Analysis

Enterprise WARN Act Ruling Spells Trouble For Big Employers

By Anne Cullen
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Law360 (January 11, 2021, 8:50 PM EST) -- A Florida federal judge's recent refusal to hit the brakes on a WARN Act case over car rental giant Enterprise's pandemic-related layoffs has given employers a preview of how these suits may be handled by federal judges, and experts say company leaders would be wise to pay attention.

The federal Worker Adjustment and Retraining Notification Act makes it illegal for companies with at least 100 employees to fire 50 or more people in a short time frame without giving them two months' notice.

The WARN Act lawsuit challenging Enterprise's decision to sack hundreds of Florida workers last spring has emerged as a test case for the potential liability of larger firms that made abrupt personnel cuts because of the coronavirus pandemic

But so far, it's not going well for the car rental company. Although the federal statute offers employers two significant exemptions in extreme, unexpected situations, U.S. District Judge Roy B. Dalton ruled last week that they don't completely neutralize protections for workers laid off during the pandemic.

His decision cleared the lawsuit to head to discovery, a move experts say dims the outlook for businesses hoping to sink WARN Act cases early.

"This is a clear warning that businesses are not going to be off the hook," said Greenwald Doherty LLP partner Jessica Shpall Rosen. "This is a risk, and businesses are going to need to be highly aware of it."

While other federal courts have no obligation to follow Judge Dalton's lead, experts agree that his analysis was sound and could serve as a guidepost for other federal judges grappling with the same questions.

"It doesn't have any binding effect on other district courts throughout the country, but I do think when there's a new issue, courts like to look at other opinions to see how they analyzed it," said Reavis Page Jump LLP partner Jill Kahn Marshall.

Here, Law360 takes a look at what Judge Dalton's ruling means for employers hoping to fend off WARN Act liability over cuts they made stemming from the COVID-19 crisis.

No Swift End to Layoff Battles

The upshot of Judge Dalton's ruling is that the two WARN Act exemptions don't keep the case against Enterprise from moving into the fact-finding stage, an outcome experts say wasn't unexpected but narrows employers' pathway to a quick resolution.

"The takeaway for a business is, once you're mired in this kind of litigation, you're in it for the long haul," said Greenwald Doherty's Rosen. "This is not something you're going to get out of on a motion to dismiss, based on this teaching from this case."

Enterprise fought to get the case tossed before discovery by citing two key carveouts in the law that relax the statute's notice requirements. In the event of a natural disaster — which the law defines as "any form of natural disaster, such as a flood, earthquake, or the drought currently ravaging the farmlands of the United States" — businesses don't have to give any advance warning.

Or, under the "unforeseeable business circumstances" defense, employers only need to give as much notice "as is practicable" if there is a "sudden, dramatic and unexpected action or condition outside the employer's control."

However, Judge Dalton knocked the "natural disaster" defense off the table for Enterprise, as he said the pandemic only indirectly sparked the layoffs but the statute requires the event to directly prompt the firings to be in play.

He also pointed out that the U.S. Department of Labor's guidance on the topic doesn't even discuss whether the pandemic could be considered a natural disaster, "a deafening silence" that he said lends credence to his position.

Experts said this argument checks out. "I agreed with his reasoning," said Reavis Page's Marshall, who represents both individuals and corporations in employment disputes.

"The fact that DOL guidance on COVID-19 and the WARN Act doesn't mention the natural disaster exception is pretty telling that that's likely not what they think is going to apply here," Marshall said. "It's much more likely that it will be the 'unforeseeable business circumstance' exception."

As for that carveout, Judge Dalton said it may apply, but he noted that this provision doesn't eliminate the WARN Act's notice requirements, just "softens" them to mandate that firms give as much notice as they can.

Judge Dalton said it's not yet clear if Enterprise complied with these obligations, and he'll need the parties to exchange evidence in the next phase of litigation before he can make the call on whether the "unforeseeable" defense will be a roadblock.

Experts say this will likely be repeated in other federal forums, because an evaluation of what would've been "practicable" based on a company's individual circumstances is the type of fact-based review that is done after discovery.

"It's way too factually intricate and involved," said Raisner Roupinian LLP co-founder Jack Raisner, who represents workers in mass layoff cases. "The big question is whether courts looking at the evidence will find that these decisions to terminate people could've been made earlier or not."

"These are issues for summary judgment or trial," Raisner said.

Sharing Financial Evidence is Risky

Within the fact-finding stage, employment attorneys say the requirements of the exemption Judge Dalton left on the table will likely require businesses to cough up financial reports they'd rather not put on a public docket, both because the information is sensitive and because it could undermine the company's defense.

Though WARN Act case law is limited — as lawsuits filed under the statute aren't too common — experts predict courts will want to see a company's bottom line to determine if an employer gave as much notice as is practicable if they find the "unforeseeable" defense is triggered.

This "could put employers in a delicate situation," said Saul Ewing Arnstein & Lehr LLP's Dan Altchek. Firms "might not want to divulge too much of their internal financial decision making."

"It might be their natural inclination not to do that, but to defend a claim, they might need to," he said.

On top of that, companies with deep pockets will have an uphill battle trying to convince a court that they gave fired workers as much warning as possible, according to Fisher Phillips employment partner Suzanne Kelly Michael.

"The reality is, if you are looking at a large employer, they probably have the resources to give 60 days' notice to everybody," Michael said. "They're not going to go into bankruptcy if they can't fire everybody on a day's notice."

Michael added that she's not sure how a well-heeled corporation could "ever make the argument with a straight face that they couldn't have given any more than three days, five days, six days' notice to these thousands of employees they were laying off."

And even with discovery under their belt, Michael said she doesn't think courts will be able to make the final call on a WARN Act case at the summary judgment phase either.

"This is always going to be a jury question, I suspect," she said. "These employers are not going to be able to get out on summary judgment, because it is a factual dispute as to how much notice is practicable depending on the circumstances of each case."

WARN Settlements Looking More Likely

With all of these implications — protracted litigation, thorny discovery, difficult defenses, and a potential trial — employment lawyers anticipate that businesses may be more willing to cut a deal rather than take their chances in front of a judge.

"At a minimum, [the Enterprise case] makes it clear that you're not getting rid of a claim based on that defense on a motion to dismiss, so you are looking at discovery," said Saul Ewing's Altchek. "That alone is going to affect employer planning, thinking, and inclination to settle."

Of the three axed employees who spearheaded the proposed class action against Enterprise, two have already voluntarily dismissed their claims, with one worker alerting the court of her decision just a week after Judge Dalton's decision came down. One former Enterprise employee, Elva Benson, remains in the case.

An attorney for Enterprise, Gibson Dunn & Crutcher LLP partner Jason Schwartz, clarified that the two employees voluntarily pulled the plug on their claims because they were not covered by WARN, as they worked at smaller Enterprise locations. No settlements were struck with these workers, Schwartz said.

Representatives for the workers did not immediately respond to requests for comment.

--Additional reporting by Braden Campbell and Amanda Ottaway. Editing by Nicole Bleier.

Update: This article has been updated to include a response from Enterprise's attorney.

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

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