United States: Without WARN-ing: Third Circuit Clarifies WARN Act's Unforeseen Business Circumstances Exception

What Happened: The Third Circuit Court of Appeals joined five other circuits in holding that the unforeseen business circumstances exception excused WARN notice where an event outside the employer's control that would trigger layoffs was possible but not probable to occur.

The Larger Landscape: While the Fifth, Sixth, Seventh, Eighth, and Tenth Circuits have also adopted a probability standard for determining when the unforeseen business circumstances exception applies, the other circuits have not yet ruled on the issue.

What Employers Should Do: Despite this ruling, employers in all circuits should remember that WARN exceptions—particularly the unforeseen business circumstances exception—are construed narrowly, and they should seek legal advice in determining whether federal and/or state WARN notice may be required.


Valera v. AE Liquidation, Inc., the Third Circuit Court of Appeals agreed with five other circuits in holding that WARN notice was not required where an external event outside the employer's control triggering layoffs was possible but not probable. Under the Worker Adjustment and Retraining Notification Act ("WARN"), companies with a facility employing 100 or more full-time employees must provide at least 60 days' written notice to employees affected by a mass layoff or plant closing unless it meets one of the narrow exceptions to WARN.

The "unforeseen business circumstances" exception excuses companies from the requirement to provide timely WARN notice if the plant closing or mass layoff was caused by "some sudden dramatic, and unexpected action or condition outside the employers control" that was "not reasonably foreseeable at the time that 60-day notice would have been required." In Valera, the Third Circuit interpreted the "reasonably foreseeable" requirement to mean "probable" or "more likely than not."

Factual Background

In November 2008, Eclipse Aviation Corporation filed a petition for Chapter 11 bankruptcy and an asset purchase agreement to sell the company to its largest shareholder, European Technology and Investment Research Center ("ETIRC"). The asset purchase agreement did not expressly require ETIRC to take on Eclipse's employees, but it did require Eclipse to continue operating its business and retain its employees through closing. It also stated that Vnesheconomba ("VEB"), a state-owned Russian bank, had delivered a fully executed commitment letter confirming it would provide ETIRC with a $205 million loan to finance the sale.

On January 29, 2009, Eclipse was notified that VEB was unexpectedly insolvent and required additional recapitalization from the Russian Federation. Over the next several weeks, Eclipse was given various assurances that the Russian government would approve the funding quickly and the deal would go through. During a February 17, 2009, board meeting, ETIRC informed Eclipse that it did not have the capital to fund Eclipse on its own if the VEB funding did not come through. Eclipse's CFO also informed the board that without further funding, Eclipse would run out of money by February 27, 2009.

Eclipse then notified its employees that they were being furloughed because the sale was taking longer than expected and Eclipse needed to preserve cash to remain operational in the meantime. Over the next several days, although Eclipse continued to receive assurances that VEB was working on the funding, they were also told that Russian Prime Minister Putin needed to approve it, and that he was "still thinking about it." Eclipse decided to liquidate if the funding did not come through by February 24, 2009. On that date, Eclipse filed a motion to convert the bankruptcy to a Chapter 7 liquidation. Eclipse then emailed employees to notify them that their furloughs would be converted to permanent layoffs.

Eclipse's employees filed a class action proceeding in bankruptcy court, claiming the failure to give 60 days' notice of the layoff violated WARN. Both parties moved for summary judgment on applicability of the unforeseen business circumstances exception. The bankruptcy court granted summary judgment for Eclipse, and the district court affirmed. The employees appealed to the Third Circuit.

The Third Circuit Opinion

The Third Circuit concluded that the unforeseen business circumstances exception applied because the layoffs were caused by the failure to close the sale to ETIRC, and it was not reasonably foreseeable that the sale would not close until Eclipse actually gave notice. In so holding, the court addressed three primary employee arguments.

First, the employees argued that the failure to close the proposed sale to ETIRC was not the cause of the layoffs because the agreement with ETIRC did not expressly require ETIRC to retain Eclipse's employees. The court rejected this argument, finding that the agreement required ETIRC to operate the business as a going concern.

Second, the employees argued that it was "reasonably foreseeable" that the sale would not be consummated prior to Eclipse's February 24, 2009, notice. As a matter of first impression for the Third Circuit, the court agreed with sister circuits that "reasonably foreseeable" requires more than mere possibility, it requires "probability." This means that WARN is triggered when a mass layoff becomes "more likely than not." Applying that standard, the court relied on the nearly daily assurances from ETIRC that financing was forthcoming and on Eclipse and ETIRC's relationship in finding that ETIRC's failure to obtain financing necessary to close the sale was not probable prior to February 24, 2009.

Third, the employees argued that the exception could not apply because Eclipse never gave notice that complied with WARN's content or delivery requirements. The court gave short shrift to this argument, finding the notice sufficient on its face and the delivery method (to employees' work email addresses after they had been furloughed and told to monitor their email) sufficient.


Four Key Takeaways

  1. Employers with facilities in the Third, Fifth, Sixth, Seventh, Eighth, or Tenth Circuits who are considering whether to rely on the unforeseen business circumstances exception to federal WARN requirements can take some comfort in knowing that WARN notice is required only when it is "more likely than not" that an external event will occur and thus trigger a mass layoff or plant closing. Employers with facilities in other circuits should proceed cautiously because the other circuits have not yet adopted the "probable" standard for the unforeseen business circumstances exception.
  2. Employers in all circuits should remember that WARN exceptions—particularly the unforeseen business circumstances exception—are construed narrowly. Courts will apply the unforeseen business circumstances exception only where the unforeseen circumstance that caused the mass layoffs or plant closing is outside the employer's control and where the unforeseen circumstance truly is the cause of the WARN event.
  3. Employers should also bear in mind that even where the unforeseen business circumstances exception applies, WARN notice is excused only up until the time the layoffs become reasonably foreseeable and must be given at that point in order to avoid liability. The WARN Act also encourages employers to give notice even where it is not required.
  4. In the event of upcoming group layoffs or closings, employers should also review any applicable state plant closing and mass layoff laws. Some states, such as California, have mini-WARN statutes that do not contain unforeseen business circumstances exceptions, and other states may have laws that contain the exception but are interpreted differently.

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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