WARN ACT NEWS

7th Circuit Finds That Hours Lost From Layoffs Cannot Be Counted As Reduction in Force

In September, the 7th Circuit Court of Appeals released an opinion addressing the potential relationship between the WARN Act's employment loss provisions for layoffs and reductions in workers hours.  In Leeper v. Hamilton Cty. Coal, LLC, 939 F.3d 866 (7th Cir. 2019), the court considered facts where 157 workers were temporarily laid off from their employment at a coal mine in Illinois.  Before six months had expired, a number of employees were called back to work.  The remaining workers sought to invoke the protections of the Act under the reduction in hours of work provision of 29 USCS § 2101 (6)(C).  The workers alleged that the lost time of all the laid off workers resulted in a reduction of more than 50 percent of the hours of more than 50 percent of the workers over the previous six months.  The court first considered whether the initial layoff was in fact a termination under 29 USCS § 2101 (6)(A).  Importantly, the court distinguished a termination from layoffs.  The court recognized that there are no time requirements attached to the termination provision.  The court thus found that if the facts establish a termination, there is no requirement that the termination last for six months or longer.  The court however found that the initial job separation was a layoff and not a termination and that less than 33% of the workforce had been laid off for more than six months.  The court then addressed the reduction in force argument and found that the reduction in hours cannot include the lost hours of temporarily laid off workers to establish an employment loss under the reduction in hours provision. The court reasoned that if those hours were included, then the layoff provision of 29 USCS § 2101 (6)(B) would be mere surplusage to the reduction in hours provision. 

 

Court Considers Single Employer Factors

In an adversary proceeding before the federal bankruptcy court in Delaware, the court considered a parent company's liability for its subsidiary's violations of the WARN Act.   In Cruz v. HMR Foods Holding, LP (In re HMR Foods Holding, LP), 602 B.R. 855 (Bankr. D. Del. 2019), the court recognized that a parent company may be liable where the two companies' "have become 'so entangled with [one another's] affairs' that the separate companies ... [are] but divisions or departments of a single enterprise."  To assist in this determination,  the court applied the five-factor balancing test adopted by the 3rd Circuit.  Invoking the standards set forth in the Twombly and Iqbal cases, the court found that the plaintiffs' complaint failed to plead sufficient facts to establish a claim against the parent corporation under the single employer doctrine. 

A Tough Decision from the Middle District of Florida On Trial by Jury

In April 2017, the Middle District of Florida issued an order and opinion granting Defendants’ motion to strike demand for trial by jury. The point at issue arises from a larger debate in interpretation among the circuits concerning the right to trial by jury under WARN Act claims. Using a two-pronged approach, established by the Supreme Court, the Florida Court found that there is indeed no statutory or constitutional right to a trial by jury in circumstances of WARN Act violations, reasoning in summation:

The WARN Act does not specifically address the right to a jury trial, leaving it to the courts to decide whether a jury trial is constitutionally required. The Eleventh Circuit has not addressed this question. However, the weight of existing authority—including the Sixth Circuit, the only circuit court to have squarely addressed the issue—holds that there is no right to a jury trial because the WARN Act's remedies are equitable in nature.

The case is Pierluca v. Quality Res., Inc., 2017 U.S. Dist. LEXIS 60089 (M.D. FL. Apr. 20, 2017). The Court's opinion can be found here.

 

A Good Ruling from the U.S. Territory of Guam

In Carlberg v. Guam Indus. Servs., 2017 U.S. Dist. (D. Guam, Mar. 7, 2017), Chief Judge of the District of Guam, Frances M. Tydingco-Gatewood granted over 150 individuals class certification on the basis of WARN Act violations. A Guam Shipyard terminated all Plaintiffs merely four days after losing a contract to repair ships for the Military Sealift Command.

Defendants filed two motions to dismiss initially holding that “Plaintiffs (1) failed to articulate a legal duty recognized by the courts of Guam and (2) failed to allege sufficient facts that state a gross negligence claim”, citing a lack of case law. Defendants’ second motion to dismiss held that the WARN Act refers only to the 50 states, not U.S. Territories or Associate States.

The Court found that the WARN Act “is applicable to Guam”, moreover, granting Plaintiffs’ leave to amend their complaint concerning employer status, and whether Plaintiffs would proceed with gross negligence or negligence per se claims. Defendants motioned a third time to dismiss the negligence claims in the amended complaint. This motion was granted as Plaintiffs were ‘at-will’ employees. Regardless, the Court found that Plaintiffs satisfied the criteria for class certification under their WARN Act claims.

The decision and order granting class certification can be read here.

