff of all targeted employees. California employers should also clearly communicate with employees being laid off about the reasons for the layoff, the criteria for selection, and the business rationale for it. (For example, are there "key employees" in the department being laid off who should remain employed until the layoff is effective?) Employers should cash out any unused vacation for all employees being laid off. Lastly, employers should provide adequate notice and/or payment in lieu of notice to the laid off employees.

Employer Duties under the WARN Act

If an employer has 75 or more employees and a mass layoff in California results in the termination of one of the three largest groups of at least 50 employees at a covered establishment within a period of 30 days, it is subject to the California version of the federal WARN Act (Cal-WARN Act). In addition, an employer that employs 100 or more employees is also subject to Cal-WARN if, within any 90-day period, any of the following occurs: 1) 50 of the current employees at a covered establishment are terminated; 2) 50 of the former employees at a covered establishment are laid off within a 90-day period (provided the employees were laid off for more than six months during their employment); or 3) 50 of the former employees are terminated within a 90-day period, provided the employees were employed at least half-time and had their employment terminated (either during employment or afterwards). A "covered establishment" is any industrial, commercial, or office facility where at least 75 employees in California worked within the preceding 12 months, unless that facility is an agricultural establishment or military base. A "mass layoff" is a layoff of any "large number" of employees. A "large number" means at least 50 employees, or 33 percent of the employees at the covered establishment, whichever is smaller. A "termination" means cessation of employment for any reason other than discharge for cause, voluntary departure, or retirement. "Layoff" means a temporary or permanent, partial or full-time, separation from a covered establishment.
Notice must be provided to employees, the California Employment Development Department, the chief elected official of the city and county government or the county or city with the most employees at the establishment, and the exclusive representative of the affected employees (if any). The minimum notice period is 60 days before a closure or layoff.

Severance Packages and Final Wage Payments

Even when layoffs are part of reductions in force, employers often wish to offer severance packages to departing employees, as an incentive to accept the layoff, and/or in exchange for a release of claims against the employer. When done properly, severance packages can benefit employers by reducing the risk of subsequent legal claims and providing the employer with enforceable releases from the laid-off employees. Severance pay, whether offered in the context of a reduction in force or individual layoff, is regarded as wages subject to California’s strict payment rules, including the key final pay provisions discussed above. Employers are required to pay the final wages due to a laid-off employee at the time the employee is separated from employment. An employee who terminates for any reason other than willful misconduct is entitled to his/her final pay on the day of termination. A laid-off employee, including those laid off as part of a reduction in force, is entitled to his/her final pay at the time of the layoff. Employers should not delay issuing a laid-off employee his/her final paycheck, even if the employer is extending any severance payments post-termination.
Employers must also be cautious when offering severance pay after a layoff. Much of the severance paid to laid-off employees is "wages", and there are restrictions on extending severance periods and/or paying severance in increments that give an employee additional "days worked" to challenge a layoff, as discussed earlier. To alleviate the risk of potential liability associated with wrongfully classifying payments as "wages," companies should consider separating severance pay from final pay in a "separation package," which is distinct from final pay and paid after the employee’s date of termination, and which is not characterized as part of the employee’s final pay. Companies also should be aware of the potential for claims under the Worker Adjustment and Retraining Notification (WARN) Act, which triggers liability for employers who fail to provide affected employees with 60 days’ notice.

Employee Benefits Considerations

Employers should also be aware of the impact of a layoff on employee benefits to avoid confusion and errors. For example, employers are required to provide employees with written information explaining the availability of and the responsibilities and required actions for COBRA on both its web site and in an administrative guide for participants in its health plans and retirement plans.
COBRA requires employers to notify employees about continuation of healthcare coverage upon certain specified occurrences including: (1) the voluntary or involuntary termination of the employee’s employment for reasons other than gross misconduct; (2) reduction in hours of employment by the employee; (3) death of the employee; (4) divorce from the employee; or (5) Medicare entitlement. Employers have 30 days from such events to notify qualified beneficiaries of their right to elect continuing healthcare coverage.
If employees do not pay their premiums during a covered continuation period, the law imposes a maximum grace period of 30 days before coverage may stop. Therefore, if an employee is laid off on December 31, 2009, then the employer has until January 30, 2010 to notify the employee of their COBRA rights and give them 60 days to elect coverage and 30 days from the date of election to receive coverage . Assuming the employee’s continued coverage had a January 1, 2010 effective date, it is possible that the employer may not receive any premium payment until March 1, 2010 for coverage that begins on January 1, 2010, then a 30 days grace period would expire on March 31, 2010. The employer, therefore, would not be able to stop covering the employee under the group health plan until April 30, 2010. Employers should also remember that health coverage under state law may be even more extensive.
The termination and replacement of a retirement savings plan often occurs during a layoff from work. Even if the employer intends to start a new retirement plan, the old plan must be administered properly until terminated. An employer must: (1) determine whether it has a plan that falls under ERISA; (2) administer the plan in accordance with its terms; (3) prepare the plan’s required filings (such as Form 5500); (4) make distributions from the plan only when permissible; (5) prepare distributions for participants, and (6) distribute benefits pursuant to the terms of the plan.

