While the Worker Adjustment and Retraining Notification Act (“WARN”) includes an “unforeseeable business circumstances” exception permitting an employer to provide fewer than 60 days’ notice of a plant closing or mass layoff, reliance on that exception can be risky. Moreover, should litigation ensue, an employer may find obtaining summary judgment and avoiding trial challenging. 

Illustrating these important lessons, a federal district court in Ohio refused to grant summary judgment to an employer that failed to provide WARN notices 60 days in advance of laying off 72 employees. The employer instead relied on the statutory exception in defense of its actions. Blough, et al. v. Voisard Manufacturing, Inc., et al., No. 1:14 CV 263, 2015 U.S. Dist. 9267 (N.D. Ohio Jan. 27, 2015). The court stated that it “cannot say as a matter of law defendants are entitled to the protection of the business circumstances exception,” as a reasonable factfinder might conclude that the need for notice was foreseeable at an earlier point, and therefore the employer had enough time to give the 60-day notice.

Facts

Voisard Manufacturing, Inc. is a metal fabrication company. Beginning in spring 2013, Voisard conducted several reductions in its workforce. Eight employees were laid off on March 22, 16 on April 5, 10 on April 19, 5 on September 6, 5 on September 13, and 27 on September 27. By letter, Voisard informed employees that the layoff was “necessary to offset our customer’s sales reductions.” The letter also included information about unemployment and COBRA. In closing, the letter read: “We hope that this will be a temporary situation and we can get everyone back to work as quickly as possible,” and provided a telephone number for Voisard’s HR manager. The Voisard employee handbook contained a seniority policy that provided laid off employees with recall rights for up to one year. Customarily, layoffs at Voisard were not permanent and Voisard regularly returned laid off employees to work. In fact, in a deposition, Voisard's HR manager testified, “I probably could count on one hand how many employees that [Voisard] … didn’t bring back.”

On October 31, 2014, Voisard’s manufacturing manager, conducted an all-employee meeting at which he reviewed the company’s status for the fourth quarter of 2013. Indicating that low sales resulted in the need to review staffing for the remainder of the year, he informed employees that Voisard would shut down for three weeks, during the weeks of Thanksgiving, Christmas, and New Year. During these shut-down weeks, no one would be approved to take any vacation days. Voisard also reduced employee pay around this time. 

Moreover, throughout 2013, while workforce reductions were occurring, Voisard engaged in a series of discussions with its lender. In June 2013, Voisard entered into a loan modification, allowing Voisard to be overdrawn on its line of credit by $375,000 at the end of any given month to pay expenses, such as payroll (“overdraft”). The modification was intended to be temporary and was set to expire on August 31, 2013. On December 4, 2013, the lender’s workout department informed Voisard that the $375,000 overdraft needed to be reduced and ultimately extinguished. On January 8, 2014, the lender informed Voisard that it would accelerate reduction of the overdraft amount, reducing it to $300,000 immediately and then to $225,000 by March 31, 2014. Voisard responded that this reduction would be detrimental to the company, making it difficult to pay vendors and employees and that it would reduce Voisard’s ability to increase sales. Voisard’s discussions with the lender on how to reduce the overdraft continued throughout January. 

On January 28, 2014, the results of Voisard’s inventory and sales for November and December were finalized and it became clear that Voisard would be overdrawn by $425,000 on its line of credit as of December 31, 2013, and as much as $500,000 as of January 31, 2014. At a meeting on January 29, 2014, the lender told Voisard that it would not advance any funds in excess of the $375,000 overdraft.

On January 31, 2014, Voisard laid off 72 employees while temporarily continuing to employ 15 other employees. The plaintiffs, former Voisard employees, commenced a lawsuit in federal court. They alleged the defendants violated WARN by failing to give them 60 days’ notice before the mass layoff on January 31, 2014.

WARN 

Under the WARN, a covered employer ordering a mass layoff or plant closing must provide 60 days of advance written notice to affected non-union employees, union representatives where employees have a collective bargaining agent, certain local government officials, and the state dislocated worker unit. Employers are subject to WARN if they have 100 or more “full time” employees, not counting “part time” employees, or if they have 100 or more full and part-time employees who, in the aggregate, work at least 4,000 hours per week exclusive of overtime hours. 

Moreover, an exception to the notice requirement, for which an employer bears the burden of proof, is available for “unforeseeable business circumstances.” This exception still requires an employer to provide advance written WARN notices, but allows employers to provide “as much notice as is practicable” (i.e., fewer than 60 days of notice) when a plant closing or mass layoff is caused by “business circumstances that were not reasonably foreseeable as of the time that notice would have been required.” In order to rely on this exception, an employer must demonstrate that the plant closing or mass layoff occurred due to “some sudden, dramatic, and unexpected action or condition outside the employer’s control” and that it provided as much notice as practicable.

Summary Judgment Denied

The defendants moved for summary judgment, contending that they are entitled to the protection of the “unforeseeable business circumstances exception” to the 60 days’ notice requirement in the WARN. The court disagreed. Even though the court concluded the record supported a reading that a reasonable company in Voisard’s position could have acted as it did, it also determined “the record equally lends itself to an interpretation that size of the overdraft and [the lender’s] unwillingness to cover it was not a sudden, dramatic, or unexpected event.” Further, the court found that the defendants put forth no evidence that “the magnitude of the overdraft was unforeseeable on December 2, 2013, when notice was required to have been given.” Therefore, the court could not “say as a matter of law defendants are entitled to the protection of the business circumstances exception,” and instead ruled that it would let this issue be decided at trial.

Another issue before the court on the parties’ respective summary judgment motions was whether the employees laid off prior to January 31, 2014, had a reasonable expectation of recall and whether the employer employed the requisite number of employees to be deemed an “employer” under the WARN. The court denied both parties’ motions for summary judgment, holding that at the summary judgment stage it was unable to make a determination as to whether the employees had a reasonable expectation of recall. 

Determining whether an entity is an “employer” required to comply with WARN, is a fact-intensive inquiry. Moreover, since the employer always bears the burden of proof that it has properly invoked one of WARN’s exceptions, employers should seek legal guidance in analyzing its obligations under WARN before deciding to rely upon any WARN exception and, where possible, well in advance of the date the 60-day WARN notice would be due. Moreover, employers must keep in mind that WARN exceptions do not excuse an employer from providing WARN notices; instead, the exceptions merely permit an employer to provide “as much notice as is practicable” to all individuals, unions, government officials and entities entitled to receive notices, along with a written explanation of the reasons for its reliance on the exception and why it could not provide a full 60 days of notice. 

Employers also must be mindful of any applicable state or local WARN-type notice requirements. California, Hawaii, Illinois, Iowa, New Hampshire, New Jersey, New York, Tennessee, Wisconsin, and the U.S. Virgin Islands, among others, have mini-WARN statutes. Moreover, many of those statutes have lower thresholds triggering requirements or longer notification periods than the federal WARN and some laws do not recognize exceptions to advance notice requirements. Advance planning is essential for ensuring WARN compliance and minimizing the risk of WARN litigation.