Wage Law

The federal Worker Adjustment and Retraining Notification Act ("WARN" Act) 29 USCA § 2101 et seq., requires certain employers to provide 60 days' advance notice of a "plant closing" or a "mass layoff" to affected employees and state and local government officials. 29 USCA § 2102(a); Hollowell v. Orleans Regional Hosp. LLC (5th Cir. 2000) 217 F.3d 379. An employer who conducts a closing or layoff without giving the required advance notice is liable for up to 60 days' pay and benefits to affected employees. Allen v. Sybase, Inc. (10th Cir. 2006) 468 F.3d 642.

The federal WARN Act has an exception called the "Faltering Company" exception. A faltering company "may order the shutdown of a single site of employment before the conclusion of the 60-day period if as of the time that notice would have been required: the employer was actively seeking capital or business which, if obtained, would have enabled the employer to avoid or postpone the shutdown; and the employer reasonably and in good faith believed that giving the required notice would have precluded ... obtaining the needed capital or business." 29 USCA § 2102(b)(1).

The DOL regulations provide that the employer must have been seeking financing or refinancing or additional business through a commercially reasonably method. 20 CFR § 639.9(a)(1). To prove the defense, the company must identify specific actions taken at that time to obtain financing or new business. Local 397, Int'l Union of Electronic, Elec., Salaried, Mach. & Furniture Workers, AFL-CIO v. Midwest Fasteners, Inc. (D.NJ 1990) 763 F.Supp. 78. There must have been a realistic opportunity to obtain the financing or business sought. 20 CFR § 639.9(a)(2). The financing or business sought would have been sufficient to enable the employer to avoid or postpone the shutdown and to keep the facility open for a reasonable period of time. 20 CFR § 639.9(a)(3). And the employer must be able to demonstrate objectively that it could have kept the facility open for a reasonable period of time with the amount of financing or new business sought. 20 CFR § 639.9(a)(2). The employer must have objectively and subjectively believed that a potential customer or source of financing would have been unwilling to provide the new business or capital if notice were given. 20 CFR § 639.9(a)(4); Childress v. Darby Lumber, Inc. (9th Cir. 2004) 357 F.3d 1000. The employer must show that, upon learning that the workplace would be closed, it promptly notified the employees and explained why it had not given earlier notice. Local 397, Int'l Union of Electronic, Elec., Salaried, Mach. & Furniture Workers, AFL-CIO v. Midwest Fasteners, Inc. (D. NJ 1990) 763 F.Supp. 78.

There is also an "Unforeseen Business Circumstances" exception, whereby an employer need not give the full 60 day notice if the closing was caused by a business circumstance that was not reasonably foreseeable as of the time notice would have been required. 29 USCA § 2102(b)(2)(A). However, where an unforeseen business circumstance prevents an employer from timely giving notice, the employer must give "as much notice as is practicable and at that time shall give a brief statement of the basis for reducing the notification period." 29 USCA § 2102(b)(3); Allen v. Sybase, Inc. (10th Cir. 2006) 468 F.3d 642. However, in one recent case, layoffs could be attributed to unforeseen business circumstances where the employer's lender bank gives numerous warnings that employer was at risk of losing credit, the market price of its product was depressed, and its operations had been losing money over a significant period of time. Childress v. Darby Lumber, Inc. (9th Cir. 2004) 357 F.3d 1000.

California law has a similar requirement, with similar defenses. Under Labor Code § 1400, most of the federal WARN Act requirements are also mandated under state law. Notice of a relocation or termination, but not a mass layoff, is excused where the employer furnishes records and affidavits and the Employment Development Department determines that (i) at the time notice was required, the employer was actively seeking capital or business that would have enabled it to avoid or postpone the relocation or termination; and (ii) the employer reasonably and in good faith believed that giving the 60 days' notice would preclude it from obtaining the needed capital or business. Labor Code § 1402.5.