Federal Court Decision On WARN Act And COVID-19 Could Signal Problems For Larger Employers (US)
Court says COVID-19 is not a “natural disaster” for purposes of WARN Act; refuses to dismiss case on grounds that layoffs precipitated by COVID-19 were “unforeseeable business circumstances.”
No employer has escaped the impact of COVID-19. Although some have managed to weather the pandemic, others have been financially devastated by widespread shutdown orders and other impacts of the public health emergency, requiring them either to close, or to significantly reduce the size of their workforce.
Under the federal Worker Adjustment and Retraining Notification Act (“WARN Act”), employers with 100 or more employees must provide advance notice to employees when either permanently closing a location, or when implementing mass layoffs. More specifically, under the WARN Act, covered employers must provide at least 60 days advance written notice of a closing or mass layoff affecting 50 or more employees at a single site of employment (and for layoffs, the number of employees laid off is at least 1/3 of the workforce), unless the employer can show that an affirmative defenses applies. The WARN Act provides several defenses to this notice requirement, including when closings or layoffs occur due to “unforeseeable business circumstances” or “natural disasters.”
A recent case out of a federal district court in Florida involved pandemic-related mass layoffs implemented by subsidiaries of Enterprise Holdings. Inc. (the car rental and leasing company). Enterprise implemented a mass layoff in early 2020 as a result of a decline in business caused by the reduction in global business and pleasure travel due to the COVID-19 pandemic. Two longtime employees impacted by these layoffs sued Enterprise, claiming it violated the WARN Act when it laid off more than 500 employees with little to no notice. Enterprise defended its actions, claiming that 60 days’ notice was not required under the WARN Act because two of its exceptions applied: (1) the “natural disaster” defense; and (2) the “unforeseeable business circumstances” defense.
Enterprise by no means was alone in what it did in laying off employees with little or no notice, or in the position it took here – that COVID-19 was an unforeseeable public health disaster. For this reason, many employers who took similar actions during the pandemic have been watching this case (Benson v. Enterprise Leasing Co. of Florida, LLC, et al.) in the hope that the court would agree with Enterprise and thereby signal that it and others were relieved of WARN Act obligations due to the arguably disastrous and unforeseeable effects of the COVID-19 pandemic.
But that didn’t happen. Instead, the court was unconvinced with Enterprise’s arguments, ruling that the economic hardships caused by the pandemic did not necessarily exempt Enterprise from its WARN Act notice obligations. The court rejected the “natural disaster” affirmative defense, reasoning that the U.S. Department of Labor’s guidance on the WARN Act and COVID-19 never mentions whether the pandemic could be considered a natural disaster, which, it said, is “a deafening silence” given the document’s topic. On the “unforeseeable business circumstances” exception, the court acknowledged that defense could apply, however, at the stage at which the case was then at (on a motion to dismiss), dismissal was not warranted because under that defense, unlike the natural disaster defense, the notice obligation is not entirely eliminated, and instead merely modifies it to require employers to “give as much notice as is practicable.”
This decision signals that arguments that employers did not have to comply with WARN Act obligations when implementing closures or layoffs due to COVID-19 may face an uphill climb. Although the court’s ruling is not binding on other jurisdictions or federal districts, it is possible that other federal courts will follow suit. Further, it is important to remember that several states (including California, Hawaii, Illinois, Iowa, Maine, Massachusetts, New Hampshire, New Jersey, New York, Tennessee, and Wisconsin) have their own state “mini-WARN” Acts that may impose more stringent obligations on employers in those jurisdictions. To the extent possible, employers should comply with the WARN Act notice obligations and should consult with an attorney as soon as there is a potential for a mass layoff or plant closure to ensure compliance with all federal and state WARN Act requirements.