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Fifth Circuit Court of Appeals Confirms That WARN Notification Obligations May Be Triggered by Employment Terminations Which Precede a Plant Closing

August 8, 2000

Any employer contemplating closing a facility or terminating more than a handful of employees should be familiar with the provisions of the federal Worker Adjustment and Retraining Notification Act ("WARN"), which requires employers covered by that statute to provide to affected workers 60 days' written notice of a plant closing or mass layoff. Specifically in the context of a plant closing, WARN generally requires an employer to provide affected employees with 60 days' notice if the plant closing results in the loss of employment for at least 50 employees during any 30-day period. 29 U.S.C. § 2101(a)(2). WARN's notification obligations are also triggered when two or more groups of employees, totaling at least 50 in the aggregate, are discharged in a 90 day period, "unless the employer demonstrates that the employment losses are the result of separate and distinct actions and causes and are not an attempt by the employer to evade the requirements of [the Act]." 29 U.S.C. § 2102(d). In Hollowell v. Orleans Regional Hospital LLC, Nos. 98-31105, 99-30123, 2000 WL 867989 (5th Cir. July 18, 2000), the Fifth Circuit Court of Appeals recently concluded that a series of terminations within a 90 day period were to be aggregated (thus triggering the employer's WARN notification obligations), notwithstanding the employer's contention that many of the terminations were unrelated to the eventual closure of its facility.

The plaintiffs in Hollowell sued their former employer for failing to provide WARN notification prior to terminating their employment in connection with the closure of the facility at which they had worked. Affirming the lower court's grant of summary judgment to the plaintiffs, the United States Court of Appeals for the Fifth Circuit concluded that the employer had not met its affirmative duty of demonstrating that a succession of prior individual and group terminations were taken as a result of causes separate and distinct from those which precipitated the ultimate closure of its facility.

The facts of the case were as follows. Orleans Regional Hospital ("ORH") operated as a Medicaid-funded psychiatric hospital in New Orleans. Beginning in 1994, changes in Medicaid policy began negatively impacting ORH's fiscal viability, necessitating a succession of layoffs over the course of the following year. In August and September of 1995, a total of 14 employees were terminated as a consequence of ORH's financial constraints. Then, in October 1995, ORH decided to close the hospital, and on October 27, 1995, it notified its 48 remaining employees that the facility would close on November 3, 1995.

ORH argued that it was not required by WARN to provide 60 days notice of termination to any of its employees because it had only discharged 48 employees as a direct result of the hospital's closure. According to ORH, the employment terminations that had occurred in August and September were part of its plan to keep the hospital open, were not "caused by" the subsequent closure of the hospital, and were therefore not properly aggregated with the subsequent terminations for purposes of determining whether WARN's notification obligations were triggered by the closure.

The Fifth Circuit disagreed, finding that the earlier layoffs resulted from the same economic conditions (i.e., changes in Medicaid policy) as those which necessitated the hospital's eventual closing. Thus, the Court held that all terminations which occurred during the 90 day period immediately prior to the closing were to be aggregated to determine whether 50 or more employees were discharged within that time frame. Finding that a total of 62 employees were discharged during the 90 day period, the Court affirmed the employees' motion for summary judgment and upheld the jury verdict on damages. In addition, the Fifth Circuit affirmed the lower court's award of more than $300,000 in attorney's fees to plaintiffs.

As Hollowell demonstrates, a court may conclude in hindsight that a series of seemingly discrete terminations over a 90 day period should have been aggregated for WARN purposes, notwithstanding that the employer viewed the terminations as unrelated when they occurred. For this reason, among others, employers should carefully review with counsel the potential WARN implications of any group terminations.