Shutdown caused by sudden loss of business won’t trigger WARN Act — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily
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Shutdown caused by sudden loss of business won’t trigger WARN Act

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in Leaders & Managers,Management Training

An automobile-parts manufacturer got a jolt when a major customer refused to pay for a shipment and ceased all future orders without warning. That forced the manufacturer to close down one of its factories within two weeks.

Plant employees sued under the Worker Adjustment and Retraining Notification (WARN) Act, which requires companies to give 60 days notice of impending plant closings. The law applies to companies with 100 or more full-time workers.

The manufacturer claimed it didn't have to give notice, citing an exception in the WARN Act that says notice isn't required if the shutdown stemmed from "unforeseen business circumstances" outside the company's control.

The employees claimed that management knew the customer relationship was faltering and might cause a shutdown. But an appeals court rejected the employees' case, saying the company shouldn't have to give WARN notice when only a "possibility" that the business might fail exists.

The WARN Act isn't intended to force financially fragile companies to notify workers when there's simply a chance that trouble is brewing. (Watson v. Michigan Industrial Holdings Inc., No. 01-1136, 6th Cir., 2002)

Advice: If one of your big suppliers backs out with no warning, that likely qualifies as an "unforeseeable business circumstance" exception to the WARN Act.

Best bet: Know your responsibilities to employees under the act. (Find details on the Labor Department's Web site at Then strive to provide advance notice of an impending layoff or plant closing as soon as the decision is made. The courts will judge any foot-dragging harshly, and a violation could mean stiff penalties and back pay for laid-off workers.

Finally, check your state law. Some have their own plant closure laws that may be stricter.

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