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Employees Who Leave Job Because Business Is Closing May Have WARN Act Rights

Published by on February 2, 2011

In Collins v. Gee West Seattle LLC, the United States Court of Appeals for the Ninth Circuit held in a case of first impression that if an employee leaves a job because the business is closing, the employee has suffered an “employment loss” and has not “voluntarily departed” within the meaning of the Work Adjustment […]

In Collins v. Gee West Seattle LLC, the United States Court of Appeals for the Ninth Circuit held in a case of first impression that if an employee leaves a job because the business is closing, the employee has suffered an “employment loss” and has not “voluntarily departed” within the meaning of the Work Adjustment and Retraining Notification (“WARN”) Act.  The decision applies to employers in California, Arizona, Nevada, Alaska, Montana, Idaho, Oregon and Washington.  More after the break.

Defendant, owner and operator of several automobile franchises, notified its employees in writing that unless it was able to sell its business, it would be closing its operations and all employees would be terminated in two weeks.  Defendant stated that notice could not be given earlier because it was actively seeking business to keep the company running, as well as seeking potential purchasers for the business or inventory.  After the announcement, approximately 120 employees stopped reporting for work.  On the day that defendant closed its business, only 30 employees reported to work.  Defendant’s personnel records noted that all employees who were terminated after the notice of closure left their employment because “business closed.”  Employees filed suit, claiming defendant violated the WARN Act by failing to give its employees 60-days notice before closing its operations.  The district court granted defendant’s motion for summary judgment holding that the 120 employees who left after the notice of closure but before the defendant closed its business “voluntarily departed.”  Therefore, the district court concluded that fewer than 50 employees suffered an “employment loss” and defendant was not required to give notice under the WARN Act.  

The Ninth Circuit reversed and remanded, holding that employees departing a job because the business is closing have not “voluntarily departed” within the meaning of the WARN Act.  The Ninth Circuit rejected defendant’s argument that its closing did not qualify as a plant closure under the WARN Act because all but 30 employees left their job of their own free will prior to the closing of the business. The Ninth Circuit reasoned that measuring liability based solely on the number of employees at the plant at the time of its closure, even though employees departed because of the closure, would be inconsistent with the basic structure and purpose of the WARN Act.   As notice is required for employees “who may reasonable be expected to experience an employment loss as a consequence for a plant closing,” the opinion stated that the starting point for determining whether there is an expected employment loss as a consequence of a plant closing is to determine how many position will be eliminated by the closing.  In this case, it would have been all 150 employees.  The Ninth Circuit reasoned that to hold otherwise would allow an employer to escape liability for failing to give notice simply because its employees leave the business due to its imminent closure.  In this matter, the Ninth Circuit determined that the employees’ departure was a consequence of the shutdown (as demonstrated by defendant’s own personnel records) and must be considered a loss of employment when determining whether a plant closure has occurred.  The Ninth Circuit reasoned that struggling businesses, such as defendant, who may delay notice because they are actively seeking capital have other protections under the “faltering business” exception and need not resort to a broad interpretation of the term “voluntary departure.”   

To read the entire Ninth Circuit decision, click here.

Contributed by Laura B. Chaimowitz

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