US: A High-Profile Year for the WARN Act

Before COVID-19 and the recent layoffs at Twitter Inc., the Worker Adjustment and Retraining Notification, or WARN, Act maintained a low profile; the act did not garner significant media attention, and cases alleging violations of the act were limited and largely routine.

An explanation for this, at least in part, is that the WARN Act is straightforward. It requires large employers to provide a minimum of 60 days' written notice to employees of mass layoffs or plant closures at a single site of employment; in most instances, the act's application is clear, and employers must provide the notice and/or provide pay and benefits for the full notice period.

While there have been limited disputes over technical rules — such as what qualifies as a single site of employment, which employees should be counted in meeting the employee thresholds in the act, or whether pay in lieu of notice is allowed under the act — the substantive litigations arising under the WARN Act have involved employers seeking to excuse their noncompliance with the 60-day notice requirement.

There are only three exceptions to that 60-day notice. The period can be reduced for unforeseeable business circumstances or pursuant to the faltering company exception — which applies only to facility closures when a company is seeking new capital and providing notice could destroy the opportunity to obtain this capital.

Under the third exception, no notice is required if the closing is "due to any form of natural disaster."¹

COVID-19 and the resulting workplace closures caused an unprecedented uptick in WARN Act cases where employers sought to rely on the unforeseeable business circumstances or natural disaster exceptions. In 2020, shortly after the first two of these lawsuits had been filed, we predicted how these cases would likely unfold.

Many of these early WARN Act cases concluded this year, and this article looks back at the wisdom — or lack thereof — of those early predictions, what the results mean for future health emergencies and how, if at all, these developments may affect the highly publicized WARN Act litigation brought against Twitter.

The Early Predictions

In early 2020, the first two COVID-19 WARN Act cases were filed.

The first was Scott v. Hooters III Inc., in the U.S. District Court for the Middle District of Florida, against Hooters' restaurants in Florida. On March 20, 2020, the governor banned all dine-in food and beverage consumption in Florida, and on March 25, Hooters allegedly terminated all of its Florida restaurant employees without providing any notice.

The plaintiffs alleged that Hooters had other options short of terminating all employees, such as seeking a forgivable loan pursuant to the federal Paycheck Protection Program.

The second case was against Velodyne Lidar Inc. — an autonomous-vehicle tech company. In Siers v. Velodyne, in the U.S. District Court for the Northern District of California, the plaintiffs alleged that the company had started sending jobs overseas before COVID-19 and that it used COVID-19 as a pretext to accelerate that process.

At that time, we predicted:

• If Hooters could show that the majority of its revenue was from dine-in service, the government's effective closure of dine-in service would justify a shortened notice period;

• A court was unlikely to rule that Hooters should have been required to seek a PPP Loan before choosing to shut down;

• Velodyne Lidar would not be able to avoid liability if it could be shown the company had already made the decision to take these jobs overseas;

• The natural disaster exception would not apply unless the courts interpreted the exception beyond its previous applications; and

• There was no basis for utilizing the faltering company exception to the WARN Act.

The Short-Lived Hooters and Velodyne Lidar Cases

Both cases were short-lived. The Hooters case was voluntarily dismissed on July 16, 2020² and Velodyne Lidar was voluntarily dismissed on June 29, 2020.³

The stipulated dismissal in the Hooters case suggested that employees might have been re-offered employment within six months of the separation. To qualify as an employment loss under the WARN Act, the layoff must exceed six months.

There is no publicly available information available on the potential terms of the resolution of the Velodyne Lidar matter.

While these cases provide no basis to confirm or refute our early predictions, a number of other cases that tested similar theories provide more information.

The Results

The Natural Disaster Exception

The first three courts to address whether the natural disaster exception applies to COVID-19 disagreed with the authors:

1. In 2021, in Benson et al. v. Enterprise Leasing Company of Florida LLC, the U.S. District Court for the Middle District of Florida assumed without deciding that "COVID-19 may be a natural disaster within the meaning of the WARN Act";⁴

2. In March 2022, in In re: Art Van Furniture LLC, the U.S. Bankruptcy Court for the District of Delaware held that "the COVID-19 pandemic qualifies as a natural disaster and may be invoked under the natural disaster exception to the WARN Act";⁵ and

3. In March 2021, in Easom v. US Well Services Inc., the U.S. District Court for the Southern District of Texas relied on a number of cases outside the WARN Act context to conclude that "the dictionary definition of natural disaster, other court decisions, and the statutory language support the conclusion that the COVID-19 pandemic is a natural disaster under the WARN Act."⁶

In June, however, the Fifth Circuit Court of Appeals overturned the Easom case in a unanimous decision. The court ruled — as originally predicted — that the term "natural disaster" only included events of the same kind as the examples identified in the WARN Act itself, that is, floods, earthquakes, droughts, or other physical events.⁷

The U.S. Supreme Court rejected the employer's request to appeal the Fifth Circuit's decision.

It appeared that the U.S. Court of Appeals for the Eleventh Circuit would be the second court of appeals to address the issue due to an appeal of Benson, the first case listed above. But, on Oct. 28, the parties reached a settlement and voluntarily dismissed the appeal pursuant to a stipulation.

In addition, in August another Florida employer chose to settle a WARN Act class action suit in the U.S. District Court for the Middle District of Florida, Turner v. Rosen Hotels & Resorts Inc., for $2.3 million instead of risking continued reliance on the natural disaster exception.⁸

In short, in the unfortunate event that another pandemic occurs, no employer should feel comfortable relying solely on the natural disaster exception.

