Third Circuit Applies More Flexible Standard for WARN Exemption

by Kramer Levin Naftalis & Frankel LLP
Contact

Kramer Levin Naftalis & Frankel LLP

The Bottom Line:

            The Third Circuit, in In re AE Liquidation, Inc., Case No. 16-2203 (3d Cir. Aug 04, 2017) held that the Debtors were not liable under the WARN Act for failing to warn employees of furloughs and layoffs until those furloughs and layoffs occurred, due to unforeseeable business circumstances.  The Court determined that the appellant’s suggested lower standard of unforeseeable circumstances being circumstances which were merely possible, and not probable, imposed too great a burden on companies.  The Court conducted an extensive factual analysis to determine that the Debtors gave WARN Act notice at the appropriate time, i.e. that the Debtors were excused from giving earlier WARN Act notice because unforeseeable business circumstances made sudden layoffs unavoidable.  The Third Circuit joins a majority of other circuit courts by adopting a more practical standard to afford businesses the flexibility of not sending out WARN notices at a sooner point in a sale process that, if such notices were sent, could disrupt the debtor’s ability to preserve operations and sell the business as a going concern.

What Happened:

            In In re AE Liquidation, Inc., Case No. 16-2203 (3d Cir. Aug. 04, 2017), the Third Circuit followed five other circuits in affirming the judgments of the Bankruptcy Court and the District Court, and holding that an employer’s liability under the federal Worker Adjustment and Restraining Notification Act (the “WARN Act”) becomes triggered when a mass layoff becomes ‘more likely than not,’ and not at the appellant’s proposed lowered threshold.  Under the federal WARN Act, employers are liable for 60 days wages if they fail to give employees advance notice of mass layoffs.  (Note that some states have WARN laws that cover a longer period of time.)  Importantly, the WARN Act has certain exceptions where the required notice need not be provided, including the unforeseeable business circumstances exception which was at issue in this case.

            The Debtors, Eclipse Aviation Corporation, unexpectedly shut down and implemented mass layoffs in late February 2009.  The shutdown came after a protracted saga following Eclipse’s late 2008 bankruptcy filing.  The Debtors had reached an agreement with their largest shareholder, European Technology and Investment Research Center (“ETIRC”), to sell Eclipse’s operations to ETIRC, in a transaction to be funded by Vnesheconomban (“VEB”), a state-owned Russian bank.  VEB was to provide ETIRC with a $205 million loan, which ETIRC would use to purchase substantially all of Eclipse’s assets at auction.  Substantially all of Eclipse’s employees would retain their jobs under this arrangement.

            While the auction in late January 2009 was successful, the promised Russian funding never materialized.  The Court conducted a fact-intensive analysis of the circumstances, finding that “[i]n the month that followed, VEB took ETIRC and Eclipse on a roller coaster ride of promises and assurances that never came to fruition.”  In re AE Liquidation, at 8.  Execution of the loan required approval from Russian Prime Minister Vladimir Putin, as VEB had become unexpectedly insolvent.  The promised approval never came and the proposed transaction fell through, and as a result, the Debtors became administratively insolvent and were forced to make the decision to furlough substantially all of their employees.  The case was converted into a Chapter 7 liquidation shortly thereafter, and all employees were ultimately laid off.

            The employees alleged that the business circumstances surrounding the Debtors’ financial decline were not unforeseeable, and therefore the exception to WARN Act liability does not apply.  The Court observed that:  “For the unforeseeable business circumstances exception to apply, Eclipse must demonstrate that the allegedly unforeseeable event was, in fact, the cause of the layoff.”  Id. At 21.  The Court made an extremely fact-intensive analysis of the conditions surrounding the Debtors’ furloughs and eventual layoffs, examining the decisions that the Debtors made based on the information available to them at the time.  The buyer required the Debtor to continue operating “as a going concern” and preserve employees.  “These terms, which expressly contemplate a going concern transaction and prevent Eclipse from disturbing any aspect of its operations or employment relationships strongly indicate that, had the sale been consummated, ETIRC intended to continue Eclipse’s operations largely as is.”  Id. At 22. 

            In its analysis, the Third Circuit reviewed language in the asset purchase agreement that gave the buyer the right to decline offering employment to any particular employees.  The Court concluded that this did not support an argument that, because employment was not assured, WARN still applied:

Although these terms freed ETIRC from any binding obligation to retain Eclipse’s employees and prevented it from incurring liabilities were it not to retain them, we agree with the District and Bankruptcy Courts that these terms are mere “boilerplate language address[ing] a buyer’s typical litigation concerns over successor liability and third-party beneficiary claims.” …. While such boilerplate language perhaps signifies that the sustained employment of Eclipse’s workforce was not a foregone conclusion, it does not rebut the presumption in favor of continued employment in a going concern sale—especially in light of the significant evidence that ETIRC intended to carry on Eclipse’s operations had the sale been finalized.

