COVID-19–Driven Layoffs Are Not a ‘Natural Disaster’ Under WARN Act, Fifth Circuit Rules

In the first ruling from a federal appellate court examining COVID-19–related layoffs and the Worker Adjustment and Retraining Notification (WARN) Act, the Fifth Circuit Court of Appeals held in Easom v. US Well Services, Inc., No. 21-20202 (June 15, 2022), that a mass layoff resulting in part from the economic impact of COVID-19 did not qualify for the “natural disaster” exemption to the WARN Act’s sixty-day notice requirement for mass layoffs. The court also held that for an employer to rely on the exemption, the mass layoff (or plant closing) must be the “direct result” of the natural disaster. This is an important ruling for employers in Louisiana, Mississippi, and Texas.

Background

U.S. Well Services, Inc., provides hydraulic fracturing or “fracking” services to oil producers. In March 2020, oil prices hit historic lows due first to a “pricing war” between Saudi Arabia and Russia and then due to decreased demand resulting from COVID-19–related disruptions. Consequently, U.S. Well Services’ customers—the oil producers—significantly reduced, if not entirely shut down, their fracking work in Texas. U.S. Well Services, in turn, laid off a sufficient number of employees to constitute a “mass layoff” under the WARN Act but did not provide the employees with the sixty days’ advance notice required by the WARN Act.

Specifically, the WARN Act prohibits covered employers from ordering a mass layoff or closing a plant unless the affected employees are provided with sixty days’ notice of the layoff or closing. The notice period is intended to provide affected employees with time “to adjust to the prospective loss of employment” and to search for new jobs. Violation of the notice provision subjects employers to liability for back pay for each day of a violation.

An employer may avoid liability for a violation of the WARN Act if it can establish one of three exceptions (identified as affirmative defenses): (1) the “faltering company” exception; (2) the “unforeseen business circumstances” exception; or (3) the “natural disaster” exception. Unlike the first two exceptions, which require “as much notice as is practicable,” the statutory provision outlining the third exception requires no notice at all if the plant closing or mass layoff is “due to any form of natural disaster.” (Emphasis added.)

In August 2020, three laid-off U.S. Well Services employees, representing themselves and seeking to represent a class, filed suit against their former employer, alleging violation of the WARN Act. Both parties moved for summary judgment. While the district court denied both motions, the court made two key findings of law. First, the district court found that COVID-19 constituted a “natural disaster,” because “human beings were not responsible for starting or consciously spreading the virus.” Second, the district court found that the “COVID-19 pandemic need not be the direct or sole cause of the layoffs for the natural disaster exception to apply.” The plaintiffs moved for an interlocutory appeal, which the district court granted, certifying as questions to the Fifth Circuit the two findings of law.

The Fifth Circuit’s Decision

The Fifth Circuit held that a qualifying natural disaster is limited to “hydrological, geological, and meteorological events,” given the examples of a natural disaster provided in the statutory text. Specifically, the law provides in relevant part that the natural disaster exception would apply during “‘… any form of natural disaster, such as a flood, earthquake, or the drought currently ravaging the farmlands of the United States.’” Because the pandemic was not similar to the sort of events highlighted in the WARN Act, the Fifth Circuit concluded it was not a “natural disaster” that would justify a lack of notice before a plant closing or mass layoff.

The Fifth Circuit next addressed the causation standard that applied for use of the “natural disaster” exception. This discussion turned on how directly the qualifying event needed to have caused the layoffs. U.S. Well Services argued the pandemic needed to be a factor in causing the layoffs and that an alternative reading of the law—to require it to be the sole cause of the layoffs—would have precluded application of the natural disaster exception to layoffs and plant closings caused, for example, by the flooding in New Orleans after Hurricane Katrina. Citing to a U.S. Department of Labor regulation and case law, the Fifth Circuit decided that the employment losses needed to be the “direct result” of the natural disaster. In response to U.S. Well Services’ argument, the court reasoned that its definition of causation would not have precluded application of the natural disaster exception for the flooding caused by Hurricane Katrina because it would allow for the effects of a natural disaster, such as flooding and wind damage prompting job losses. The Fifth Circuit reversed and remanded the case to the district court for further proceedings.

Key Takeaways

While the virus that causes COVID-19 is a natural occurrence, and, intuitively, a creation of nature, it is not a “natural disaster” justifying the lack of pre-layoff notice under the WARN Act. Accordingly, employers in the Fifth Circuit (Louisiana, Mississippi, and Texas) that laid off employees or closed facilities without the required sixty-day notice during the “lockdowns” in 2020 and 2021 may want to look to the WARN Act’s other exceptions for the “faltering company” or “unforeseen business circumstances” to excuse a lack of compliance with the act’s sixty-day notice period.

Ogletree Deakins will continue to monitor and report on developments with respect to the COVID-19 pandemic and will post updates in the firm’s Coronavirus (COVID-19) Resource Center as additional information becomes available. Important information for employers is also available via the firm’s webinar and podcast programs.