The Worker Adjustment and Retraining Notification (WARN) Act states that an employer cannot order a plant closing or mass layoff that will affect 50 or more employees without a 60-day written notice to each affected employee.  An “affected employee” is someone who is expected to experience an employment loss as a result of the closure or layoff.  For purposes of the WARN Act, an employment loss is “an employment termination, other than a discharge for cause, voluntary departure, or retirement. . . .”  The 9th U.S. Circuit Court of Appeals has held that a group of employees who stopped reporting to work after the owner of the automobile franchise for whom they worked informed them that he would be “closing its doors” in two weeks did not fall within the “voluntary departure” exception to the WARN Act and, therefore, were not provided with the requisite 60-day notice of business closure.  Collins v. Gee West Seattle LLC, 9th Cir., No. 09-36110, January 21, 2011. 

Prior to September 26, 2007, Gee West Seattle LLC employed approximately 150 employees at its franchise locations.  On that date, Gee West informed its employees, in a written memo, that it was actively pursuing sale of the business, but that it would be closing its doors on October 7, 2007. The memo also stated that if Gee West had not found a buyer by October 7, it would be terminating all of its employees other than Accounting and Business Office personnel.  Following that memo, employees began to stop reporting to work.  By October 5, only 30 Gee West employees reported to work.  Because the business could not operate with that few employees, Gee West ceased doing business on that date.

In February 2008, Gee West’s employees filed a lawsuit in federal court, claiming that the Company violated the WARN Act by not providing 60 days of notice regarding the business closure.  In November, 2009, the district court granted Gee West’s motion for summary judgment, holding that the 120 employees who left Gee West between September 26 and October 7, 2007 left of their own free will, and therefore, did not suffer an “employment loss” because they fell within the “voluntary departure” exception.  According to the district court, because fewer than 50 employees suffered an employment loss, the situation was not covered as a plant closure by the WARN Act. 

On appeal, the Ninth Circuit rejected the lower court’s analysis and reversed that determination.  Instead, the Court found that the starting point in an analysis of this situation was whether 50 or more individuals would reasonably have been expected to experience an employment loss as a consequence of the closure.   The Court found that in the Gee West scenario, all 150 employees fell within that parameter.  The second step was to determine whether those individuals suffered “employment loss” when the business closed.  While Gee West argued that all employees who stopped coming to work departed from their employment voluntarily, the Court disagreed, finding that such argument would allow an employer to escape responsibility under the WARN Act’s 60-day notice requirement in every situation in which a group of employees left the company based upon that company’s imminent closure, and took the number of remaining employees under 50.

This was an “issue of first impression” for the Ninth Circuit, meaning that the factual scenario has not been addressed by that Court before now.  However, until the economy stabilizes further, this scenario is one that companies may be experiencing with more frequency than in the past.  Therefore, employers should be aware of the provisions of the WARN Act, and should comply with the 60-day notice of closure to employees, should 50 or more individuals be expected to experience an employment loss because of that closure.

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