The federal Worker Adjustment and Retraining Notification (WARN) Act protects employees from waking up one morning and suddenly learning that their jobs are gone. Employers with at least 100 employees must notify their employees at least 60 days before shutting down or implementing a mass layoff.
The WARN Act is designed to give employees a chance to plan for their coming unemployment, enroll in further training, seek help from state or local agencies and otherwise adjust to their new reality.
The act does give a partial out to employers that suddenly find themselves in dire straights. It includes a “faltering company” exception for businesses actively looking for financing or an alternative to shutting down. The exception allows such a business to negotiate quietly without the risk of losing financing opportunities that might be sunk because word leaked out about a potential shutdown.
But employers can only exercise the faltering company exception if they can show they were actively looking for money or business opportunities—and that the prospect for getting that business or financing was realistic.
It takes more than a few calls to lenders to use the exception.
Recent case: APA Trucking had a revolving line of credit with a business finance company but was steadily losing money. The line of credit was set to expire, and APA sent a letter requesting an extension. But that’s all it did.
Then, when the financing was not renewed, APA told its employees it would be closing its doors permanently in just two weeks.
The employees sued, alleging they had been due 60 days’ notice under the WARN Act. The company said it couldn’t give that notice because it was a faltering company seeking financing.
But the 3rd Circuit Court of Appeals sided with the employees, pointing out that the company hadn’t exactly gone out of its way to get financing. In the court’s view, sending a letter requesting a credit-line extension simply didn’t qualify as “actively seeking” financing. (In Re APA Transport, No. 07-1050, 3rd Cir., 2008)