The Faltering Company and Unforeseeable Business Circumstances Exceptions

No employer accused of violating the WARN Act relied on the faltering company exception in any of the 18 reported decisions involving COVID-19. In addition, none of the cases addressed whether an employer could have been obligated to attempt to obtain a PPP Loan before effecting a closure or mass layoff.

As for the unforeseeable business circumstances exception, no reported case was more direct than the Hooters case in linking a government-ordered closure to employee terminations, but in Art Van Furniture, the Delaware bankruptcy court acknowledged that government stay-at-home orders had an unforeseeable effect on an employer's retail locations.

Further, the court found the employer — and its trustee in bankruptcy, who was responsible for winding down an employer's retail operations — provided notice as soon as it became reasonably foreseeable that the layoffs would be necessary.⁹

As anticipated, the court repeatedly acknowledged the fact-specific nature of this exception, and it found no reason to believe that the employer or trustee had used COVID-19 as a pretext for its layoff decisions in this instance.

In the future, this exception will continue to depend on the specific factual situation and how similar businesses in the market have reacted to similar situations, but it is likely to remain the most viable defense provided that an employer can establish it provided notice as soon as layoffs became reasonably foreseeable.

Twitter WARN Act Litigation

In the last month, the WARN Act was back in the news because of a class action lawsuit. On Nov. 3, five Twitter employees filed a class action complaint in the U.S. District Court for the Northern District of California¹⁰ alleging seven causes of action; two of the claims allege federal and state WARN Act violations for failing to provide 60-days' notice.

While Elon Musk tweeted that there was no choice but to lay off employees because "the company is losing over $4m/day," the limited publicly available information does not indicate whether Twitter intends to rely on the unforeseeable business circumstances or any other WARN Act exception.

Instead, based on the three WARN Act notices that Twitter filed in San Francisco, Santa Monica, and San Jose, it appears Twitter provided layoff notices to employees on Nov. 4, and it intends to keep those employees on its payroll through Jan. 4, 2023,¹¹ thus meeting its 60-day notice obligation under the WARN Act.

Twitter is also conducting layoffs in New York, where New York's mini-WARN Act statute requires 90 days' notice; Twitter's New York WARN Act notices were sent on Nov. 4, and state the layoffs will become effective on Feb. 2, 2023,¹² thus fulfilling New York's 90-day notice requirement.

Accordingly, while this case is notable because of the intense media scrutiny involved, it appears to be one of the straightforward and routine WARN Act claims that have been the historical norm under the act.

Best Practices

Our key takeaway from these early WARN Act cases and the Twitter case remains the same: Err on the side of caution with WARN Act notices.

In addition:
• The unforeseeable business circumstances exception still requires as much notice as possible; the notification requirement is not fully excused, and the notice should contain sufficient information to explain the reason for the shortened notice period;

• The Supreme Court may eventually decide whether the natural disaster exception applies to health emergencies; we advise against being the test case;

• Pay attention to mini-WARN Act laws or other notification requirements at the state level; and

• When negotiating a merger or acquisition, be aware of potential WARN Act liabilities and mitigate appropriately.

Hopefully, the historically bland WARN Act will return to form, and employers will not be forced to endure anything like the COVID-19 pandemic again.

This is an article which Barbara Roth, Partner and Tyler Hendry, Senior Associate co-wrote for Law360.

[1] 29 U.S.C. § 2102(b)(2)(B).

[2] Scott et al. v. Hooters III Inc., No. 8:20-cv-00882-SDM-AAS, Docket Nos. 15-16 (M.D. Fla. 2020).

[3] Siers v. Velodyne Lidar Inc., 5:20-cv-02290-NC, Docket No. 10 (N.D. Cal. 2020).

[4] See Benson et al. v. Enter. Leasing Co. Fla. LLC, No. 6:20-CV-00891, slip op. at 10, 2021 WL 1078185 (M.D. Fla. Jan. 4, 2021).

[5] In re Art Van Furniture LLC, 638 B.R. 523, 542 (Bankr. D. Del. 2022).

[6] Easom v. US Well Servs. Inc., 527 F. Supp. 3d 898, 911 (S.D. Tex. 2021), rev'd and remanded, 37 F.4th 238 (5th Cir. 2022), cert. denied sub nom. U.S. Well Servs. v. Easom, No. 22-333, 2022 WL 16909200 (U.S. Nov. 14, 2022).

[7] Easom v. US Well Servs. Inc., 37 F.4th 238, 243-44 (5th Cir. 2022), cert. denied sub nom. U.S. Well Servs. v. Easom, No. 22-333, 2022 WL 16909200 (U.S. Nov. 14, 2022).

[8] Turner v. Rosen Hotels & Resorts Inc., 6:21-cv-00161-CEM-DAB (M.D. Fla., settlement approved Aug. 2, 2022).

[9] In re Art Van Furniture LLC at 542-43.

[10] Cornet et al. v. Twitter Inc., 3:22-cv-06857-JD (N.D. Cal. 2022).

[11] https://edd.ca.gov/en/Jobs_and_Training/Layoff_Services_WARN

[12] https://dol.ny.gov/system/files/documents/2022/11/warn-twitter-nyc-2022-0050-11-8-2022_0.pdf