 

From the Second Circuit, Another Good Decision on Single/Joint Employer

In Guippone v. BH S&B Holdings L.L.C., 737 F.3d 221 (2d Cir. Dec. 10, 2013), the Court of Appeals considered whether a private equity firm and/or a parent holding company could be liable as a single employer under the WARN Act when layoffs were undertaken at a subsidiary retail clothing store chain.  The Court of Appeals upheld the lower court's dismissal of the private equity firm but overturned the dismissal of the parent holding company finding:

The record evidence would allow a jury to conclude that Holdings was so controlled by HoldCo that it lacked the ability to make any decisions independently, and that the resolution passed by HoldCo's board "authoriz[ing] Holdings to effectuate the Reduction in Force" was, in fact, direction from HoldCo to Holdings to undertake the layoffs. Authorizing layoffs is not just a prerogative of ownership—it's a function of being an employer, especially where, as here, HoldCo was the sole member and manager of Holdings, and the HoldCo board operated as Holdings' board. There is sufficient evidence in the record to allow a jury to conclude that Holdings was not free to implement its  [228]  own decisions, and that the layoffs were, in fact, directed by HoldCo.

 "[B]ecause the balancing of the factors is not a mechanical exercise, if the de facto exercise of control was particularly striking... then liability might be warranted even in the absence of the other factors." Pearson, 247 F.3d at 504 (internal citation omitted). Here, there is sufficient evidence from which a jury could conclude that HoldCo directed the layoffs with no regard to Holdings' separate corporate form. Given this, we reverse the grant of summary judgment to HoldCo.

The decision in Guippone can be found here.

A Good Decision from the North District of Indiana on Single/Joint Employer

In late September, the Northern District of Indiana issued an opinion and order denying defendants' motion to dismiss.  The court considered whether a private equity firm (Monomoy) could be held liable under the WARN Act for layoffs at plastics manufacturing facility operated by a limited liability company (Fortis).  The court found that:

This is a close case, but when each factor is balanced according to its relative weight, Mr. Young’s allegations regarding the status of Fortis and Monomoy as the “single employer” of Mr. Young and the other class members are sufficient to survive Monomoy’s Motion to Dismiss. On the issue of highest importance—the decision to close the Fort Smith Facility—Mr. Young made a number of clear factual allegations regarding Monomoy’s involvement and exercise of control over Fortis. As was noted in Pearson, if sufficiently egregious, de facto exercise of control can be sufficient to warrant liability on its own. Pearson, 247 F.3d at 496.

The case is Young v. Fortis Plastics, L.L.C., 2013 U.S. Dist. LEXIS 137075 (N.D. Ind. Sept. 24, 2013).  The court's opinion can be found here.  

Recent Court Decisions On WARN Act Issues

With record high job dislocation in recent years, the nation’s courts have been confronted with numerous related lawsuits, many of which have been filed based on  violations of the WARN Act.  The following summaries detail decisions entered in recent months.    

Platt v. Freedom Mortg. Corp. (D.N.J. 2010).  Plaintiffs alleged that the Defendant terminated their employment as part of a mass layoff in January 2010 without giving the required advance notice under the WARN Act.  The Defendant moved to dismiss for failure to state a claim and asserted that only 44 of the 60 employees were laid off.  The court recognized that it would be improper to consider the employer’s extraneous evidence on the pre-answer motion to dismiss.  As a result, the court denied the Defendant’s motion finding that Plaintiffs alleged facts sufficient to show that the Defendant is an employer subject to the 60 day advance notice provision and alleged facts sufficient to show that the Defendant’s layoffs constituted a mass layoff. 

In re Storehouse, Inc. (Bkrtcy. E.D. Va. 2010).  The Plaintiff brought an action against his former employer under the WARN Act. The court found that the Plaintiff was not a mobile worker, but rather, had worked from an identifiable single site of employment.  The court found further that layoffs at the Plaintiff’s site of employment affected fewer than 50 people.  As a result, the court held that the Plaintiff did not qualify for WARN Act protections.

Bennett v. Roark Capital Group, Inc. (D. Me. 2010).  Former employees and their labor union brought an action against their employer WSI and various other corporate parents. Among other claims, the Plaintiffs alleged violations of the WARN Act. The Defendants moved to dismiss. 

