Q. Have any courts addressed companies’ obligations under the WARN Act, particularly in light of COVID-19?
A. Yes. Since COVID-19 was first confirmed in the United States more than two years ago, employers have faced many challenges, including, in some cases, the difficult decision to lay off or furlough employees. This decision has not been without legal implications. For example, depending on a variety of factors, companies that lay off employees may be required to provide written notice of the layoff under the Workers Adjustment and Retraining Notification (WARN) Act and similar state law. Specifically, the WARN Act requires employers to provide written notice to workers at least 60 calendar days ahead of “plant closings” or “mass layoffs.” The WARN Act defines a plant closing as the permanent or temporary shutdown of a single site of employment, or one or more facilities or operating units within a single site of employment, if the shutdown results in an employment loss at the single site of employment during any 30-day period for 50 or more employees (excluding part-time employees). The WARN Act defines a mass layoff as a reduction in force that does not result from a plant closing, and results in an employment loss at the single site of employment during any 30-day period for: (1) at least 50-499 employees if they represent at least 33% of the total active workforce (excluding part-time employees) or (2) 500 or more employees (excluding part-time employees).
One exception to this notice requirement is when a plant closing or mass layoff occurs from a natural disaster (e.g., flood, earthquake, drought) in which case no notice is required. Many companies relied on this exception when it laid employees off without notice because of the COVID-19 pandemic. Until recently, however, no U.S. circuit court has addressed whether the COVID-19 pandemic qualifies as a “natural-disaster” exception under the WARN Act. That changed on June 15, when the U.S. Court of Appeals for the Fifth Circuit affirmatively held that COVID-19 does not qualify as a “natural disaster,” thus foreclosing an employer’s potential defense to a lawsuit claiming that the employer violated the WARN Act by failing to provide advance notice to employees before furloughing or laying them off as a result of COVID-19.
Fifth Circuit Decision
In the case before the Fifth Circuit, a group of discharged employees performing hydraulic fracturing services, known as “fracking,” filed a class-action lawsuit against their former employer, alleging that their employer terminated them without advance notice in violation of the WARN Act. In early March 2020, oil prices fell down to historic lows due to a price conflict overseas and the decline in travel nationwide due to the COVID-19 pandemic. As a result, and without providing 60 days’ notice, the employer shut down the fracking work at various worksites using the following statement: “Your termination of employment is due to unforeseeable business circumstances resulting from a lack of available customer work caused by the significant drop in oil prices and the unexpected adverse impact that the Coronavirus has caused.” Notably, while the statement used the terms “unforeseeable business circumstances” — another exception to the WARN notice requirement that places the burden on the employer to show it still attempted to comply with such requirement — the employer instead argued that the COVID-19 pandemic was a form of natural disaster that required no notice.
The Fifth Circuit disagreed with the employer’s interpretation of the natural-disaster exception. Given that the WARN Act does not define “natural disaster,” the Fifth Circuit applied traditional principles of statutory construction. In so doing, the Fifth Circuit reasoned that when Congress provided three examples of a “natural disaster” under the WARN Act (floods, earthquakes, and droughts), it intended to limit the term to “hydrological, geological, and meteorological events.” The Fifth Circuit also determined that, at the time the WARN Act was enacted in 1988, Congress was already familiar with pandemics and infectious diseases as it included reference to them in other statutes. The fact that Congress did not include pandemics or diseases in the WARN Act, according to the Fifth Circuit, justified the inference that those terms were deliberately excluded. Thus, based on these rationales, the Fifth Circuit declined to expand the definition of “natural disaster” to include the COVID-19 pandemic.
With the Fifth Circuit being the only appellate court to rule on this issue so far, employers, particularly those in the Fifth Circuit (Louisiana, Mississippi, and Texas), should comply with the current law of the land by not relying on the “natural-disaster” exception in WARN litigation involving COVID-19 or other future pandemics or outbreaks of infectious diseases. Of course, this holding is almost certainly not the last to address this issue. Federal courts in other jurisdictions may chime in, thereby potentially creating a circuit split. Certain states also have their own versions of the WARN Act that may warrant further judicial review at the state level. Finally, the Fifth Circuit did not address the application of other exceptions to the WARN notice requirement, including the “unforeseeable business circumstances” exception, which requires the employer to show that the layoffs were not reasonably foreseeable at the time WARN notices would have been required and that the employer otherwise complied with its WARN notice obligations. Thus, while the Fifth Circuit decision is unfavorable to employers, it is limited in scope and may be subject to change.
As this topic continues to develop with more decisions from courts analyzing layoffs because of the COVID-19 pandemic under the WARN Act, the Troutman Pepper Labor + Employment team is ready to assist you.