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Under the Federal WARN Act and Similar State Laws, Mortgage Industry Employers Must Provide 60-Day Advance Notice Before Laying Off Employees


By Martin S. Frenkel and Brian A. Nettleingham

While the economy as a whole has seen sustained job growth of late, the polar opposite is happening in the mortgage industry. Lenders and others continue to bleed jobs at a blistering pace. Following an industry-wide hiring spree in 2020 and 2021, plummeting mortgage applications and rising interest rates have forced employers to lay off thousands of employees en masse to stay afloat. Since April 2022, over 20,000 mortgage banking and brokerage positions have been cut, primarily at lenders. While such workforce reductions are designed to reduce costs, they can also leave mortgage companies exposed to significant liability if they violate federal and state laws regarding layoffs. 

The WARN Act

The federal Worker Adjustment and Retraining Notification Act (WARN) applies to private employers with 100 or more employees, generally not including those who worked less than six months in the last 12 months and employees who work less than 20 hours a week on average. The purpose of the act is to give workers a “heads up” about their impending termination as part of a workforce reduction or restructuring so they have sufficient time to prepare for the transition between jobs. To that end, the WARN Act imposes specific notice obligations on employers before they institute a mass layoff. Failure to comply with the act’s notice requirements can result in civil penalties and liability to affected employees who did not receive timely or proper notice before their dismissal. 

When Notice Is Required Under the WARN Act

Subject to narrow exceptions and with several nuances, a covered employer generally must issue a WARN notice to all affected employees (including managers and supervisors, as well as hourly, salaried, and part-time workers) 60 calendar days before a layoff if it: 

  • Closes a facility or discontinues an operating unit temporarily or permanently that affects at least 50 employees at a single site of employment, not counting part-time workers.
  • Lays off 500 or more employees (not counting part-time employees) at a single site of employment during a 30-day period; or lays off 50-499 employees (not counting part-time employees), and the layoffs constitute 33% of the employer’s total active workforce at the single site (not counting part-time workers).
  • Announces a temporary layoff of fewer than six months that meets either criterion above and then extends the layoff for more than six months.
  • Reduces the hours of work for 50 or more workers by 50% or more for each month in any six-month period.

In addition to affected employees, the applicable State Rapid Response Dislocated Worker Unit, the chief elected official of the local government where the mass layoff is to occur, and a union representative (if applicable) must also receive notices of the impending layoff. These notices have different substantive requirements than the notices provided to employees. 

Form and Content of WARN Notice 

While no particular form of notice is required, all WARN notices must be in writing and sent via any reasonable method of delivery designed to ensure receipt 60 days before a closing or layoff. The notice must be written in clear, specific, and easy-to-understand language and, at minimum, must contain all the following information:

  • A statement as to whether the planned layoff is expected to be permanent or temporary.
  • The expected date when the mass layoff will occur and the expected date when the individual employee will be terminated.
  • An indication of whether or not bumping rights (rights of an employee to displace another employee due to a layoff or other employment action) exist. 
  • The name and telephone number of a company official the employee can contact for further information.

As noted, there are many nuances to when WARN notices are required. Any lender or servicer contemplating a layoff should consult an attorney well in advance to allow sufficient time to issue the notice and address any issues specific to their circumstances.

“Mini” WARN Acts

In addition to the federal WARN Act, most states have their own notice requirements regarding mass layoffs that may differ from those under federal law. Accordingly, employers must check the law of the state in which any layoff is to occur to ensure compliance with state law as well.

Consequences of Non-Compliance

An employer who violates the WARN ACT is liable to each affected employee for back pay and benefits for the period of violation, up to 60 days. An employer who fails to provide the required notice to a unit of local government is subject to a civil penalty of up to $500 for each day of violation. An employer can avoid the penalties if it satisfies its liability to each affected employee within three weeks after the closing.

Several class action lawsuits have recently been filed against mortgage companies for alleged WARN Act violations. For example, First Guaranty Mortgage Corp is currently facing two separate class action suits for allegedly failing to give timely notice when it recently laid off over 400 employees.

It is critical that mortgage lenders, servicers, and other industry employers plan ahead for layoffs to ensure they comply with federal and state WARN Act obligations. If you have WARN Act and layoff-related questions, please contact Martin Frenkel or  Brian Nettleingham at Maddin Hauser.