Analysis

Expected Spike In Suits May Clarify WARN Act's Scope

By Anne Cullen
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Law360 (August 12, 2020, 8:15 PM EDT) -- Millions of U.S. workers have been abruptly let go since the onset of the novel coronavirus pandemic, and while lawsuits under the WARN Act are only trickling in, there's a wave of cases on the horizon that could alter the landscape of layoff liability, experts say.

The federal Worker Adjustment and Retraining Notification Act makes it illegal for companies to fire 50 or more people at once without giving them two months' notice. But federal regulations clarify that if there's a "sudden, dramatic, and unexpected action or condition outside the employer's control," businesses can forgo the 60-day notice requirement and simply give as much notice "as is practicable."

While the U.S. Department of Labor has reported a record-breaking 54 million people applied for jobless benefits since March, only a smattering of federal WARN Act cases have been filed during the same time frame. However, that's likely to change as the passage of time makes it harder for employers to paint the lingering pandemic as an unforeseeable circumstance.

"WARN doesn't go away because of COVID-19," said Raisner Roupinian LLP co-founder Jack Raisner, who represents workers in mass layoff cases. "It takes away actions that are filed perhaps prematurely because a company had not understood the consequences of the situations that it was in, but after they do, they are prone to WARN."

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'Grace Period'

While it's difficult to predict how future WARN cases will fare, there's consensus among experts that an uptick in litigation is probably in the pipeline.

"I absolutely think you'll see more going forward," University of South Carolina School of Law professor Joseph Seiner said of WARN suits. "I would be surprised if there aren't attorneys out there looking for them as we speak." 

The fact that more WARN Act allegations haven't landed on federal dockets since March is at least partially due to employers' ability to assert the "unforeseeable" exemption to the law's notice requirements, Raisner pointed out.

"It was predictable that there wouldn't be that much activity because of this defense," Raisner said, adding that it's "a formidable one in any circumstance," and even more so amid the pandemic.

The exemption remains untested in federal courts in the context of COVID-19, though possibly not for long, as the parent of Enterprise Rent-A-Car lobbed the unforeseeable defense in Florida federal court last week in the face of WARN Act claims lodged by a former rental agent.

The onetime employee alleges she and others were given the boot with no notice in April, even though she says Enterprise knew its business was struggling.

The rental company, represented by Gibson Dunn & Crutcher LLP, told the court that there is "no doubt that unforeseeable business circumstances were at play here — namely, the ongoing global pandemic."

But Seiner predicted that it would become harder for companies to avail themselves of the unforeseeable business circumstances defense as more time passes since the novel coronavirus began battering the U.S. economy in March. As that argument gets weaker, more suits will be filed, he said.

"We're coming to the end of the grace period," Raisner warned.

'Unique Law'

Even outside of a global health crisis, WARN Act requirements can trip up employers, as cases filed under the statute aren't too common. 

"There's not a whole lot of litigation to build off of to try to figure out what this terminology means," Seiner said. Employers that slash their workforce on short notice are generally struggling financially and "don't present as deep of a pocket," he explained. Seiner also noted that the damages available under the law are relatively limited, as they are capped at two months' back pay and benefits for affected employees.

The DOL reminded employers of the WARN Act's unpredictability in guidance released in April, advising that their legal liability for a coronavirus-related layoff still relies on their particular circumstances.

"Any dispute regarding the interpretation of the WARN Act including its exceptions will be determined on a case-by-case basis in such a court proceeding," the DOL said. It also reminded employers that its role is limited to giving guidance, none of which is binding on the judicial system, and said it won't be weighing in on specific cases.

Jason Schwartz, co-head of Gibson Dunn's labor and employment practice, acknowledged ​​that employers are in uncharted waters, but he said for him, the onset of the pandemic presents a clear example of an unforeseeable event that gives employers a safe harbor.

"We're living in this weird dystopian world that no one could foresee," Schwartz said.

He said it's "common sense" that the current pandemic will trigger the statue's carveout, though he predicted battles with workers' attorneys on the topic.

"I think it's fairly straightforward that no reasonable business person would foresee any of this," he said, "but I'm sure you'll see lots of creative arguments from the plaintiffs bar."

Another piece of the WARN Act that Schwartz said will spark debates is the rules governing temporary layoffs, sometimes called furloughs, and what employers must do if those layoffs become permanent.  

A layoff that stretches past six months is considered a permanent job loss under the law, and even employers that successfully claim the unforeseeable exemption — clearing them of the federal requirement to alert employees two months before the initial furlough — have to show they gave their workforce a heads-up as soon as it was "reasonably foreseeable" that an extension or a permanent layoff was in the cards.

"What you're going to see get litigated is when exactly would it have been reasonable for the company to have anticipated that," Schwartz said. "Unfortunately, under these circumstances, it's essentially zero notice."

"That said, I'm quite certain that the plaintiffs bar will be arguing otherwise," he added.

Going forward, whether an employer's circumstances fit within the statute's carveout or whether a transition from temporary to permanent layoffs ran afoul of the WARN Act will be key sticking points, according to Schwartz. And he said these disputes will carve new grooves in the legal landscape. 

"While it has been litigated in the past, the facts and circumstances now are radically different from anything anybody has ever seen before," he said. "You'll see the development of some unique law."

--Additional reporting by Vince Sullivan and Hannah Albarazi. Editing by Kelly Duncan.

For a reprint of this article, please contact reprints@law360.com.

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