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Closing a Facility? Don’t Create Human Capital Problems

In recent years, manufacturers have closed facilities, corporate offices, warehouses, and production plants, for a variety of reasons. All too often, manufacturers overlook important legal requirements or planning steps, especially where human capital is concerned. Thus, we compiled the following human resources issues to help manufacturers identify problems that should be avoided.

  1. Train Employees regarding Intra-Company and External Communications – As almost any lawyer can attest, untrained or uninformed employees often send the worst emails or give the worst quotes. That’s why, when a facility closure approaches, manufacturers must purposefully prepare employees to handle issues, field questions, and document properly.

  2. Notice to Employees – A federal law, the Worker Adjustment and Retraining Notification Act (WARN), requires certain employers to notify employees of a facility closure at least 60 calendar days before the site actually closes, in certain circumstances. When WARN is triggered, the law requires notice to all employees being terminated, and the notice must include specific information. Violations of WARN could cost employers back pay and benefits up to 60 days for each employee. Additionally, some states also have their own employee-notification laws covering facility closures, so consult with local counsel to identify requirements specific to your jurisdiction.

  3. Secure Proprietary Documents/Assets – Once word spreads that a facility is closing, some employees may be tempted to take advantage of their access to confidential information, trade secrets, or intellectual property specifications. While protecting trade secrets is always a priority, shutting down a facility only increases the need for security. Be sure to consider best practices for protecting trade secrets.

  4. Review Collective Bargaining Agreements (if applicable) – Labor agreements often address issues related to facility closures. For example, the CBA may require negotiating with or providing notice to labor regarding the closure’s impact. The employer should be aware of any applicable provisions before “setting the wheels in motion.”

  5. Develop Frequently Asked Questions (FAQ) – Employees almost certainly will have questions regarding what the facility closure means for them. Employers can save time and ensure a consistent message by preparing a set of responses to frequently asked questions FAQs. In particular, these FAQs should address the scope of the impact—i.e. termination, transfer, or relocation—for different categories of employees. The effect on benefits, pensions, and COBRA will also be an issue about which most employees will ask.

  6. Consider Equal Employment Opportunity Issues – Facility closures are painful enough for employees and communities, but compounding the typical angst with racial, gender, age, or ethnic tensions may open an entirely different can of worms. Accordingly, companies must be mindful of the demographic impact of terminating certain employees while retaining others.

  7. Document Carefully –At the end of the day, minimizing legal exposure often boils down to what a party is able to prove. Thus, management should carefully document each step of the closing, including decision to take certain action and forego other action. Of course, documents are only effective if you have them. Even though the facility is closing, it is critical that the manufacturer retain all the relevant records.

Each facility closure presents its own legal considerations based on the jurisdiction and specifics involved. Thus, manufacturers should be sure to work with legal counsel in evaluating and addressing these issues. When closing a facility, there is no substitution for diligence, preparation, and attention to detail.

© 2020 Foley & Lardner LLPNational Law Review, Volume V, Number 189


About this Author


Nicholas Williams is an associate and litigator with Foley & Lardner LLP. His practice focuses on general commercial litigation, including non-compete, construction, white collar defense, and bankruptcy litigation. Mr. Williams has successfully obtained judgments and negotiated settlements for clients, including regional and national banks, in commercial disputes. He is a member of the firm's Legal Innovation Hub® for NextGen Manufacturers.