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WARN Developments: Employer Liable for $1.2 Million Despite Giving Notice Before Mass Layoffs

July 1, 1992

The U.S. District Court for the Eastern District of Louisiana recently found that notices sent to employees prior to a mass layoff were technically defective under the Worker Adjustment and Retraining Notification Act of 1989 ("WARN"), and awarded the employees more than $1.2 million in damages, plus prejudgment interest and attorneys' fees. Under WARN, employers are required to provide sixty days' advance notice of a plant closing or mass layoff. In Carpenters District Council of New Orleans v. Dillard Department Stores Inc., 1992 U.S. Dist. LEXIS 5926 (E.D. La., April 21, 1992), Magistrate Judge Ronald A. Fonseca ruled that the notices sent to employees failed to comply with regulations issued by the U.S. Department of Labor (the "DOL"), rendering them ineffective. After rejecting the company's defenses under WARN, the court concluded that the laid-off employees did not receive the full sixty days of notice required by the statute, and that payments made to employees at the time of their layoff were insufficient to negate WARN damages.

The suit arose when employees working for D. H. Holmes Co. ("Holmes"), a retailer in the New Orleans area, were laid off following the merger of Holmes with Dillard Department Stores Inc. ("Dillard"). The merger was approved by the Boards of Directors of the two companies in early March, 1989, subject to two conditions: approval by 80% of the Holmes stockholders, and approval of the transaction by the Securities and Exchange Commission (the "SEC"). SEC approval was secured on April 10, 1989, following which notices were sent to some employees that they would be laid off effective May 9, 1989 if the stockholders approved the transaction. Thus, the notice received by these employees did not meet the sixty-day requirement of WARN. Most other employees were subsequently notified that they would lose their jobs between May 9 and July 8, 1989.

In a preliminary decision issued last fall, Carpenters District Council of New Orleans v. Dillard Department Stores Inc., 778 F. Supp. 297 (E.D. La. 1991), the court rejected Dillard's defenses that its failure to provide adequate notice was excusable under two exceptions to WARN's notice requirement. Under the statute, notice to employees may be given fewer than sixty days in advance of layoffs if the layoffs are caused by business circumstances that were not reasonably foreseeable as of any earlier date. WARN also permits notice to be withheld or delayed if the employer is actively seeking capital or business which, if obtained, would avoid the layoffs and if the employer reasonably believes that giving a WARN notice might interfere with obtaining the new capital or business.

Dillard claimed that since SEC and stockholder approval of the merger were uncertain up to the date that the WARN notices were sent, neither Holmes nor Dillard had any obligation to provide earlier notice to employees. Dillard further argued that since Holmes had been seeking additional capital and financing which, if obtained, might have negated the need for a merger (and the subsequent layoffs), the exception to WARN for companies "seeking capital or business" exempted Holmes and Dillard from any WARN obligations.

The court rejected both contentions. The court observed that Dillard's notices failed to include a statement of the reasons why the full sixty days of advance warning were not provided, which is a requirement for both defenses under the DOL regulations. Further, since neither SEC approval nor stockholder approval of the merger--and in fact not even the merger itself--was the "cause" of the layoffs, the timing of those events in relation to the date of the layoffs was irrelevant. The court concluded that the economic condition of the company was the "cause" of the layoffs, and that neither Dillard nor Holmes could escape WARN's obligations based on the timing of the layoffs in relation to the merger.

As for the "seeking capital or business" defense, the court held that Dillard could not justify the inadequate notice of its post-merger layoffs based on Holmes' efforts to seek capital prior to the merger. The defense simply does not apply to a layoff ordered by the acquiring company after a sale or merger.

The court also found that Dillard's notices were technically defective and therefore failed to comply with WARN. First, most employees received more than one notice, containing conflicting information about the dates of possible layoffs. Second, none of the notices stated with sufficient particularity the date of the expected layoff; under the DOL regulations, the notice need not specify the exact date of the anticipated layoffs, but must confine the possible dates to a fourteen-day range. The Magistrate Judge ruled that Dillard provided effective notice only during the period of time between the date of the first notice and the earliest date mentioned in that notice as the date that the employee might be laid off, which in most cases was nineteen days. The employees, therefore, received forty-one fewer days of notice than required by WARN.

Dillard had anticipated the possibility that its notices could be held to be too late to satisfy WARN, and attempted to "buy out" any potential liability in advance by paying lump sums equal to eight weeks' pay to each terminated employee (less severance payments and payments for unused vacation time). Dillard argued that during the sixty-day notice period, the employees would have received eight weeks' pay, and that it had, therefore, paid the employees in lieu of providing the full sixty-day notice. The employees, however, disputed Dillard's calculations, claiming that the WARN damages were each employee's daily wage multiplied by sixty (amounting to twelve weeks' salary rather than eight weeks'), and that Dillard could not deduct from that amount the vacation and severance payments it had made.

The court agreed with much of the plaintiffs' position, holding that WARN damages are equal to lost wages and benefits "for each day of violation," which means a maximum of sixty days multiplied by the daily salary, rather than the amount of salary that would have been earned during a sixty-day calendar period. Thus, the eight weeks' salary paid by Dillard in lieu of notice was insufficient to satisfy WARN requirements. According to the court's calculation, even though WARN requires sixty calendar days' notice of layoff, an employer which fails to give such notice is required to pay, as a penalty, up to sixty working days of salary as WARN damages.

The court did permit the employer to credit against WARN damages all severance and "buy-out" payments made to the employees, because the employer had no pre-existing legal obligation to make such payments. Unpaid vacation, however, could not be used to offset WARN damages because the employees were entitled to such payments above and beyond any WARN liability.

The court calculated the total WARN damages, in excess of the payments already made by Dillard, at $1,262,050. The court also ruled that the plaintiffs were entitled to prejudgment interest, representing an additional $230,000. A determination of the plaintiffs' attorneys fees was left for later determination. Thus, Dillard may eventually pay more than $2 million to plaintiffs and their attorneys despite its efforts to comply with WARN and to pay off any liability in advance.

In another WARN case, Kildea v. Electro Wire Products, Inc., No. 90-CV-40126 (E.D. Mich, May 13, 1992), the U.S. District Court for the Eastern District of Michigan has ruled that employees on temporary layoff are entitled to WARN notice in the event of a closing of the facility at which they were employed. If laid-off employees have a "reasonable expectation of recall" to their jobs, a plant closing that cuts off any possibility of recall is an "employment loss," which triggers WARN's notice requirement. Employers must therefore be aware of the requirement to send WARN notices, in a plant closing situation, not only to active employees, but to any previously laid off employees as well. Failure to give notice will result in liability of as much as twelve weeks' pay under the Dillard formula.