Liquidating Chapter 11 Debtor Excused From Providing WARN Act Notification Of Employee Layoffs Due To Pandemic Natural Disaster

• Published date: 29 July 2022
• Subject Matter: Employment and HR, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Redundancy/Layoff
• Law Firm: Jones Day
• Author: Mr Daniel Merrett and Mark Douglas

Large employers intending to lay off a significant number of their employees are required by the Worker Adjustment and Retraining Notification Act of 1988 (the "WARN Act") to give the targeted employees 60 days' advance notice of the layoffs. However, there are certain exceptions to the notice requirement in cases where the employer is a "faltering business" or a "liquidating fiduciary," or where "unforeseeable business circumstances" or a "natural disaster" make it impracticable or impossible to provide 60 days' advance notice of a mass layoff.

The U.S. Bankruptcy Court for the District of Delaware recently examined the scope of these exceptions in a case involving mass layoffs by a company that filed for chapter 11 protection to liquidate its assets at the beginning of the COVID-19 pandemic. In In re Art Van Furniture, LLC, 638 B.R. 523 (Bankr. D. Del. 2022), the court ruled that, although a debtor-employer did not qualify as a liquidating fiduciary because it continued operating after the petition date, the debtor was excused from full compliance with the WARN Act notification requirement due to the COVID-19 pandemic, which represented both an unforeseeable business circumstance and a natural disaster.

The WARN Act

Enacted in 1988, the WARN Act protects workers, their families, and communities by requiring most employers with 100 or more employees to provide notification of plant closings and mass layoffs 60 calendar days prior to the event. See 29 U.S.C. ' 2102(a).

U.S. Department of Labor ("DOL") regulations prescribe when an employer must give WARN Act notice, whom the employer must notify, how the employer must give notice, and what information the notice must contain. See 20 C.F.R. ' 639 et seq.

According to 29 U.S.C. ' 2104(a), an employer failing to give WARN Act notice is liable to each aggrieved employee who suffers an employment loss as a result of a plant closing or mass layoff for, among other things, back pay for each day during the period of the violation.

However, if an employer can prove that it shut down operations because either it was a "faltering company" or the shutdown was due to business circumstances "that were not reasonably foreseeable," it need not comply with the WARN Act's 60-day notice provisions. See 29 U.S.C. ' 2102(b)(1) and (b)(2)(A); 20 C.F.R. ' 639.9. In particular, 29 U.S.C. ' 2102(b)(1) and (2)(A) provide as follows:

(1) An employer may order the shutdown of a single site of employment before the conclusion of the 60-day period if as of the time that notice would have been required the employer was actively seeking capital or business which, if obtained, would have enabled the employer to avoid or postpone the shutdown and the employer reasonably and in good faith believed that giving the notice required would have precluded the employer from obtaining the needed capital or business.

(2)(A) An employer may order a plant closing or mass layoff before the conclusion of the 60-day period if the closing or mass layoff is caused by business circumstances that were not reasonably foreseeable as of the time that notice would have been required.

Also, 29 U.S.C. ' 2102(b)(2)(B) provides that "[n]o notice under [the WARN Act] shall be required if the plant closing or mass layoff is due to any form of natural disaster, such as a flood, earthquake, or the drought currently ravaging the farmlands of the United States."

The WARN Act defines an "employer" as "any business enterprise that employs: (i) 100 or more employees, excluding part-time employees; or (ii) 100 or more employees who in the aggregate work at least 4,000 hours per week (exclusive of hours of overtime)." 29 U.S.C. ' 2101(a)(1).

DOL commentary to WARN Act regulations (the "DOL Commentary") addresses whether a debtor in bankruptcy qualifies as an "employer" under the WARN Act:

[T]he term "business enterprise" used in the statute...