Employment Law Daily No WARN Act violation where sudden funding failure led to after-the-fact layoff notices
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Friday, April 8, 2016

No WARN Act violation where sudden funding failure led to after-the-fact layoff notices

By Dave Strausfeld, J.D. A company did not violate the WARN Act when it ran into a sudden roadblock in attempting to sell itself as a going concern and ended up giving its employees after-the-fact notice of a layoff, held a federal district court in Delaware, affirming a bankruptcy court’s decision in an adversary proceeding. Unforeseeable business circumstances excused the financially strapped company’s failure to provide 60 days’ notice, because it was not foreseeable that it would be unable to obtain promised financing needed to close on a sale of its business to another manufacturer. Under the circumstances here, after-the-fact notice was as much notice as was practicable (Varela v. Burtch (In re AE Liquidation, Inc.), March 31, 2016, Stark, L.). Received layoff notice after the fact. Employees of a jet aircraft manufacturer who had recently been furloughed received a termination package informing them they had been laid off effective several days earlier. Their employer had been attempting to sell itself as a going concern, but funding stalled. Despite alleged assurances from its largest shareholder, the European Technology and Investment Research Center, the necessary funding to close on the sale was not provided, and creditors eventually forced the company into Chapter 7 liquidation. Laid-off employees, upset at the lack of advance notice, commenced a class action adversary proceeding alleging that the federal WARN Act had been violated. Unforeseeable business circumstances. The bankruptcy trustee argued that no one could have reasonably foreseen 60 days ahead of time that the sale of the company would fail to close, and the district court agreed. Under WARN, the full 60-day notice period is not required if the closure is caused by unforeseeable business circumstances. This exception “is not narrowly construed,” the court noted. Rather, it is construed broadly enough so that a financially fragile, yet economically viable, business does not have to provide WARN notice and close its doors when there is merely a possibility that the business might fail at some undetermined time in the future; after all, this would harm the very employees WARN was intended to protect. Thus, the determining factor is whether an event triggering a layoff is probable, not merely possible. Funding didn’t come through. Here, the failure to close on the sale of the business was not “probable” 60 days ahead of time or even later when the sale failed to close on the projected closing date, because the company had allegedly been provided continuous assurances that funding was forthcoming and that closing of the sale was imminent. In light of these assurances, allowing extra time for the purchaser to close was within the company’s reasonable business judgment and consistent with taking all reasonable actions to preserve the company and the associated jobs. After-the-fact layoff notice. Even where the unforeseeable business circumstances exception applies, an employer must still give as much notice as practicable. From the laid-off employees’ perspective, it was not adequate to notify them of their layoff several days after they had already been laid off. However, the court noted, DOL regulations explicitly indicate that, in certain circumstances, after-the-fact notice may be as much notice as practicable. As much notice as practicable. And this was one of those circumstances. It first became clear that there would be no going-concern sale on the day the secured lenders filed a motion to convert the bankruptcy cases to Chapter 7 liquidation. This is when the cessation of the company’s operations went from merely “possible” to “probable.” On the same day, the company emailed employees regarding the layoff and then it mailed termination packages the very next day. Given the unexpected events that led the financing to fall through, the company gave its employees as much notice as practicable, even if it was after the fact. Accordingly, the employees’ WARN claims were properly dismissed on summary judgment, held the district court, affirming the bankruptcy court.

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