In the ever-evolving landscape of the energy sector, a seemingly straightforward piece of federal legislation —the Worker Adjustment and Retraining Notification (WARN) Act —frequently emerges as a pivotal factor in transaction structuring and risk mitigation. Enacted in 1988, the WARN Act mandates a 60-day advance written notice to employees before a “plant closing” or “mass layoff.” This is a statutory obligation designed to provide a critical window for affected workforces to prepare for employment loss, seek new opportunities, and access retraining programs.

Understanding the applicability of the WARN Act is foundational for energy companies, particularly those involved in active operations, acquisitions, or divestitures. Generally, the Act applies to employers with 100 or more full-time employees. The primary triggers for notice are either a “plant closing”— a temporary or permanent shutdown of a single site of employment (or a facility within it) resulting in an employment loss for fifty or more employees during any thirty days—or a “mass layoff.” A mass layoff is a reduction in force that is not caused by a plant closing, but rather one that results in an employment loss at a single site for (i) at least 33 percent of the active employees and at least 50 employees; or (ii) at least 500 employees. WARN applies specifically to full-time employees only, not part-time employees or independent contractors.

A common issue is the “series of small layoffs” scenario. The WARN Act contains an aggregation rule, which states that the government will analyze all employment losses that occur over any 90 days. If these individual reductions, when combined, total 50 or more employees, and the employer cannot definitively demonstrate that each loss was the result of “separate and distinct causes” (truly unrelated, independent business decisions), the series of events may be deemed a single, covered event. This retrospective aggregation can transform what appeared to be isolated personnel adjustments into a full-blown WARN violation, leading to significant penalties, including back pay and benefits for each aggrieved employee, potentially for up to 60 days, and civil penalties up to $500 per day to the local government.

The WARN Act’s greatest implications for the energy industry often surface during mergers, acquisitions, and strategic divestitures. Imagine this common scenario: a company acquires a producing asset, a midstream facility, or an entire exploration and production entity. In the rush to integrate operations, acquiring companies often naturally assume all existing personnel associated with the target. This can inadvertently lead to significant, unanticipated WARN Act liabilities if post-acquisition workforce optimization results in subsequent layoffs. WARN Act compliance is, therefore, a critical component of due diligence and a standard inclusion in the Representations and Warranties section of merger and acquisition agreements. Pre-acquisition assessment, thoroughly evaluating the target company’s past and potential future WARN Act compliance risks, particularly concerning any recent or planned workforce reductions, is advisable to reduce possible WARN Act violations.

Whether a company is an independent that is exploring growth through acquisition, a private equity firm optimizing a portfolio, or a major that is divesting assets, proactive WARN Act compliance is not just a human resources matter; it is a fundamental aspect of legal and financial risk management. A failure to properly navigate WARN obligations can erode deal value, damage corporate reputation, and lead to protracted litigation. Integrating WARN Act analysis into strategic planning and transactional due diligence from the outset is essential to safeguarding interests and ensuring seamless, compliant workforce transitions.

Don’t wait to reach out to RR&A to ensure that your transaction documents take these risks into account and that your company is taking the proactive steps necessary to avoid WARN Act violations.