To WARN or Not to WARN? That is the Question for Companies in the Troubled Subprime Mortgage Industry


A lawsuit filed last week against subprime lender Aegis Mortgage Corp. alleges that the company laid off hundreds of employees without giving them adequate notice. The class action lawsuit has been brought in U.S. Bankruptcy Court for the District of Delaware by a group of former employees against Aegis Mortgage Corporation, Aegis Wholesale Corporation and Cerebrus Capital Management. The complaint alleges violations of the federal Worker Adjustment and Retraining Notification Act (“WARN Act”), 29 U.S.C. §§ 2101–2109. It alleges that Aegis and Cerebrus (who, the plaintiffs claim, comprise a single employer under the Act)

laid off approximately 400 workers just prior to filing for Chapter 11 bankruptcy protection on August 13, 2007. The class representatives assert that they are owed back pay and fringe benefits.

Aegis is a Houston-based mortgage lender that conducted business in 49 states and employed more than 1,300 people. It focused primarily on the subprime and Alt-A mortgage markets and was partially controlled by Cerebrus, a hedge fund. Similar suits have been filed against both HomeBanc Corp. and American Home Mortgage Investment Corp.

The WARN Act, which took effect in 1989, was intended by Congress to provide workers, their families, and their communities with notice of plant closings and major layoffs, in order to facilitate finding alternate work and training and to allow local governments to immediately

provide assistance. The Act covers employers of more than 100 employees (excluding part-time employees) or of 100 or more employees, including part-time, who work greater than an aggregate of 4,000 hours per week exclusive of overtime. The Act covers both hourly and salaried workers and includes supervisory and managerial workers. In the event of a plant closing or mass layoff that meets the statutory definitions, the Act requires covered employers to give at least 60 days’ notice to workers or their representatives......

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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