There have been a lot of layoffs in the video game industry lately—the most prominent recent one being the announcement that Microsoft would layoff approximately 1900 Activision Blizzard and Xbox employees.[1] And there are a few legal issues that both employers and employees should be looking out for—and discussing with an attorney—in connection with layoffs.

This discussion is focused on the United States. Other rules may apply in other countries. And as with any law, the specifics will vary from one state to another.

Layoff Notice Requirements

The federal Worker Adjustment and Retraining Notification (“WARN”) Act, and equivalents in states like New York, California, Illinois, New Jersey, Hawaii, Iowa, Maine, New Hampshire, Tennessee, and Wisconsin require advance notice of a mass layoff to employees.

The federal act applies to a company with at least 100 employees (some states require lower numbers, such as 50 in New York or 75 in California).[2] However, part-time employees and employees who have worked less than six months also may not count toward the minimum or be entitled to a layoff notice if the minimum is met.[3]  If the employer has parent or subsidiary entities or works with contractors that have their own employees, employees of those entities may or may not count depending on the nature of the other entity’s relationship with the main employer.[4] Likewise, independent contractors do not count as “employees,” depending on whether they truly are independent contractors or were misclassified employees.[5]

The federal notice requirement is triggered if a layoff affects 1/3 of the employees at a worksite or more than 500 employees. Some states are more generous, such as California’s threshold being 50 employees or New York’s at only 25.[6] Remote employees may be included among employees for a particular worksite depending on which WARN Act is being applied and in which jurisdiction the federal act is being interpreted.[7]

If the thresholds are met, the federal act requires that an employer give 60 days’ notice to employees to be laid off (or their union representative) before they are terminated. Again, some states require a longer notice period, such as New York at 90 days.[8]

The notice has to provide specific information, be written in a language understandable to the employee, state the date of the layoff and final work date, state whether the layoff is permanent or temporary, and provide contact information for the employee to ask for more information.[9]

If the employer fails to comply with this, affected employees can sue for back pay and benefits, with attorney’s fees, and the employer may face additional penalties as well.[10]

But an employee can also waive his or her rights under the WARN Act in certain circumstances. Specifically, an agreement to waive the right to sue with a WARN Act claim that is voluntary—i.e. made circumstances that comport with traditional legal notions of voluntariness, such as having had due time to consider the agreement, review it with an attorney, and accepting compensation in exchange for the waiver—can be effective. And since it renders the layoff “voluntary,” it actually negates the applicability of the WARN Act to the extent that an employee who waives his or her rights may no longer count toward the threshold for a layoff being a “mass layoff” under the WARN act.[11]

There are several other circumstances in which the WARN Act may be inapplicable or in which the employer’s liability may be reduced. For example, for purposes of the federal statute and at least some state statutes, the layoff must occur within a certain timeframe. And several exceptions for the employer’s circumstances may apply.[12]

Benefits Extension

A laid off employee (and any employee terminated for reasons other than gross misconduct) may have a right to continuation of health care benefits for employees and their families under the Consolidated Omnibus Reconciliation Act of 1986 (“COBRA”). COBRA applies to group health plans sponsored by employers that employed at least 20 employees on more than 50% of business days in a calendar year, including part-time employees (although they count for a fraction of one full-time employee).[13]

An employer is obligated to inform an employee of his or her right to continue coverage and should provide the needed forms to apply. An employee normally must choose COBRA coverage within 60 days of receiving notice of eligibility.

If the employee chooses COBRA coverage, he or she can maintain the same benefits for a limited period of 18-36 months (depending on whether it arose from a termination or other qualifying event, and whether and when the employee also became entitled to Medicare). But even though COBRA can be used to extend employer-sponsored benefits, the employee may have to pay for the portion the employer had formerly paid.

There are also state equivalents that may provide better terms for the employee, such as California’s “Cal-COBRA.”[14]

Severance Agreements

A severance agreement is a private contract between an employer and employee to provide compensation and/or benefits in exchange for the employee making certain promises, which normally includes a release of claims against the employer.

