Sixth Circuit: WARN Act Does Not Require Employees to Work During Notice Period as Long as They Are Paid

Yesterday, the Sixth Circuit reversed judgment on a rare WARN Act case involving the termination of groups of employees over a period of several months.  Morton v. The Vanderbilt University, No. 15-5417 (6^th Cir. 1-5-16).  The trial court had found that the groups of employees could be aggregated to satisfy the WARN Act’s mass layoff requirement, but the Sixth Circuit reversed on the grounds that 294 employees who were still receiving full pay and benefits while on a 60-days paid leave had not been “terminated” within the 90-day window period.  The individuals were still employees while receiving full pay and benefits even though they were directed to not return to work because there was no statutory requirement that they be permitted to show up and work during the notice period in order to maintain employment.  In addition, they were not entitled to receive unemployment benefits while receiving full pay and benefits.  The Court also found it would be “impossible” to satisfy the Act’s 60-day notice requirement if employees were deemed to have been terminated on the day they were given notice that their positions would be eliminated in 60 days. “[W]e hold that there has not been a cessation of the employment relationship as long as the employees continued to be paid and accrue benefits.”

Background. According to the Court’s opinion, the employer terminated the plaintiff-group --  194 employees -- without the requisite 60-day advance notice under the WARN Act on July 1, 2013.   Approximately 77 days later, the employer notified an additional 294 employees that they were being placed on paid leave because their positions would be eliminated in 60 days on November 16, 2013.    This second group received full pay and benefits during those 60 days (even if they began other jobs) and were not eligible to apply for unemployment compensation until November 16.   However, they were directed on September 16 to gather all of their personal belongings and to turn in all employer property.   They were also provided with career transition counseling and directed to leave and remain off the premises.  Only if the two groups were aggregated could the entire group consists of a “mass layoff” under the WARN Act and they could only be so aggregated if they were terminated within 90 days of each other.

No Termination While Receiving Pay and Benefits.  The Act does not define “termination,” but the Department of Labor has “explained that it is “to have [its] common sense meaning” as “the permanent cessation of the employment relationship.” 54 Fed. Reg. 16,042, 16,047 (Apr. 20, 1989).”  The trial court found that the second group had been terminated on September 17, but the Sixth Circuit found that this did not give sufficient weight to the fact that the employees were still receiving and accruing full pay and benefits: 

So long as these employees were being paid and accruing benefits, there had not been a permanent cessation of the employment relationship. This comports with the purpose of the WARN Act, which is to provide workers “some transition time to adjust to the prospective loss of employment, to seek and obtain alternative jobs and, if necessary, to enter skill training or retraining that will allow these workers to successfully compete in the job market.” 20 C.F.R. 639.1(a). Providing the September employees with the 60-day notice gave them just that.

Relevancy of Unemployment Compensation.  Further, the fact that the employees were not eligible for unemployment benefits until November 16 also supported the fact that they were still employed until that date and had not been terminated or rendered “unemployed.” 

No Duty to Permit Work During Notice Period.  In addition, if the date of notice were the same as the termination date, the Court found that it would be “impossible” for an employer to ever give 60-days advance notice under the Act:  

Thus, the implication of the district court’s reasoning is that, in order for employment to continue after the WARN notice, employers would need to permit employees to perform work after the notice and before termination, even if the employer had a host of legitimate business reasons for desiring their absence from the premises after the notification.

Under the WARN Act, however, there is no obligation for employers to continue to require employees to perform work after the WARN notice, as long as the employees continue to receive wages and accrue benefits. As the Department of Labor has stated:

[t]he question . . . has been raised as to whether an employment loss occurs if an employee retains full pay and benefits and other entitlements but is not required to report to work. DOL notes that neither WARN nor the regulations dictate the nature of work to be performed—or whether work must be performed—during a period of employment after notice of an impending plant closing or mass layoff has been given.

