Following termination of operations at its printing facility, Insync Marketing Solutions, LLC (Insync) laid off approximately 230 workers and filed for Chapter 7 bankruptcy protection. Insync also filed a letter with the California Labor Commissioner and the Department of Industrial Relations seeking a ruling on the company’s liability under the California WARN Act. Insync argued that although 60 day advance notice of the layoffs was not provided to workers, the company met the faltering company exception in section 1402.5 of the state law. The faltering company exception has three required elements under 1402.5(a).
The California Labor Commissioner reviewed the case and its findings were adopted by the Department of Industrial Relations director. The Commissioner found that Insync did not meet the first element of the faltering business exception. The first element requires that the employer be “actively seeking capital or business” to continue operations. Although Insync was seeking a buyer before the employee terminations, the company did not provide sufficient evidence that it was taking action to secure the investment of new capital. The Commissioner cited federal regulation 20 C.F.R. § 639.9 as well as three federal cases for the proposition that seeking the sale of a company alone is not enough to qualify for the faltering business exception. A company must provide evidence that the company was also seeking additional capital or business.
Finally, the Commissioner found that even if Insync was able to meet the first requirement, Insync would still not meet the third element of the faltering business exception. The third element requires “[t]he employer reasonably and in good faith believed that giving the notice … would have precluded the employer from obtaining the needed capital or business”. Insync did not provide objective evidence of a good faith belief.
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