Successor that purchased assets as ‘going concern’ liable for lack of WARN Act notice
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Friday, July 8, 2016

Successor that purchased assets as ‘going concern’ liable for lack of WARN Act notice

By Lorene D. Park, J.D. Although an asset purchase agreement was written so that the purchaser, Celadon Trucking, would avoid WARN Act requirements, the Eighth Circuit affirmed a district court’s ruling that because the trucking company was purchased as a "going concern," the individuals who were laid off were Celadon’s "employees" under the Act and it was liable for the failure to give 60 days’ notice of a mass layoff. The appeals court also found no error in the denial of Celadon’s motion to decertify the class and, considering the inexplicable absence of payroll and personnel records, it was proper to apply a burden-shifting framework to assess individual damages with employees having the initial burden raising a reasonable inference as to the extent of damages, which Celadon could rebut with contrary evidence. Celadon could not reduce damages through the good faith defense (Day v. Celadon Trucking Services, Inc., July 5, 2016, Smith, L.). Asset purchase agreement (APA). Arkansas-based Continental owned a trucking business that operated throughout the U.S. On December 4, 2008, Celadon purchased Continental’s assets, including contracts, vehicles, supplier lists, records, and the right to use the name "Continental Express." Meanwhile, Continental’s president and vice president signed noncompete agreements stating Celadon intended "to merge the operation of" Continental into Celadon. All Continental drivers would be hired except those who failed to meet Celadon’s "standard driver employment requirements." Other sections of the APA provided that non-hired drivers "shall not be deemed to be employees of [Celadon] for any reason" and that Celadon would not "be responsible for any liabilities or obligations" of Continental, including under the WARN Act and that Continental "shall" send required WARN Act notice and be responsible for expenses. After the sale, Celadon offered employment to 201 of Continental’s 658 driver and non-driver employees. The rest were terminated between December 5 and December 17, and were not sent written notice of their terminations as required by the WARN Act. Celadon found liable in class action. The employees filed a class action under the WARN Act. Continental defended the action and moved to dismiss, believing Celadon was not a proper defendant. The court certified a class of 449 full-time workers who suffered employment loss as defined by the WARN Act but who did not receive the required notice. After discovery, the court granted partial summary judgment, finding that "Celadon purchased Continental's assets with the intent to run the business as a going concern." Before damages were resolved, Celadon moved to substitute counsel because Continental was "out of cash" and could not pay for the defense. New counsel was granted interlocutory appeal but the appeals court denied review. On remand, the parties filed cross-motions on damages. Both motions were denied. Motion for decertification denied, damages awarded. The court gave the case to a magistrate to consider: "Which individuals seeking damages in this case are properly included within the plaintiff class?" The magistrate issued a recommendation, and Celadon moved to decertify the class. The district court then clarified that it did not intend for the employees to again prove each class member was an "aggrieved employee" under the WARN Act and it should have had the magistrate recommend who to exclude from the class. Given the posture of the case, Celadon was given the burden of showing that specific class members should be excluded. The court then excluded three individuals and awarded statutory damages. Celadon appealed. WARN Act liability affirmed. The WARN Act, 29 U.S.C. Sec. 2101(b)(1), provides an exception to the definition of "employment loss," stating: "In the case of a sale of part or all of an employer’s business, the seller shall be responsible for providing notice . . . up to and including the date of sale. After the effective date of the sale . . . the purchaser shall be responsible for providing notice for any plant closing or mass layoff. . . . any person who is an employee of the seller (other than a part-time employee) as of the effective date of the sale shall be considered an employee of the purchaser immediately after" the sale. In applying Sec. 2101(b)(1), sales of assets are distinguished from sales of businesses as a going concern. Affirming, the Eighth Circuit rejected Celadon’s argument that it did not purchase Continental as a going concern. Although the companies styled the sale as a purchase of assets, the court found the transaction to be a "sale of part or all of [Continental’s] business." It explained that Congress passed the WARN Act to protect employees—it was not a "technical labyrinth" to be navigated by lawyers to disadvantage employees. Using a common-sense approach, the APA reflected that Celadon purchased Continental intending to continue its existing business indefinitely. For example, it purchased the name, customer lists, and plans. That executives were required to sign noncompetes was further evidence that the transaction involved a sale as a going concern. Also rejected was Celadon’s argument that, even if the sale-of-business exclusion applied, it only created a presumption of employment that Celadon rebutted with the terms of the asset purchase agreement and specifics of the sale. Nothing in the agreement altered the fact that Continental’s business was sold as a going concern. To the contrary, the agreement required that Continental’s employees would remain employed for 14 days after the date of sale and, under the WARN Act, they were Celadon’s "employees." Those who were not offered employment suffered an employment loss for which Celadon, as the statutory employer, was liable. Denial of decertification proper. The appeals court further held that the district court did not err by requiring Celadon to prove which individuals should be excluded from the class. The employees had already shown that the prerequisites for certification were satisfied and notices had been approved and sent out before the court granted summary judgment on liability in favor of the class. Years later, Celadon moved to decertify. There was no abuse of discretion, at that point, in giving Celadon the burden of showing who should be excluded from the class. The appeals court explained that usually, the proponent of a motion bears the burden of showing it should be granted. Moreover, the district court maintained an independent duty to assure the class continued to be certifiable under Rule 23(a), which supported a requirement that Celadon show the court was mistaken. The "law of the case" doctrine was also relevant—Celadon had a full and fair opportunity to contest class certification and having already litigated the issue, the parties should not be required to do so again without good reason. Also rejected was Celadon’s argument that Rule 23(b)(3)’s requirement that questions of law or fact common to class members predominate was not met. In this case, liability and damages were intertwined; the WARN Act sets the damages for which a violating employer is liable. While there might be individualized inquiries on the rate of compensation for each employee, Celadon was liable to all employees that suffered an "employment loss" as a result of its "mass layoff." Burden-shifting procedure for damages. Due to the unexplained absence of personnel and payroll records, the district court refused to subject employees to a strict, individualized claim process. It used a burden-shifting procedure where the employees had the initial burden to produce evidence (possibly representative evidence) to support a reasonable inference as to the extent of damages. Celadon could then produce rebuttal evidence to negative the reasonableness of the inference. At a damages hearing, the court considered evidence including employee affidavits, reports, and testimony from Continental’s former VP of human resources. Though Celadon claimed the court erred, the Eighth Circuit agreed with this approach. It noted that the WARN Act is a remedial statute stating the public policy of the United States to protect employees against certain employment losses. Without payroll and personnel records, they would be unable to prove damages with certainty. Consequently, it was appropriate to shift the burden to Celadon after the employees made an initial showing. Celadon can’t reduce damages based on good faith. The WARN Act, Sec. 2104(a)(4), permits a court to reduce an employer’s liability if the violation was "in good faith and that the employer had reasonable grounds for believing that the act or omission was not a violation." Assuming, without deciding, that Celadon did not waive the defense by failing to assert it in responsive pleadings, the company failed to show it was entitled to a reduction of damages here. The WARN Act clearly allocated notice responsibility to Celadon and it failed to show that it had a reasonable basis for believing it was not responsible for giving WARN Act notice.

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