54 Fed. Reg. 16,042, 16,048 (emphasis added);  . . .  Just as employers are not required to permit employees to perform work during the notice period to continue the employment relationship, there is no reason to believe that employers must permit employees to show up to work to do so. It would hardly make sense for the WARN Act’s aggregation provision to apply if an employer sent employees home for the notice period, but not apply if the employer had the employees sit in an empty room and do nothing.

The Court also rejected the trial court’s conclusion that the second group could not be “employees” under the WARN Act regulations because they were not “actively working” or “temporarily laidoff, or on leave, with a reasonable expectation of recall.”  The Court found that this analysis would have required the employer to permit the employees to continue working through the notice period even though this was clearly not required.  Further, the analysis of “affected individual” only applies when determining who was entitled to notice, not when determining whether to aggregate employees.

No Pay In Lieu of Notice.  The Court also rejected the plaintiffs’ argument that the employer had actually just paid the second group in lieu of notice because employees were paid even if they obtained other employment during the notice period.   Instead, the Court characterized it as pay in addition to notice because the notice specifically stated that they were still employed until the end of the notice period.  The Court refused to penalize the employer for being more generous than legally required by continuing to pay employees who obtained other jobs during the notice period even though it was not legally required to do so.

Act’s Policy Not Violated.  Finally, the Court rejected the plaintiffs’ argument that the employer impermissibly manipulated the timing of terminations in order to evade the Act’s requirements:

The WARN Act’s aggregation provision was designed to capture employment losses that were alone not sufficient in number “but which in aggregate exceed the minimum number, and which occur within any 90-day period.” 29 U.S.C. § 2102(d) (emphasis added). This statutory language is clear, and employers are permitted to rely on such language in spacing out layoffs. Congress has promulgated a 90-day aggregation period, and it is inappropriate for the courts to extend the period. There is nothing illegal about an employer spacing out layoffs so that some occur beyond a relevant 90-day period. While plaintiffs understandably feel that they received less favorable severance treatment than the September employees, [the employer’s] actions did not violate the WARN Act.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit: No Duty to Give Conditional WARN Act Notice Based on Speculation of Bankruptcy

Last month, the Sixth Circuit affirmed the summary judgment dismissal of a claim under the WARN Act brought by 75 former employees who complained about the defendant employer’s failure to give them 60 days advance notice of their mass layoff.   Pearce v. Faurecia Exhaust Systems, Inc.,No. 12-3984 (6^th Cir. 6-19-13).  The Court found that the employer was entitled to rely upon the unforeseeable business circumstances exception in the WARN Act.  The employees were notified of the immediate mass layoff on May 7 following the April 30 bankruptcy filing of Chrysler, the plant’s major customer.  The Court rejected the employees’ contention that the employer knew a few weeks in advance that Chrysler intended to file for bankruptcy because no such evidence had been presented beyond mere rumors and speculation.  The Court also rejected the employees’ contention that the employer should have given a conditional WARN Act notice because such notices are discretionary under 20 C.F.R. § 639.7.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit: Union’s Waiver of 30-Year Retired Employee’s Benefits Without Notice or Consent Protected Assets of Bankrupt Employer.

Today, the Sixth Circuit issued a decision in which it held that the statutory and severance claims of a 30-year retired employee of bankrupt LTV Steel had been waived by the employee’s former union even though he received no notice of the waiver, never consented to it, and had been explicitly excluded from receiving compensation under the waiver agreement. McMillan v. LTV Steel, Inc., No. 07-4370. Although federal law is pretty clear that unions no longer represent retired employees in negotiations, the employee was deemed to have waived that compelling legal argument when he failed to raise it in support of his claims before the bankruptcy or district courts. The Sixth Circuit also refused to disturb the district court’s conclusion that the employee’s actual claim for pension and 401(k) benefits was with the Pension Benefit Guaranty Corporation (PBGC) since it had assumed control of the employer’s retirement benefits when it filed for bankruptcy.