Addressing Legal Risks and Discrimination Issues

When addressing the likelihood of a claim for age or gender discrimination (or a similar claim based on race, national origin, etc.), the best way for an employer to defend against such a claim is to avoid creating it in the first place. This is accomplished when employers take time before a layoff to consider how positions, departments or work units will be impacted, and to determine whether groups of employees who are performing the same functions will be treated similarly.
For example, if the company decides to reduce the office’s overall staffing by 10%, which is accomplished by letting go specific employees with certain positions, the employer should be aware of how many employees with those positions are in the office overall, what "comparable" positions exist in the office, and how many of each type of employee represent the 10% reduction. For instance, if the work units affected were A: 5 employees; B: 7 employees; C: 3 employees; D: 2 employees; for a total of 17 employees, then if the employer needs to lay off 10% of the workforce, that would equal roughly 1.7 (17 x 10/100). Rounded up that works to 2 for practical purposes, so the employer could let go two employees only from work units A, B or C, and none from D. If work units A, B, and C contain both 40+ year-old and younger employees, then the 10% reduction has been met. In other words, under this example, in planning the layoff, the employer determined that it would let go up to 50% of A, B and C, meaning that there is the potential for age-40+ employees to be let go. The employer should understand that this is the result of following its layoff criteria, and should not let go any individual because of that person’s age. In other words, the decision must be legally legitimate.
Suppose however, that a company wanted to reduce its workforce in half, and • each department had three positions; • there were a total of 12 employees, 10 of whom were 40+, and 2 were under age 40; • none of the employees who worked in the same job functions had equal skills, but all had roughly equal years of experience; • the two under-age-40 employees performed the same job function as the older employees, but were paid about 50% of what those older individuals were paid.
In this scenario, each department will need to let go 1 employee, which works out to be 50% of each department. While all employees are comparably performing the same functions, their skill levels are disparate, yet each the older employees are making about twice as much money as each of the younger individuals. If the employer lays off older employees, it will do so because they will easily be replaced by younger individuals earning far less money than the older employee; however, if younger individuals are laid off, they will be more difficult to replace: they may have specialized knowledge of what software, equipment or networks the company uses. Because of their younger ages, they are less likely to be gone for long (because they are still gathering experience), and more likely to be attracted back for another position.
Employers should avoid laying off protected group members, including older employees, who are easier to replace or who are less costly to replace. If an employer excuses away a decision to let go a 40+ employee but omits mention of the younger employees with the same skills performing the same job function and earning less money, a court may well draw an inference of unlawful discrimination, and a plaintiff may have sufficient circumstantial evidence to create a triable issue of fact.
The foregoing examples illustrate the need for caution when choosing which employees to lay off. While the company’s business needs are important, employers need to find a balance between eliminating superfluous positions and foregoing positions that are significantly less costly to have filled, because the layoff of protected class members can give rise to a claim of discrimination. Much of what gives rise to the possibility of a lawsuit in the aftermath of a layoff is poor planning. By putting thought into the layoff criteria and analyzing the impact of a proposed layoff on comparable positions and employees, an employer can drastically reduce the risk of a successful discrimination lawsuit.

Communications with Employees

The Importance of Communicating with Employees During Layoffs Regardless of the precise timing, the operative legal question in California when a company is conducting layoffs is whether, prior to the layoff, there was effective communication with the affected employee(s) about whether a displacement or bumping right exists. Cavil repeatedly made clear in cases since 2010 that, if an employee did not raise a layoff issue within ten days of receiving his or her notice of layoff, the employee would be deemed to have forfeited his or her bumping right and would not be entitled to challenge the lay off later, unless the basis for exercising it had been the subject of a pending decision by a grievance or arbitration board. The initial step in this communication process , before informing an employee of an impending layoff, is to review any collective bargaining agreements and layoffs policies. Legal counsel is often desirable to assist in reviewing these policies and template letters to determine how best to approach the situation under those policies and the law. A prudent employer will also consider holding a meeting with the affected employees to communicate with them and answer their questions, first as a group and then individually. It also gives the employer an opportunity to stress the positive, for those employees who will continue to work at the company post-layoff.