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Federal Court Sheds Light on “Unforeseeable Business Circumstances” Exception to WARN Act Notice Requirements

Posted: January 15, 2021

A recent decision by a federal court in Florida could invite protracted litigation for large employers who engaged in mass layoffs after the COVID-19 pandemic arrived, if those employers did not provide 60 days’ notice under the federal Worker Adjustment and Retraining Notification (WARN) Act and were hoping to rely on certain exceptions to the law’s notice requirements. In this recent case, Benson v. Enterprise Leasing Company of Florida, Case No. 6:20-cv-891, the judge refused to apply the “unforeseeable business circumstances” exception to dismiss the case, and is instead allowing it to proceed to the discovery stage. Although the ruling is not binding on other courts, it could nevertheless be influential in deciding how to apply this exception to an employer’s obligation to give 60 days’ notice before a mass layoff because of COVID-19.

When the COVID-19 pandemic arrived in March 2020, many companies were forced to lay off significant numbers of employees, sometimes without notice due to dire and uncertain financial circumstances. These mass layoffs triggered potential obligations under a seldomly-litigated federal law, the WARN Act. The WARN Act generally requires large employers with over 100 employees to provide 60 days’ written notice before laying an employee off in a “mass layoff,” which is defined as layoffs at a single worksite of at least 50 employees (who comprise at least 33% of active employees) or 500 employees. The purpose of the WARN Act is to protect employees from sudden, mass layoffs by requiring 60 days’ notice so that employees can find new employment while still being covered by medical and other benefits. Furloughs, which became prevalent in the wake of the pandemic and involve temporarily placing an employee on unpaid non-working status, can also potentially trigger WARN Act obligations if the furlough becomes permanent and extends for more than six months.

Recognizing that 60 days’ notice of mass layoffs is not possible in all circumstances, the WARN Act alternatively permits employers to give “as much notice as is practicable” under certain exceptions. Two of these exceptions include if the mass layoffs are due to “unforeseeable business circumstances” or are the direct result of a “natural disaster.” In the recent Florida case, the employer Enterprise Car Rentals unsuccessfully asserted both of these exceptions in moving to dismiss a WARN Act case by its former employees. The judge’s opinion provides a useful but potentially concerning analysis for other large employers facing similar litigation.

The judge quickly rejected the “natural disaster” defense, explaining that the layoffs were not the direct result of a natural disaster (that is, the COVID-19 pandemic) but were instead the indirect result of it. The court analogized that a natural disaster could be a flood that destroyed a factory, causing mass layoffs, whereas in the case of COVID-19, it was more like a flood that destroyed a town’s economy, suppressing demand, and indirectly resulting in mass layoffs. In other words, because the layoffs were only indirectly (as opposed to directly) caused by COVID-19, this exception to the WARN Act’s 60 days’ notice requirement did not apply.

The Court did, however, indicate that the “unforeseeable business circumstances” exception could apply in cases like this where the employees were included in a mass layoff because of the economic downturn caused by COVID-19. The court cited a FAQ published by the Department of Labor (DOL), which states an important indicator of this exception is a “sudden, dramatic, and unexpected action or condition outside of the employer’s control.” The DOL provides several examples in the FAQ of how this exception might apply:

  • A principal client’s sudden and unexpected termination of a major contract with the company
  • An unanticipated and dramatic major economic downtown
  • A government ordered closing of an employment site that occurs without prior notice

 

In good news for employers, the court favorably cited these examples from the FAQ of how COVID-19 could have caused unforeseeable circumstances that justify giving less than 60 days’ notice of a mass layoff. For Enterprise, however, the court refused to apply this defense to dismiss the case because the lawsuit alleged that Enterprise gave one of the employees zero days’ notice, and the other employee just six days’ notice. This amount of notice was not enough to convince the court that Enterprise gave “as much notice as is practicable,” as is required by employers asserting this defense. For that reason, the court declined to dismiss the case and is allowing it to proceed to the discovery phase for depositions and document exchanges.

There are several important takeaways for employers to consider from this case:

  • Courts are willing to consider the unprecedented economic effects of COVID-19 as an “unforeseeable” circumstance that could warrant dismissal if an employer had provided the employees more notice than Enterprise was able to provide.
  • Employers may not be able to easily rely on this exception if they only give a few days’ (or no days) notice to employees before a mass layoff.
  • The size and financial condition of an employer will likely impact how much notice should have been “practicable.”
  • Rulings that allow a case to proceed to discovery increase costs on attorneys’ fees and can make them more expensive to settle.
  • Rulings that allow a case to proceed to discovery can result in having to disclose sensitive financial information about the company.

 

If you have any questions about this important decision or the applicable notice requirements under the WARN Act or any state law equivalents, please contact an attorney in Saul Ewing Arnstein & Lehr LLP’s Labor & Employment practice group.