Id. at 25-26.

            The Court proceeded to address what standard should be applied when assessing “reasonable foreseeability” for the exception to noticing to apply.  After consider what other circuits have held, the Third Circuit concluded that it would:

join our Sister Circuits in holding that the WARN Act is triggered when a mass layoff becomes probable—that is, when the objective facts reflect that the layoff was more likely than not.11 This standard strikes an appropriate balance in ensuring employees receive the protections the WARN Act was intended to provide without imposing an “impracticable” burden on employers that could put both them and their employees in harm’s way.

Id. at 30-31, citing Halkias v. General Dynamics Corp., 137 F.3d 333, 336 (5th Cir. 1998).  In explaining its rationale, the Court reasoned:

Companies in financial distress will frequently be forced to make difficult choices on how best to proceed, and those decisions will almost always involve the possibility of layoffs if they do not pan out exactly as planned. If reasonable foreseeability meant something less than a probability, nearly every company in bankruptcy, or even considering bankruptcy, would be well advised to send a WARN notice, in view of the potential for liquidation of any insolvent entity. And, as we explained in Elsinore, there are significant costs and consequences to requiring these struggling companies to send notice to their employees informing them of every possible “what if” scenario and raising the specter that one such scenario is a doomsday. 173 F.3d at 185 n.7. When the possibility of a layoff—while present—is not the more likely outcome, such premature warning has the potential to accelerate a company’s demise and necessitate layoffs that otherwise may have been avoided. See Roquet, 398 F.3d at 589 (“[T]he WARN Act is not intended to deter companies from fighting to stay afloat . . . .”); Elsinore, 173 F.3d at 185 n.7. Thus, we join the many courts that have held this is not the burden the WARN Act was meant to impose and that a layoff becomes reasonably foreseeable only when it becomes more likely than not that it will occur.

Id. at 32.  Applying the foreseeability analysis to the facts of the case, the Court concluded that Debtor has met its burden of demonstrating that ETIRC’s failure to obtain the financing necessary to close the sale was not probable prior to the Debtor’s decision to lay off its employees on February 24, 2009.  The Court looked at the process in stages.  “As it could hardly be said that the failure of the sale appeared probable to Eclipse on the very day the Bankruptcy Court approved it, Eclipse cannot be held liable for its failure to provide WARN Act notice to its employees prior to January 23, 2009.”  Id. at 33.  With respect to the period post-sale hearing, the Court observed that the Debtors’ board took reasonable steps in monitoring the progress towards closing.  Notably, ETIRC’s repeated promises that funding was on the way “were not grandiose promises from a stranger, but assurances from a credible business partner . . .”  Id. at 36.  From the Court’s perspective, the Debtors reasonably assumed that the deal would soon close, and that the delay in funding was merely a political hiccup, shortly to be resolved.  Id.  Given these circumstances, the sudden failure of VEB to obtain financing approval was an unforeseeable event.  Id. at 36-39.

The Court also held that pursuant to the WARN Act, the Debtors’ employees were properly noticed, and the unforeseeable business circumstances were the cause of the mass layoffs.

Why the Case is Interesting:

            The Third Circuit now follows the Fifth Circuit and four other Circuits, holding that for an event to be ‘reasonably foreseeable,’ it must be probable.  Id. at 27.  The Third Circuit declined to set the lower suggested standard of whether an event was merely ‘reasonably possible.’  Id at 27-28.  The Court reasoned that setting a lower ‘possibility’ standard would require employers to give WARN Act notice each time a company was in financial distress, and noted that its prior opinions on the subject implicitly supported the ‘probability’ standard.  “This standard strikes an appropriate balance in ensuring employees receive the protections the WARN Act was intended to provide without imposing an ‘impracticable’ burden on employers that could put both them and their employees in harm’s way.”  Id. at 31, citing Halkias v. General Dynamics Corp., 137 F.3d 333 (5th Cir. 1998).  In following its sister circuits, the Third Circuit takes the (practical) view that the potential upside to employees of more frequent WARN Act notices sent each time a company is in financial distress is outweighed by the potential burden and cost to those companies of frequent, and perhaps unnecessary WARN Act notices.  With a lower ‘possibility’ standard, companies might be disincentivized from trying to ‘stay afloat’ or successfully emerge from Bankruptcy, as premature warnings may often accelerate a company’s demise.  In re AE Liquidation, Inc., at 32.  The decision affords companies more flexibility in delaying when notices need to be sent while pursuing a sale transaction even if there are degrees of risk inherent in that sale transaction closing.  Of course, the inquiry is ultimately fact-specific and companies (and creditors affected by WARN claims) need to proceed carefully.

Written by:

Kramer Levin Naftalis & Frankel LLP
Contact
more
less

Kramer Levin Naftalis & Frankel LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.