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In a recent case involving the layoff of employees assigned to land drilling rigs, the U.S. District Court for the Northern District of Texas limited the ability of plaintiffs to claim that multiple rigs collectively form a “single site of employment” under the Worker Adjustment and Retraining Notification Act (WARN Act).

The WARN Act requires employers with 100 or more full-time employees to provide 60 days’ advance notice before a “plant closing” or a “mass layoff.” The law defines a “plant closing” as a “shutdown of a single site of employment” that causes an employment loss for 50 or more employees at that single site of employment. The law defines a “mass layoff” similarly to mean a reduction in force resulting in a loss of employment for at least 33 percent of certain employees and at least 50 employees from a “single site of employment” in any 30-day period. Failure to provide the notice required by the WARN Act exposes an employer to damages, civil penalties, and attorneys’ fees.

Factual Background

In Meadows v. Latshaw Drilling Company, LLC, the Northern District of Texas granted summary judgment to the employer, Latshaw Drilling Company, LLC, finding that the plaintiffs could not prove that Latshaw’s drilling rigs should be aggregated into a “single site of employment” to support liability under the WARN Act.

Latshaw provided drilling services to oil and gas companies using 39 rigs in 3 states. In addition to the 39 active rigs, Latshaw had 4 fixed locations, or yards, where it conducted business: a corporate office in Oklahoma and three yards where it stored (or “stacked”) inactive rigs while they were not in use. When in operation, each rig was manned by a crew of approximately 22–24 employees. When oil prices began to drop in 2014, Latshaw stacked 29 of its 39 rigs and laid off many of the employees who had manned those rigs. In total, over half of Latshaw’s 1,119 employees were laid off over a 7-month period spanning 2014 and 2015.

The laid off workers brought a class action against Latshaw claiming that they were entitled to notice either because of the alleged mass layoffs or, alternatively, because the stacking of the rigs constituted a plant closing under the WARN Act.

The Court’s Decision

The court held that the reduction in force affecting nearly 500 workers spread across the 29 stacked rigs did not trigger liability under the WARN Act because a single rig had never had 50 or more employees at any given time.

To prevail on either the mass layoff theory or on the plant closing theory, the workers would have to show that 50 or more employees were affected at a “single site of employment.” Because individual rigs were not staffed by over 24 workers, to meet their burden, the workers sought to aggregate the rigs as a single site of employment. The court noted three factors must be met for the rigs to be aggregated under the WARN Act: (1) the rigs must be in “reasonable geographic proximity” to each other, (2) they must be “used for the same purpose,” and (3) they must “share the same staff and equipment.” 

In reaching the conclusion that the rigs should not be aggregated, the court only addressed the first factor, reasonable geographic proximity. It was clear that the rigs were located hundreds of miles away from each other, so the inquiry turned on whether aggregating the rigs was “reasonable.” The employees argued that “reasonable geographic proximity” must be determined based on industry standards because otherwise the entire oil and gas drilling industry could avoid liability under the WARN Act because the work, by its very nature, takes place at various drilling sites spread across vast geographic areas. The court was unconvinced—largely because the employees failed to introduce evidence of any industry standards or evidence that the employer sought to evade liability by locating the rigs where they did.

Key Takeaways

This decision complements an October 2015 ruling by a Louisiana federal court  holding that, for purposes of the WARN Act, offshore rigs are each single sites of employment defeating the employees’ mass layoff claim in that case.  While this decision was a victory for Latshaw, employers should be cautious moving forward because the decision creates a path for use of the “industry standard” argument in a future layoff situation. Moreover, Meadows v. Lathsahw Drilling Company leaves the door open for employees to try to fight this fight another day—next time with more evidence to support their position.

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Whether it’s a change in a client’s existing business structure, the acquisition of another entity, or a downturn in an economic sector, the attorneys in the Ogletree Deakins’ RIF/WARN Practice Group have extensive experience working with businesses in almost every industry.

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