To determine the whether the corporate parent companies qualified as the employer under the  WARN Act, the court recognized two tests.  Under the first test, the court considered whether the parent companies and WSI had: (1) common ownership; (2) common directors and/or officers; (3) de facto exercise of control; (4) unity of personnel policies emanating from a common source; and (5) the dependency of operations between the companies.  Under the second test, the court considered the: (1) interrelation of operations between the companies; (2) whethere there was common management; (3) the existence of centralized control of labor relations; and (4) common ownership.  The court found it improper to consider the probability that there will be such evidence prior to the completion of discovery.  The court held that Plaintiffs were entitled to conduct discovery to determine if such evidence exists and denied Defendants’ motion to dismiss.

Richards v. Advanced Accessory Systems, LLC. (E.D. Mich. 2010).  Plaintiffs alleged a WARN Act violation when they were informed that they were laid off without 60 days advance. The court examined the extent to which an entity with a controlling ownership interest in an employer is subject to WARN Act liability.

Looking to US DOL regulations, the court considered the following factors: (1) common ownership; (2) common directors and/or officers; (3) de facto exercise of control; (4) unity of personnel policies emanating from a common source; and (5) dependency of operations.   The court found that the third, fourth and fifth factors weighed in favor of the Defendant parent corporation and granted that company’s motion for summary judgment. 

In re Taylor Bean & Whitaker Mortgage Corp. (Bkrtcy. M.D. Fla. 2010).  On WARN Act claims, Plaintiffs requested certification of a class.  Defendant argued that the claims should be handled through the claims administration process and that an adversary proceeding was unnecessary. The court found that a class action adversary proceeding was appropriate and preferable to the claims procedure and that an adversary proceeding was necessary to protect  employees’ rights given the relatively small nature of the individual claims.

In re FF Acquisition Corp.  (Bkrtcy. N.D. Miss. 2010).  Former employees alleged that their former employer violated the WARN Act when, on the day of filing for bankruptcy relief, the employer terminated all manufacturing activities and issued a notice that it was ceasing business operations.  In order to be exempt from the 60 day advance notice requirement, the court recognized that the employer must show that the circumstances were unforeseeable and that the layoffs were caused by those circumstances.  The Plaintiffs asserted that the shutdown was foreseeable due to variety of factors.  The Defendant stated that the failure of the company’s three principal customers to provide written commitments for orders by August 2005 resulted in an inability to provide their primary lender with a viable business plan showing that the company could repay its debts.  Without funding from their lender, business operations could not continue. 

The court held that the “unforeseen business circumstances” and the “faltering company” exceptions to WARN Act liability applied to the facts of the case. The court’s decision seemingly misapprehends the unforeseen business circumstances exception.  By its very terms, a faltering company that is actively seeking capital (under the second exception) not only forsees but is critically aware of the dire circumstances necessitating the capital sought. Under such conditions, the adverse business circumstances cannot be considered “unforeseeable.”

Eash v. Export Packaging Co., Inc. (C.D. Ill. 2010).  Plaintiffs alleged that the Defendant employer, failed to provide adequate (60 day) notice prior to the termination of their employment. Plaintiffs brough a motion for class certification that was not opposed by the Defendant.

Despite class certification being properly and routinely granted in such cases, the court curiously found it hard to believe that Plaintiffs would “be familiar with which employees did or did not receive written notice of their terminations” and that the Plaintiffs thereby failed to establish the numerosity requirement of FRCP 23.  Plaintiffs’ motion for class certification was then denied without prejudice.

WARN Act Case Decisions: Update

Gross v. Hale-Halsell Co., 554 F.3d 870 (2009).  Plaintiffs were employed by Hale-Halsell Co. (“HHC”). HHC owned fifty percent of United Supermarkets, which was also HHC’s largest customer. At times, HHC failed to meet orders that United requested. United terminated the relationship, and HHC began experiencing financial troubles.  In January 2004, HHC met with some of its employees informing them of impending layoffs. Approximately two hundred employees were to be laid off the very next day. The plaintiffs brought this action and HHC moved for summary judgment on the basis that it was excused from the WARN Act requirements based on the unforeseeable business circumstance exception and the faltering company exception.  The district court granted the summary judgment holding that the termination of the United-HHC relationship was unforeseeable and caused the mass layoffs. The plaintiff appealed.

The Court of Appeals recognized that in asserting the unforeseeable business circumstance exception, the company has the burden of proving the circumstances faced were not reasonably foreseeable and that the unforeseeable circumstances was in fact the cause of the layoffs. The court concluded that the evidence showed that HHC could not reasonably foresee that United would terminate their relationship, which would make the circumstance unforeseeable.  The court then went on to discuss the causation issue.

With regard to causation, the court concluded that HHC’s decision to shut down came shortly after termination of the relationship with United. From this, the court held that United’ withdrawal was the cause of HHC’s decision to layoff its workers. Because the requirements of the unforeseeable business circumstances exception found to have been met. The court affirmed the decision of the district court.