As any contract, in order to be enforceable, there normally has to be what the law calls “consideration,” i.e. an exchange of something valuable for the employee’s promise that the employee wasn’t otherwise entitled to. So an employer asking for a release of claims without exchanging something, or only agreeing to pay the employee’s final earned wages—which the employee was already legally entitled to—is unenforceable.[15]

And there are a variety of laws that make certain terms in severance agreements or other employment agreements unenforceable or require certain procedures. For example, non-compete clauses are illegal and unenforceable in California.[16] In New York, workers’ compensation benefits for on-the-job injuries cannot be waived until after the employee has filed a claim, and it must be approved by the Workers’ Compensation Board or an officer it delegates authority to.[17] In New York and California, unemployment insurance benefits normally cannot be waived.[18] Non-disparagement and non-disclosure/confidentiality clauses in severance agreements must be narrowly drafted because a broad clause would implicate an employee’s rights under Section 7 of the National Labor Relations Act (“NLRA”), which rights cannot be waived.[19] Non-disclosure agreements regarding facts related to discrimination claims or other unlawful workplace acts in California and New York are invalid, unless certain conditions are met.[20] And waivers of other rights must be knowing and voluntary on the part of the employee.[21]

There are procedural requirements for severance agreements as well. The Age Discrimination in Employment Act (“ADEA”) requires employers to allow employees 40 years old or older 21 days to consider a severance offer—or 45 days if they are terminated in a layoff)—and the agreement must state that the employee can rescind it within 7 days after signing.[22] And California law requires that even employees under age 40 be allowed to consider a severance offer for at least 5 business days, along with the requirement that the employee be told they have a right to consult an attorney.[23]

A severance agreement may also impact other contracts if it contains standard merger clause language that the agreement “supersedes all prior agreements” between the parties, because prior agreements the employee may have signed during their time working, such as non-disclosure agreements or arbitration agreements, may be rendered unenforceable by that language unless language in the severance carves out those prior agreements from the merger clause.[24]

Collective Bargaining in Unions

If an employee is in a union, the union’s collective bargaining agreement (“CBA”) with the employer may also include terms addressing layoffs—or it may not. A CBA is a private contract between the union and the employer, so a CBA’s terms also depend on what the individual union negotiated with the employer.  

CBA terms addressing layoffs would not prevent a layoff from happening but might change the process for deciding or announcing the layoff, may add more layoff benefits beyond what the law would require (such as larger severance payments or longer notice periods), may increase the period that an employer has to pay for health care benefits, or may provide other forms of increased benefits for employees in the event of layoffs.  

However, the scope of the layoff protections that a union negotiates is also often limited for practical reasons. These benefits are very expensive for the employer, so if a union negotiates for them, it will likely mean choosing among the possible benefits and/or conceding other things in the bargaining process. And greater protections for employees in terminations also tends to make the employer more constrained in how they hire employees and how selective their process is, since each employee is a more costly commitment.

An employee who does not receive all that the employee believes he or she is entitled to under a CBA’s terms also may not have a right to sue the employer directly, since the CBA is between the employer and the union, not the employee. Instead, he or she may have to file a grievance with the union and rely on the union to do it on his or her behalf.  

Conclusion

Layoffs are a concern at any time, in any industry, but are doubly so right now in technology and game development. Although the information here suggests some of the issues to think about that may affect your employment or your business in a layoff, it is by no means a comprehensive guide. Your individual situation would benefit from consulting a lawyer if it looks like a layoff is in your future, regardless of whether you’re on the employee or employer side.

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[1] See Zack Zwiezen, 31 Days Into 2024 And 6,100+ Video Game Layoffs Have Been Announced, Kotaku (updated Jan. 31, 2024), https://kotaku.com/game-industry-layoffs-how-many-2024-unity-twitch-1851155818 .

[2] 29 U.S.C. § 2101(a)(1); N.Y. Lab. Law § 860-a(3); Cal. Lab. Code § 1400.5(a).

[3] See 29 U.S.C. § 2101(a)(1), (3), (8); N.Y. Lab. Law § 860-a(3),(5); Cal. Lab. Code § 1400.5(h).

[4] 20 C.F.R. 639.3(a)(2) (listing factors for determining whether a separate entity is treated as the same employer); Cal. Lab. Code § 1400.5(b) (defining a parent entity as an employer as to any workplace owned by a subsidiary).

[5] Johnson v. Uber Techs., Inc., No. 16-CV-03134-EMC, 2019 WL 4417682, 2019 U.S. Dist. LEXIS 161256, at *15 (N.D. Cal. Sept. 16, 2019) (“Whether the WARN Act applies hinges on whether Plaintiff and other drivers are properly classified as employees or independent contractors, because only employees are covered by the WARN Act; independent contractors are not.”); Mohammed v. Juno Inc., 656428/2017, 2019 N.Y.L.J. LEXIS 912, at *26 (N.Y. Sup. Ct. N.Y. Cnty. Jan. 22, 2019).