According to the court’s opinion, the plaintiff retiree worked for 30 years in a UWSA unit for LTV Steel. The UWSA and LTV had negotiated both a defined contribution plan (i.e., a 401(k) plan to which both the employee and employer contributed) and a defined benefit plan (i.e., pension). In 1999, the UWSA and LTV reorganized the retirement benefits to eliminate future pension contributions (and limit future payouts to a $10,000 lump sum), and to transfer employer contributions from the 401(k) plan to the pension plan. About a year later, LTV filed for bankruptcy protection, issued a WARN notice a few months later and eventually permanently closed the retiree’s plant. The plaintiff retiree worked at reduced pay at other LTV plants, but remained out of work beginning in August 2001. Under a USWA negotiated agreement, he had the option to transfer (without seniority) to another plant, to remain on layoff status, to accept retirement or to take severance. The plaintiff elected to retire in December 2001 and take his $10,000 pension lump sum. While the opinion is ambiguous on this point, this amount was apparently never paid.

In the meantime, LTV eventually sold all of its assets in December 2001, but the sale proceeds were only sufficient to pay secured creditors and not to pay administrative claims or unsecured creditors, such as the plaintiff and other retirees. Accordingly, PBGC assumed LTV’s pension obligations. The UWSA then renegotiated the CBA with LTV and eliminated, among other things, the previously promised severance pay. Nonetheless, six months later, the USWA filed an administrative claim with the bankruptcy court for LTV’s failure to pay severance pay, WARN Act liability, retiree benefits, etc. The UWSA settled its claim with LTV in December 2003 for $15M, but the settlement expressly did not benefit retirees such as the plaintiff who worked at his original plant or were laid off prior to November 2001. In the 2003 settlement, UWSA waived any and all other claims it could make arising out of any bargaining agreement. The plaintiff received no notice of the USWA administrative claim and did not receive notice of, or consent to, the 2003 settlement.

Nonetheless, the plaintiff filed his own administrative claim against LTV in 2002 for over $300,000 (for unpaid wages, pension benefits and 401(k) payment) and it was denied by the bankruptcy court. The plaintiff eventually reached an unsecured settlement with Copperweld -- one of LTV’s subsidiaries -- for the full amount, but retained his right to pursue his claim against LTV. In 2004, he filed another administrative claim for over $40,000 for his unpaid 401(k) contributions, severance pay and other benefits.

The bankruptcy court found that the 401(k) contributions were transferred to the pension fund in 1999 and were now being administered by PBGC and not LTV. The Sixth Circuit agreed that the plaintiff should be limited to asserting a claim against the PBGC. In addition, the bankruptcy court found that collateral estoppel from the Copperweld settlement estopped the plaintiff from pursuing the same amount from LTV, despite his reservation of rights to pursue claims against LTV. The Sixth Circuit found that the plaintiff’s claims were not entitled to administrative priority status because the liability arose before LTV filed for bankruptcy and did not relate to retiree healthcare benefits.

Finally, his claim for severance benefits and WARN Act payments were deemed waived by the USWA in 2003 even though he received no proceeds from that $15M settlement, received no notice of the claim or settlement, and never consented to the settlement. Indeed, the law is clear that unions cannot negotiate on behalf of retirees because they are no longer union members. However, even though the bankruptcy court erroneously concluded that the USWA was acting as his agent, the plaintiff never raised the issue of agency to the bankruptcy or district courts, but rather, focused on his lack of notice and consent to the settlement. Therefore, the Sixth Circuit determined that he could not belatedly raise the agency argument even if the lower courts had erred. Moreover, if the UWSA had been his agent, it had authority to waive his WARN Act and severance pay claims on his behalf – even without notice or consent. Therefore, those claims were also dismissed.

Insomniacs can read the full court decision at http://www.ca6.uscourts.gov/opinions.pdf/09a0040p-06.pdf.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.