In re Continental AFA Dispensing Co., 403 B.R. 653 (Bkrtcy.E.D.Mo.,2009).  In July 2008, Debtors terminated the majority of their 743 employees and in August 2008 filed for Bankruptcy.   On August 11, 2008 Joshua Bridges, Plaintiff, filed a class action adversary proceeding complaint on behalf of himself and a class of similarly situated employees seeking damages under the WARN Act.

The main issue the court dealt with was whether an employee terminated pre-petition by a debtor can be granted an administrative expense claim for back pay under the WARN Act.  The granting of administrative expense status gives those claims top priority for payment.   The court found that to be granted administrative expense claim status under the Bankruptcy Code the plaintiffs had to show that the services were rendered post-petition, and those services provided a direct and substantial benefit to the Debtor’s estate.  The Debtors admitted that they had breached the 60 day requirement under the WARN Act by terminating the employees, but argued that the termination occurred pre-petition, and therefore, the plaintiff’s services were not performed to preserve the estate. The court denied the claim for administrative expense status, stating that a WARN Act claim, for an employee terminated pre-petition, is not “an actual and necessary expense of preserving an estate.” 

In re Powermate Holding Corp., 94 B.R. 765 (Bkrtcy.D.Del.,2008).  On March 10, 2008, the Debtor Defendants sold their Minnesota assets and terminated the employment of all the workers at that location.  On March 17, 2008 the Debtor Defendants eliminated an additional 260 employees without prior notice, and then filed for Chapter 11 Bankruptcy.      Plaintiffs filed a claim charging violations of the WARN Act.  The Debtor Defendant moved for a dismissal or a determination that those damages were not entitled administrative expense priority status. 

In light of the 2005 changes to the United States Bankruptcy Code, the court first determined how the amendment of 11 USC § 503(b)(1)(A)(i) and (ii) should be interpreted.  Within these sections, the court found the two subsections (i) and (ii) as categories within a particular subset of allowable administrative expenses that were “actual, necessary costs and expenses of preserving the estate.” § 503(b)(1)(A). Therefore the court held that the amendment was to be independently evaluated in determining whether the WARN Act claims were administrative expense claims. This was in contrast to In re First Magnus Financial Corp., 390 B.R. 667 (Bkrtcy.D.Ariz.,2008), which interpreted that conjunction “and” to mean that both provisions, (i) and (ii), should be read together, requiring both sections to be satisfied for a claim to qualify as an administrative expense.

The court found that the decisive factor in determining whether a claim should receive administrative expense status was the relation of the petition date to the time when the rights or claims to back pay vested.  If the claim vested pre-petition the claim would not be entitled to administrative expense status because the back pay would be attributable to the time occurring prior to the commencement of the bankruptcy case. If the claim vested post-petition the claim would be entitled to administrative expense status because the back pay would be attributable to the time occurring after the commencement of the case.

The court concluded that WARN Act claims vest at the time of termination. Therefore the Plaintiff and employees claims vested entirely when they were terminated pre-petition, and were not entitled to administrative expense claim status in this case. The court also stated that other courts had consistently held that pre-petition claims, such as the present claims, were entitled to fourth or fifth level priority status pursuant to 11 U.S.C. § 507(a)(4) and (5).

WARN Act Case Decisions: Update

In Meson v. GATX Technology Services Corporation, 507 F.3d 803 (C.A.4 2007) the court held that an employee's home office was her “single site of employment” for purposes of the WARN Act, affirming a lower court’s summary judgment decision in favor of the employer. The court reasoned that the home office where the sales representative was based, and not the headquarters to which she reported, was her “single site of employment” for purposes of the 50-employee single-site layoff requirement. The court found that WARN Act provisions applicable to “workers whose primary duties require travel from point to point” was intended to apply only to truly mobile workers without regular, fixed place of work.

In New York’s Health and Human Service Employees Union, 1199/SEIU, AFL-CIO v. Grossman, 2007 WL 2907386 (E.D.N.Y. 2007) a U.S. District Court out of New York denied plaintiff-employees’ motion for summary judgment. Abraham Grossman and Chaim Sieger closed a long-term residential adult care site which they owned and operated. Upon closing, at least 80 of the site’s employees began working at a new site owned by the employer.  The question for trial will be whether the 80 employees were transferred to the new site or whether they were independently hired by the new site’s administrator. As a result of the closing, plaintiff-employees lost their seniority, lost health and pension benefits and had to be represented by a new union with a new contract at the new site.