Closing your business may be a difficult decision, and it may feel extremely personal. However, dissolving a business also comes with many legal implications. In Tennessee, there is a specific procedure business owners must follow when officially shutting their doors. These include terminating the entity’s registration with the state, settling debts, and ending tax obligations.
In addition to the formal steps, there are also many legal implications employers must consider when employees will be affected by the closure. Below, our Tennessee employment lawyer outlines what these are, so you are prepared and know how to protect yourself.
Liabilities for WARN Act Violations
One of the biggest legal risks for employers is violating the federal Worker Adjustment and Retraining Notification Act (WARN Act). Under this Act, employers must provide employees 60 days’ advance written notice if a mass layoff or business closure impacts a large number of workers.
Employers must notify all employees or their unions, the state dislocated worker unit, and local government officials. Employers must provide this notice when a mass layoff will impact 50 or more full-time employees, when there are 100 or more workers, or when a shutdown will impact at least one-third of employees, when the employer has hired 50 or more workers. Notice is also required for plant closings when a single site is shutting down within 30 days.
Failure to comply with the WARN Act has significant penalties. Employers may have to pay back pay and benefits for up to 60 days for every impacted employee. In addition, there is also a civil penalty of up to $500 per day. Employers may also be responsible for the attorney’s fees and litigation costs that employees incurred. In large layoffs, this can become extremely expensive.
Wrongful Termination Claims
Tennessee is an at-will employment state, meaning employers have the right to fire employees for nearly any reason, or without any reason at all. However, employers can still face liability if terminations during a closure violate the protected rights of employees. Wrongful termination claims in these situations often involve the following:
- Discrimination regarding the employee’s religion, disability, age, sex, and race
- Retaliation against whistleblowers
- Termination related to protected leave, such as military service or medical leave
If the layoffs appear to be discriminatory in nature, a shutdown does not necessarily protect the employer.
Wage and Benefit Claims
Employers must ensure all employees receive the compensation they are owed before closing. This includes:
- Final wages
- Accrued vacation, when company policy requires it
- Earned commissions
- Notices for COBRA health insurance continuation
Failure to provide the above can result in wage claims and lawsuits.
Breach of Contract Claims
Employers often enter into contracts with their employees. These can include employment contracts, collective bargaining agreements, severance plans, and retention agreements. If the terms of these agreements are violated, it could trigger a breach of contract claim. For example, an employment contract may specify guaranteed employment periods. If the employer then shuts down their business, the employee may file a breach of contract lawsuit against the employer.
Worker Misclassification Claims
When employers are undergoing audits after a closure, they sometimes face claims arguing that employees were misclassified as independent contractors. Sometimes this is an honest mistake, while in other cases, employers do this to avoid paying benefits to workers. Either can trigger a lawsuit. These claims are not uncommon after shutdowns or layoffs.
Mistakes to Avoid
To ensure you are not open to any legal risk, there are certain mistakes to avoid. Working with a Tennessee employment lawyer can help you avoid these mistakes. The most common of them are as follows:
- Triggering WARN violations: There are many mistakes that can trigger WARN violations. These include failing to provide proper notice, miscalculating whether the number of impacted employees triggers the requirements under WARN, failing to notify all required parties, and improperly labeling the layoffs as ‘temporary.’
- Retaliatory terminations prior to the closure: Employees sometimes argue that they were not terminated due to a shutdown but instead, because they engaged in a protected activity. These may include reporting safety violations, reporting wage violations, filing discrimination complaints, or participating in workplace investigations. These retaliation claims are more common than many employers think during a closure.
- Triggering COBRA violations: Employees may have rights to continued health insurance coverage under COBRA. Employers must send these employees notices outlining the options for continued coverage. Failing to do this can result in statutory penalties, liability for medical expenses, and additional litigation costs.
- Failing to document: It is critical to thoroughly document any shutdown and the subsequent layoffs that occurred. As an employer, it is recommended that you document how you made decisions regarding layoffs, business reasons for choosing certain employees, such as when a single plant out of many is being shut down, and the objective criteria used for reductions. Without this documentation, it is far more challenging to argue against claims of retaliation or discrimination.
How Can an Attorney Help Employers Dissolve Their Business?
A lawyer can help you navigate the complicated legal issues that arise when closing or dissolving a business. Our experienced attorney can help in the following ways:
- Ensure you are in compliance with laws such as the WARN Act and COBRA
- Prepare the legally required notices
- Review the criteria for layoff selection to ensure it will not trigger retaliation or discriminatory claims
- Make sure termination decisions are well documented
- Make sure final wages, bonuses, and commissions are paid
- Oversee the legal process for dissolution
Call Our Employment Lawyer in Tennessee When Dissolving Your Business
Dissolving a business is difficult enough. The legal challenges and liability you may face will only make things much harder. At The Ebbert Law Firm, our Tennessee employment lawyer can guide you through the process and make sure you are in compliance with all laws and that all deadlines are met, so this difficult time does not have to be even more challenging. Call us today at (865) 503-4454 or fill out our online form to schedule a consultation and to get the legal advice you need.