[6] 29 U.S.C. § 2101(a)(3); N.Y. Lab. Law §§ 860-a(4), 860-e; Cal. Lab. Code § 1400.5(b).

[7] Compare Hoover v. Drivetrain LLC, No. AP 20-50966, 2022 WL 3581103, at *4, 2022 Bankr. LEXIS 2312, at *10-11 (Bankr. D. Del. Aug. 19, 2022) (citing 20 C.F.R. § 639.3(i)(6) to include remote workers as “outstationed” employees within that provision) with Meson v. GATX Tech Servs. Corp., 507 F.3d 803 (4^th Cir. 2007) (interpreting same to mean only traveling employees); N.Y. Comp. Codes R. & Regs. Tit. 12, § 921-1.1(e)(7)(i) (as amended June 21, 2023) (explicitly including remote workers who are “based at the employment site,” but leaving unclear how fully remote workers should be counted).

[8] Compare 29 U.S.C. § 2102(a) and Cal. Lab. Code § 1401 (60 days’ notice) with N.Y. Lab. Law § 860-b(1) (90 days’ notice).

[9] 20 C.F.R. §§ 639.1(a), 639.7(d); N.Y. Lab. Law § 860-b(1), (2); N.Y. Comp. Codes R. & Regs. Tit. 12, §§ 921-2.1(f), 921-2.3; Cal. Lab. Code § 1401.

[10] 29 U.S.C. § 2104; N.Y. Lab. Law §§ 860-g, 860-h; Cal. Lab. Code §§ 1402, 1403, 1404.  

[11] 29 U.S.C. § 2101(a)(6); Ellis v. DHL Express Inc. (USA), 633 F.3d 522, 526-27 (7^th Cir. 2011) (holding that voluntary severance agreements qualified as voluntary per the facts of this case, and as a result caused the total layoff to drop below the WARN Act threshold).

[12] 29 U.S.C. § 2102(b)(1) (exempting employers who were seeking capital or business to avoid the layoff and reasonably and in good faith believed the notice would prevent them from doing that), (b)(2) (exempting employers ; N.Y. Lab. Law §§ 860-b(3), 860-c, 860-g(6); Cal. Lab. Code §§ 1402.5, 1405.

[13] See 29 U.S.C. §§ 1161, et seq.; 26 C.F.R. §§ 54.4980B-1, et seq.

[14] See Cal. Ins. Code §§ 10128.50, et seq.; Cal. Health & Safety Code § 1366.20.  

[15] Cf. Shahzad v. Am. Lung Ass’n, 706 N.Y.S.2d 866 (N.Y. Sup. Ct. N.Y. Cnty. 2000) (holding severance agreement had consideration where employee had resigned in reliance on employer’s promise to pay bonus payment).

[16] Cal. Bus. & Profs. Code § 16600.

[17] Workers’ Comp. Law § 32(a); N.Y. Comp. Codes R. & Regs. tit. 12, § 300.36.

[18] N.Y. Lab. Law § 595; Cal. Unemp. Ins. Code § 1342.

[19] McLaren Macomb, 372 N.L.R.B. No. 58 (2023). But see Doheny v. IBM, No. 23-CV-3962, 2024 U.S. Dist. LEXIS 18020, at*29-30 (S.D.N.Y. Feb. 1, 2024) (holding that confidentiality clause narrowly applicable only to arbitration was enforceable); Choc v. Corp. # 1, 23-CV-3886, 2023 U.S. Dist. LEXIS 221444, at *10 (distinguishing defamation as outside the NLRA’s protections and holding clause was enforceable due to explicit carveout for truthful statements).

[20] Cal. Gov’t Code § 12964.5(b), (c); N.Y. Gen. Oblig. Law § 5-336(2) (prohibiting non-disclosure agreements applicable to future discrimination claims after January 1, 2020, unless they state that the employee is not prohibited from speaking with discrimination enforcement bodies or an attorney).

[21] See Alexander v. Gardner-Denver Co., 415 U.S. 36, 51 (1974) (concerning waiver of Title VII rights).

[22] 29 U.S.C. § 626(f); 29 C.F.R. § 1625.22.

[23] Cal. Gov’t Code § 12964.5(b)(4).

[24] See, e.g., Profit Recovery v. Hbr. Consulting LLC, 30-2017-00920292-CU-OE-CJC, 2020 Ca. Super. LEXIS 20956, at *8 (Cal. Super. Ct. Orange Cnty. Aug. 31, 2020)