United States: Employer Loses WARN Affirmative Defenses In Class Action Due To Insufficient Description In Notice

"The Pen Is Mightier Than The Sword...And Verbal Communications During Company-Wide Employee Meetings."

Things seem to be going from bad to worse for defunct law firm Dewey & LeBoeuf. As criminal charges continue to loom for some former Dewey partners, the judge overseeing Dewey's bankruptcy has now ruled that the firm cannot assert the "faltering company" and "unforeseeable circumstances" defenses in a class action brought by former Dewey employees under the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§ 2101 et seq. (the "WARN Act").  The court's decision can be found here.

While the WARN Act typically requires an employer to provide 60 days' notice to employees who are terminated due to the closing of a business, the Act allows two affirmative defenses in cases where such notice is not provided.  First, the "faltering company" exception allows an employer to give reduced notice if the company is "actively seeking capital or business which, if obtained, would have enabled the employer to avoid or postpone the shutdown and the employer reasonably and in good faith believed that giving the notice required would have precluded the employer from obtaining the needed capital or business." 29 U.S.C. § 2102(b)(1).  The Act similarly permits a shorter notice period where the closing is the result of "business circumstances that were not reasonably foreseeable as of the time that notice would have been required." 29 U.S.C. § 2102(b)(2)(A).  Both exceptions require an employer to give "as much notice as is practicable" and—of particular relevance in regard to the Dewey case—to provide "a brief statement of the basis for reducing the notification period" at the time notice is given.  29 U.S.C. § 2102(b)(3).

When Dewey ceased operations in May 2012, the majority of its employees received less than one week of notice prior to being terminated.  Dewey argued that this reduced notice was sufficient under the WARN Act based on both the "faltering company" and "unforeseeable circumstances" defenses.  In regard to the faltering company defense, Dewey argued that it was actively seeking to avoid collapse by merging with another firm, and that the announcement of layoffs would have eliminated that possibility.  Dewey also argued that, while it was initially confident that such a merger could be completed, the announcement of a criminal investigation of the firm's chairman brought an abrupt and immediate end to all merger discussions.

But, here's the catch—in the notices advising employees of the firm's closing and the resulting termination of their employment, the firm did not provide the required "brief statement of the basis for reducing the notification period." The notices stated only that the firm had "unexpectedly experienced a period of extraordinary difficulties" and that the "situation [was] deteriorating at a more rapid pace than was initially anticipated."  (See Opinion at pp. 4-5).  In lieu of providing further detail in the written notice, the firm scheduled company-wide employee meetings where it explained the events leading to the closing and invited employees to ask questions.

After reviewing the language of the statute and the applicable regulations, the court held that the employee meetings did not satisfy the "brief statement" requirement.  According to the court, an employer seeking to assert the WARN faltering company and unforeseeable circumstances defenses must provide the brief statement in writing and include that statement in the notice of the closing.  On that basis the court awarded summary judgment to the plaintiffs on Dewey's affirmative WARN defenses.

This decision reaffirms the process-driven nature of the WARN Act.  While many of the Act's requirements may seem hyper-technical, most courts have been unreceptive to policy concerns and "close enough" arguments advanced by employers.  Moreover, the stakes in WARN litigation can be extraordinarily high—up to 60 days' pay in some cases for all affected employees.  Thus, particularly where an employer is simply closing a location but not going out of business, decisions concerning WARN Act compliance should be undertaken with careful consideration of the risks and potential liability.

The Bottom Line: While somewhat tedious, meticulous attention to WARN Act compliance can be critical in closing facilities and/or laying off employees.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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