Fifteen-yard penalty for failure to WARN 

Eversheds Sutherland (US) LLP

Eversheds Sutherland (US) LLP

The Alliance of American Football (AAF) is the latest victim in a long line of leagues that have attempted to offer professional football outside of the NFL. In early April of this year, the AAF “iced the kicker” and closed its doors before it completed its first season. The players and other employees of the AAF now found themselves out of a job. The AAF might have thought its games were over; however, it is now facing a different type of competition. Specifically, its former employees recently filed two class action lawsuits against it. One lawsuit, brought by players Colton Schmidt and Reggie Northrup, alleges breach of contract, breach of implied good faith and fair dealings, failure to pay wages, and fraud. The other lawsuit, entitled James Earnest Roberson Jr. et al. v. The Alliance of American Football, is a class action pending in the Northern District of California. The lead Plaintiff worked for the Birmingham Iron and alleges the AAF failed to comply with the WARN Act when it shutdown operations without providing notice to its employees. This alert focuses on the Roberson suit’s WARN allegations.

The WARN Act is designed to protect workers and communities by requiring covered employers to provide notice to affected employees and state and local governments 60 days in advance of a plant closing or mass layoff. 29 U.S.C. §2102(a). However, when faced with a plant closing or mass layoff, companies often fail to consider the WARN implications. An employer is subject to the WARN Act if it has 100 or more employees. 29 U.S.C. §2101(a)(1). Moreover, the requirement to give notice under the WARN Act is triggered in two situations: (1) the closing of a facility that results in 50 or more employees losing their job; or (2) a mass layoff at a facility in which (i) 50 to 499 employees, who constitute 33% of the workforce, are terminated; or (ii) the termination of 500 or more employees. 29 U.S.C. §2101(a)(2) and (3). The applicable timeframe for both situations is 30 days—meaning the notice requirements apply if the company lays off the minimum number of employees in a 30-day window. However, the WARN Act also has a 90-day aggregation rule that requires employers to give notice if smaller layoffs (which individually would not trigger WARN requirements) over 90 days considered together would meet minimum threshold of a mass layoff or plant closing. 29 U.S.C. §2102(d). The purpose of the aggregation rule is to prevent employers from strategically delaying layoffs in an attempt to avoid the WARN requirements. 

The WARN Act also contains many exceptions that allow an employer to provide less than 60-days’ notice to its employees—such as a situation in which the company lacks sufficient capital, the occurrence of a natural disaster, or, as might be the case for the AAF, the company suffers an unforeseen business circumstance. The exceptions do not relieve an employer from providing notice under the WARN Act; they only reduce the 60-day requirement. “[A]n employer . . . shall 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 U.S.C. § 2102(b)(3). The amount of time that is considered practicable depends on the situation of each case. Moreover, the unforeseeable business circumstances exception applies in business circumstances that were not reasonably foreseeable and outside the employer’s control. 20 C.F.R. § 639.9(b). In determining whether the unforeseen business exception applies, the employer must exercise reasonable business judgment as would a similarly situated employer in predicting the demands of its particular market. Id. However, as might be the case with the AAF, “[t]he employer is not required . . . to accurately predict general economic conditions that also may affect demand for its products or services.” 20 C.F.R. § 639.9(b)(2). Here, the AAF could have simply overestimated America’s interest in springtime football, which may have led to its downfall. 

As a precautionary matter, however, the AAF could have given “conditional notice” to potentially affected employees. See 20 C.F.R. 639.7(a)(3). Under the WARN regulations, “[n]otice may be given conditional upon the occurrence or nonoccurrence of an event, such as the renewal of a major contract. . . .” Id. However, conditional notice is only a suggestion and could have potential side effects—i.e. employees preemptively quit, thus causing further devastation to the company. 

A company who fails to provide the required notice is liable to each employee for an amount equal to back pay and benefits during the period of violation—capped at 60 days. 29 U.S.C. 2104(a)(1). Given the size of some layoffs, this number can add up quickly. Moreover, an employer who failed to provide notice to the government faces a civil penalty of $500 for each day of the violation. 29 U.S.C. §2104(a)(3).

Vince McMahon’s second iteration of the XFL is slated to begin next year. Hopefully, it is successful this time around. However, if it is not, it should learn from the alleged mistakes of the AAF and have a plan in place if it has to shut its doors. Not having a contingency plan in place could have the XFL facing “fourth and long” from the very start. (Sorry, but we had to include at least one more football pun). 

Overtime: The AAF recently filed for bankruptcy, showing $11.3 million in assets and $48 million in liabilities.

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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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