In a rare case interpreting the Worker Adjustment and Retraining Notification (“WARN”) Act “sale of business” exception, the U.S. Court of Appeals for the Eighth Circuit recently held in Day v. Celadon Trucking Servs., Inc., 8th Cir., No. 15-1711 (July 5, 2016) that a buyer of a business remained liable under WARN to the seller’s employees to whom the buyer did not make offers of employment, despite provisions in the asset purchase agreement (“APA”) that placed all WARN Act liability on the seller.

The case arose out of a typical asset purchase transaction between Continental Express, Inc. (“Continental”) and Celadon Trucking Services, Inc. (“Celadon”). The plaintiffs were a class of 449 former Continental employees who were not offered jobs with Celadon when it purchased Continental’s trucking business in December 2008.

The parties’ APA contractually required the seller Continental to retain the employees who were not made offers by Celadon in employment status for a 14 day period after the deal closed. Continental then terminated the remainder of the employees, however, it did not issue WARN notice to them.  The APA also contractually allocated all WARN Act liability to Continental, however, having liquidated the business, Continental was unable to satisfy that liability.  Therefore, the plaintiffs pursued their WARN Act claim against the buyer Celadon.

Under the WARN “sale of business” exception, the seller is responsible for providing WARN notice for terminations occurring up to and including the effective date of the sale, and the buyer is responsible for providing notice for terminations after the date of the sale. In addition, under WARN the employees of the seller are statutorily deemed to be employees of the buyer immediately after the effective date of the sale.  29 U.S.C. § 2101(b)(1).  This provision primarily serves two related purposes – that employees who are hired by the buyer are not considered to have experienced a true “loss of employment” for WARN purposes, and that one of the parties (whether seller or the buyer) remains obligated to issue WARN notice to seller employees who are not hired by the buyer and actually lose employment.

In Day the court rejected the buyer’s argument that was not responsible for WARN liability to the remainder of the seller’s employees because the APA stipulated that the employees remained the seller’s employees after the close of the deal.  The court held that under the WARN “sale of business” exception, the buyer was ultimately liable for the WARN obligation to the employees who were terminated after the sale regardless of the APA language.

The key takeaway of the Day case for parties to a corporate transaction is that WARN liabilities are governed by statute, and the implications of WARN obligations and the sale of business provision of WARN must be carefully evaluated.  The case highlights that although the sale of business exception may be helpful to buyers in absolving them of WARN obligations to employees who they hire, the application of this important WARN “exception” may also result in the buyer remaining liable for the seller’s failure to provide WARN notice to employees whom the buyer does not offer continued employment, particularly where neither party satisfied the obligation to issue WARN notice or provide the employees with WARN pay in lieu of notice.