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WARN Act Notice Obligation Is Triggered When Mass Layoffs Become Probable

When a company is undergoing a reorganization or downturn in business, and a mass layoff is being contemplated, there are many urgent concerns competing for management’s immediate attention. But as stressful and hectic as that situation may be, a company must not lose sight of its obligations under the Worker Readjustment and Retraining Notification (WARN) Act. The WARN Act requires covered employers (generally, those with at least 100 employees) to provide employees with 60 days’ notice before executing a mass layoff. An exception to this requirement applies, however, if the layoff “is caused by business circumstances that were not reasonably foreseeable as of the time the notice would have been required.” (It should be noted that in certain states, such as New York, the number of affected employees and the timing of the notice are different from these Federal requirements.)

In a recent decision, the Third Circuit Court of Appeals, whose jurisdiction includes the districts of Delaware, New Jersey, and the Eastern District of Pennsylvania, held that a layoff is not “reasonably foreseeable” until it becomes more probable than not.

The decision arose from a mass layoff conducted by Eclipse Aviation Corporation in February 2009. Eclipse had spent the months leading up to the layoff attempting to sell the assets of the company, which had filed for bankruptcy, to its largest shareholder. During January and February 2009, Eclipse received multiple assurances from the shareholder company that it would be able to obtain the capital to fund the purchase. But by February 24, it became clear that not only was the funding not imminent, it might never materialize. Consequently, Eclipse, by that point out of time and money, ceased operations and announced an immediate mass layoff. Employees affected by the layoff sued the company, claiming it had violated the WARN Act by failing to provide the requisite 60 days’ notice.

On appeal from a district court decision in the company’s favor, the Third Circuit considered the question of what constitutes “reasonable forseeability” under the WARN Act. The plaintiff-employees argued that a layoff is reasonably foreseeable when it is a “reasonably possible outcome” of the current circumstances. Eclipse argued that an event is not reasonably foreseeable unless it is “probable.”

The court adopted the standard urged by Eclipse, holding that “the WARN Act is triggered when a mass layoff becomes probable — that is, when the objective facts reflect that the layoff was more likely than not.”[1] The “probable” standard is a far more tenable standard for employers to meet. If the WARN Act were to be triggered by the mere possibility of a layoff, companies would be obligated to issue WARN Notices during virtually any downturn, causing unnecessary panic among staff, not to mention a heavy administrative burden.

If you have questions about compliance with the WARN Act, contact PMP for guidance.

[1] Varela v. AE Liquidation, Inc. (In re. AE Liquidation, Inc.), 2017 U.S. App. LEXIS 14359 (3rd Cir. 2017).

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