The Maryland Department of Labor Issues Proposed Maryland Economic Stabilization Act Regulations

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On December 15, 2023, the Maryland Department of Labor (“MDOL”) issued proposed regulations to implement the Maryland Economic Stabilization Act (“the Act”), which requires employers to provide notice of a mass layoff or a reduction in force in certain circumstances.  The proposed regulations are intended to provide guidance on how the MDOL plans to interpret obligations under the Act and enforce the Act, and the public is invited to provide comment on the proposed regulations before the MDOL issues final regulations.

Background of the Act: Similar to the federal Worker Adjustment and Retraining Notification (WARN) Act, Maryland’s Act provides for 60 days’ written notice to employees in the case of a mass reduction in operations. Previously compliance with the Act and its regulations were voluntary. Compliance was made mandatory in 2020, as discussed in our March 2020 E-Update. Our firm, and specifically Paul Burgin, was instrumental in encouraging the General Assembly to further revise the Act to better conform it to the federal law, as discussed in our April 15, 2021 E-lert. The MDOL announced in 2020 that it would not be enforcing the Act until the existing regulations were revised to reflect the newly-mandatory notice requirements. The issuance of the proposed regulations is the first step towards that end.

What the Act Requires: Maryland’s Act applies to employers with at least 50 employees operating an industrial, commercial or business enterprise in the State for more than one year. It is triggered by a reduction in operations, meaning either:

  • the relocation of part of its operation from one workplace to another, that may result in the reduction of the total number of employees by the greater of at least 25% or 15 employees; or
  • the shutting down of a workplace or a portion of its operations that reduces the number of employees by the greater of at least 25% or 15 employees over a 3-month period.

(For example, if an employer has 100 employees and lays off 15, the law would not apply because less than 25% of the 100-person workforce were impacted.)

The count of impacted employees does not include those working less than an average of 20 hours a week, or who have worked less than 6 of the preceding 12 months, or who have accepted within 30 days an offer of transfer to another employment site. A “workplace” is defined as a factory, plant, office or other facility where employees produce goods or provide services, but does not include construction sites and temporary workplaces.

The Act also exempts the following types of reductions in operations by private employers: resulting solely from labor disputes; occurring at construction sites or other temporary workplaces (redundantly); resulting from seasonal factors customary in the industry (as determined by the state Department of Labor); or resulting from an employer’s bankruptcy.

Under the Act, an employer must give a 60-day written notice prior to a reduction in operations to:

  • All employees at the workplace that is subject to the reduction in operations, including those working on average less than 20 hours a week and those who have worked less than 6 months during the prior 12-month period;
  • Any representative or bargaining agency representing those employees (i.e. a union);
  • The state Dislocated Worker Unit; and
  • The chief elected official (instead of all elected officials) in the jurisdiction where the affected workplace is located. If the workplace is in more than one jurisdiction, then notice is given to the chief elected official in the jurisdiction where the employer paid the most taxes in the preceding fiscal year.

The required notice must include:

  • The name and address of the affected workplace;
  • A company official’s name, telephone number and email address to contact for further information;
  • A statement explaining whether the reduction in operations is expected to be temporary or permanent (meaning that the employer has not entered into a written agreement to resume operations within three months of the reduction), and if the workplace is expected to shut down; and
  • The expected date the reduction in operations will begin.

Significantly, the Act adopts some – but not all – of the federal exceptions to the notice requirement. Thus, an employer need not provide 60 days’ notice if:

  • It was actively seeking capital or business that would have enabled the employer to avoid or postpone the reduction, and it believed that providing such notice would have precluded it from obtaining the capital or business; or
  • The reduction in operations was due to a natural disaster (e.g. flood, earthquake or drought).

Under those circumstances, notice must still be given as soon as practicable, along with a brief explanation of why it was not provided 60 days before the reduction. Unfortunately, the General Assembly declined to adopt the federal exemption for business circumstances that were not reasonably foreseeable 60 days before the reduction.

The Act also addresses notice in the context of a reduction in connection with the sale of a business, specifying that it must be given both by the seller on or before the effective date of the sale and the purchaser after the date of the sale. In addition, it asserts that an employee of the seller becomes an employee of the purchaser upon the sale, meaning that there has been no employment loss for that employee.

If there is a violation, the Secretary of Labor can issue an order compelling compliance and may assess a discretionary civil penalty of up to $10,000 per day. The following factors will be considered in determining the amount of the penalty: the gravity of the violation, the size of the business, the employer’s good faith, and the employer’s history of prior violations. The penalties shall be subject to notice and hearing requirements.

What the Proposed Regulations Provide: The proposed regulations are somewhat limited in the guidance that they provide, especially with regard to the statutory definitions.

Definitions: Definitions in the regulations simply cite back to the statutory definitions in many instances, without further explanation of how that language will be interpreted. This is the case with regard to the exceptions to the notice requirement, as well as the definitions of “employer,” “employee,” “permanent,” and “reduction in operations.”

With regard to the definition of “workplace,” however, in addition to referencing the statutory definition, the Department has further proposed that “Workplace” shall include “locations in the State where employees may be teleworking.”  As such, the Department appears to take the position that the Act will extend to an employer’s remote workforce and is not limited to a physical workplace such as a plant, office, factory or facility. This raises significant questions including how this aligns with the fact that the Act is triggered only when the greater of at least 25% or 15 employees are impacted at “a workplace.”

Orders Compelling Compliance and Penalties: The proposed regulations state that, if the Secretary issues a violation order, it must “[d]escribe with specificity the nature of the alleged violation,” and state the proposed penalty to be assessed.”

The proposed regulations set forth notice and hearing provisions, permitting an employer to whom an order is issued to contest the penalty in writing within 15 business days of the order.  A proposed penalty will become final if a party does not contest the penalty within 15 days following the party’s receipt of the order.  If a party files a notice contesting a penalty, the hearing will be delegated to the Office of Administrative Hearings for a contested hearing in accordance with standard procedures.

Assistance from the MDOL: Existing regulations regarding the MDOL’s Rapid Response Program and assistance from the MDOL’s Division of Workforce Development and Adult Learning are substantively unchanged. These resources provide employers and employees with information and support in the context of a mass layoff or reduction in force.

What Happens Now? Interested members of the public have until January 16, 2024 to comment on the proposed regulations.  Comments may be sent to Dylan McDonough, Policy Analyst, Maryland Department of Labor, 1100 N Eutaw Street, Baltimore, MD 21201, or made by telephone to 410-767-1890, or email to [email protected]. The MDOL will review any comments before issuing final regulations. Once regulations are adopted as final, the Department of Labor will begin enforcement of the Act.