Paramount Skydance’s pending acquisition of Warner Bros. Discovery, in a landmark deal now totaling $110 billion, highlights a major legal consideration often implicated in mergers and acquisitions (M&A)—the federal Worker Adjustment and Retraining Notification (WARN) Act.
Just days after the deal was made public, Paramount announced it would cut $6 billion in costs and included in these efforts would be the erasure of duplicative teams. Company executives began working to quell fears of widespread layoffs and advised that the company would focus on consolidation to lower costs, not on labor reductions. In any M&A deal, questions may arise whether the WARN Act and similar state laws are triggered and, if so, their effect on the transaction.
The WARN Act covers businesses with (i) 100 or more full-time employees, excluding part-time employees, or (ii) 100 or more employees, including part-time employees, who collectively work at least 4,000 hours each week (excluding overtime). When a “plant closing” or “mass layoff” occurs, an employer must provide at least 60 calendar days’ advance notice to certain recipients, including affected employees not represented by a union.
A “plant closing” includes a temporary or permanent shutdown that results in an employment loss for at least 50 employees at a single site or at facilities or operating units within a single site. A “mass layoff” is a reduction in force that is not caused by a plant closing but results in an employment loss at a single site of employment for at least 50 employees comprising 33% or more of the employer’s workforce or for 500 employees.
The contents of the employer’s WARN Act notice differ depending on the recipient, but at least 60 days’ prior notice to most individual employees without a union representative must include certain information such as whether the action is expected to be permanent or temporary, the expected date the plant closing or mass layoff will commence, the expected date of the particular employee’s dismissal, whether any bumping rights (rights of a contractually senior employee to take the job of a junior employee when the former’s job is eliminated) exist, and an employer point of contact.
Whether the WARN Act is implicated in a business transaction can be a complicated inquiry. Typically, in an asset sale, the seller must provide WARN Act notice for layoffs occurring before the transaction closes; but the buyer must provide WARN Act notice for post-closing layoffs. In an equity sale, where the ownership structure of the selling company changes but the legal employer remains the same, the selling company generally remains responsible for WARN Act compliance. Also, the WARN Act requires that employers look 90 days ahead and 90 days back from each employment loss to determine whether notice is required; and separate employment losses are aggregated during these time windows—such that pre- and post-closing layoffs may collectively necessitate notice under the Act. The parties to a business transaction should ensure that the purchase agreement apportions any WARN Act obligations and liabilities.
The Paramount-Warner Bros. deal serves as a timely reminder that the WARN Act must be a central consideration in M&A transactions for companies of all sizes. The costs and implications of the WARN Act or similar state laws may affect the deal structure and future operations and should be evaluated before finalizing the transaction plan.
If you have questions about the WARN Act, including its potential implication in the sale or purchase of a business, do not hesitate to contact Ben Parks or Mag Bickford.
Ben Parks is an associate whose practice focuses on commercial transactions and general corporate law in a multitude of industries, including real estate and energy transactions.
Mag Bickford represents businesses, education providers, and management in labor and employment litigation and provides general legal counsel on a variety of workforce matters to clients nationwide.