Varela v. AE Liquidation, Inc. - Third Circuit Court of Appeals
Facts: Annette Varela and John Dimura ("Appellants"), on behalf of themselves and all other similarly situated employees, worked for Eclipse Aviation Corporation ("Eclipse") and were laid off after Eclipse suddenly closed its doors in February 2009. Based upon the voluminous facts in the record, this shutdown was unexpected because after Eclipse declared bankruptcy in November 2008, it reached an agreement to sell the company to its largest shareholder, European Technology and Investment Research Center ("ETIRC"). If that agreement had been completed, it would have allowed Eclipse to continue operating. However, the sale was contingent upon funding from Vnesheconomban ("VEB"), which never materialized, although there was much back and forth between VEB and Eclipse in which VEB repeatedly indicated the funding would come through. As a result of VEB not providing the requisite funding, Eclipse suddenly closed in early 2009.
Appellants filed a class action and alleged that Eclipse violated the Worker Adjustment and Restraining Notification Act ("WARN Act") by failing to give the required 60 days' notice prior to closure of the company and subsequent layoffs. The bankruptcy court which was dealing with Eclipse's bankruptcy proceedings granted summary judgment in Eclipse's favor on the lawsuit brought by Appellants. The district court affirmed the judgment in favor of Eclipse and an appeal was subsequently filed with the Third Circuit Court of Appeals.
Holding: For those unfamiliar with the particulars of the WARN Act, to ensure laid off workers and their families receive "some transition time to adjust to the prospective loss of employment," the WARN Act requires employers to give 60 days' notice to all affected employees or their representatives prior to a mass layoff or plant closing. However, there are several exceptions carved out for employers, namely "unforeseeable business circumstances" being the exception at issue in this case. This exception applies when "the closing or mass layoff is caused by business circumstances that were not reasonably foreseeable as of the time that notice would have been required." The employer must establish 1) that the business circumstances that caused the layoff were not reasonably foreseeable and 2) that those circumstances were the cause of the layoff. In relevant part, however, even if an employer establishes that unforeseeable events prevented it from giving 60 days' notice in advance, the WARN Act still requires employers "give as much notice as is practicable" including, where appropriate, "notice after the fact."
Sufficiency of Notice
In regard to the sufficiency of notice that Eclipse gave, the Court of Appeals held that no deficiency existed. The information provided to its employees was found to be sufficient to "assist" the employees in "understand[ing] the employer's situation and its reasons for shortening the notice period."
Unforeseeable Business Circumstances
As for the unforeseeable business circumstances exception, Eclipse argued that because ETIRC had agreed to purchase Eclipse (and apparently intended to keep operations running), it was logical to assume Eclipse's employees would have been retained. In fact, it had been established that Eclipse was negotiating a sale with ETIRC (rather than doing a "naked sale" with another buyer) in part because ETIRC was apparently planning to retain all employees.
Foreseeability
When the Court turned to whether the failure of the sale was reasonably foreseeable before February 24, 2009 (when Eclipse notified its employees of the layoff), it noted that Eclipse had been repeatedly working to ensure the sale went through (and the the necessary funding was obtained) so the employees would not be laid off. However, after considering how other courts have ruled on the matter, the Court held that the WARN Act was only triggered when the mass layoffs became probable...not just merely possible. In this instance, the evidence in the record established that Eclipse did everything it seemingly could to prevent the layoffs and it was only until all efforts had been exhausted, the funding was not obtained, and layoffs would have to occur when it sent the February 29, 2009 note to its employees.
Judgment: The Third Circuit Court of Appeals affirmed the granting of summary judgment in favor of Eclipse on the grounds that the employer had lawfully invoked the unforeseeable business circumstances exception of the WARN Act as the WARN Act was triggered when the mass layoff became probable, not when it merely became possible that a layoff would occur.
The Takeaway: I wanted to post this case brief a week or so ago but did not think it would be timely. I mean, afterall, this case dealt with the Eclipse company...and there was just an eclipse this past Monday...see what I did there?
With that being said, I do not often come across many WARN Act cases that jump out at me. This case, however, posed an interesting question as to when an employer must notify its employees of an impending layoff: Once the layoff becomes probable or if the "mere" foreseeable possibility of a layoff occurring is sufficient to trigger the WARN Act's notice requirements. As with many cases, the facts matter and shape the outcome of the case. This one is no exception. In this instance, as evidenced by the Court of Appeals walking through the voluminous facts in the record, the mere possibility of a business closing and/or laying off its employees is not enough to trigger the WARN Act's notice requirements. Instead, a layoff must become probable (more likely than not) to trigger the notice requirements....which in this case occurred, as outlined above. For those looking for a rather in depth and well researched opinion, this opinion is well worth the read.
Majority Opinion Judge: Judge Krause
Date: August 4, 2017
Opinion: http://hr.cch.com/eld/InreAELiquidation080417.pdf
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