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Covid as Natural Disaster? Courts to Decide WARN Act Defense

June 30, 2021, 9:31 AM

Two federal circuit courts will consider an employer defense that’s contributed to the relative scarcity of lawsuits filed by workers who say they didn’t get early notice before they were laid off during the Covid-19 pandemic.

The U.S. Court of Appeals for the Eleventh Circuit announced earlier this month that it will weigh whether the pandemic qualifies as the type of natural disaster that exempts Enterprise Holdings Inc. from the Worker Adjustment and Retraining Notification Act’s requirements. The Fifth Circuit has similarly agreed to take up that issue on an emergency appeal in a case involving a hydraulic fracturing company in Texas.

Circuit court rulings that limit or prevent employers from escaping notice requirements under the natural disaster exception could boost the amount of WARN Act claims stemming from pandemic job losses, some attorneys said. WARN Act lawsuits, which typically are class actions, seek back pay and benefits for each day employers failed to provide required notice.

The law was designed to allow workers to prepare and look for new jobs before they’re out of work. It generally requires at least a 60-day notice in advance of significant layoffs or plant closures. More than 20 states, including California, New York, and Pennsylvania, have enacted their own “mini-WARN” laws.

The pandemic hasn’t opened the floodgates on WARN Act lawsuits despite the staggering surge of job losses and business closures since it was declared a national emergency on March 13, 2020.

At least 66 million Americans filed for unemployment insurance during the first year of the pandemic, said Andrew Stettner, a senior fellow at the Century Foundation, a left-leaning think tank. That first virus year also saw about 200,000 more businesses permanently close compared to pre-pandemic rates, according to a study by Federal Reserve Board economists.

Yet workers have litigated just three-dozen lawsuits in federal district court alleging violations of the WARN Act or a state equivalent for layoffs occurring after the pandemic was declared a national emergency, according to a Bloomberg Law analysis of cases.

Only 19 of those lawsuits expressly cited the pandemic, coronavirus, or Covid-19 as a factor in—or an alleged pretext for—the layoffs at issue.

Overall, workers have litigated less than half as many lawsuits in federal court under the WARN Act or a state law equivalent for layoffs that happened after the emergency declaration than occurred during the equal time period before it.

Pandemic Complications

How the law handles temporary layoffs—also known as furloughs—may factor into the relatively low number of pandemic lawsuits. If a layoff isn’t permanent, it must exceed six months for the WARN Act to come into play.

For a lot of workers, the joblessness caused by the pandemic was the product of a “gradual and amorphous series of events, not stark, black-and-white shutdowns,” said Jack Raisner of the plaintiff-side firm Raisner Roupinian LLP.

The haziness of furloughs and recalls, which has been fueled by federal assistance from the Paycheck Protection Program, makes it more difficult to identify when WARN Act claims are ripe, he said.

At this point in the pandemic, WARN Act claims are probably much more common in bankruptcy cases than in lawsuits filed in federal district court, said Raisner, who’s also an employment law professor at St. John’s University.

Workers let go by a company that’s filed for bankruptcy can press WARN Act allegations within ongoing bankruptcy proceedings to stake their claim for payment from the firm’s remaining assets, he said.

Employer Defenses

Employers have an array of defenses against WARN Act claims that have likely discouraged some workers—or their lawyers—from filing pandemic-related lawsuits, attorneys said.

The law boasts exceptions for employers who were hit with unforeseen business circumstances, faltering companies that sought financing shortly before shutting down a plant, and firms affected by natural disasters. It also allows for a good-faith defense, which can reduce or eliminate damages even when a company is found liable.

“A lot of plaintiff-side lawyers looked at the defenses and might have made a determination that it’s too risky to bring lawsuits, given the uncertainty whether the defenses would apply,” said Lauren Teukolsky, an attorney at Teukolsky Law PC who represents workers.

But arguments that the pandemic was an unforeseen business circumstance get weaker the later the layoffs occurred after the start of the pandemic, said Emily Borna, an attorney with management-side firm Jackson Lewis PC.

A spike in WARN Act class actions may be on the horizon, Borna said. In addition to the potentially shifting ground on employer defenses, she said litigation so far shows that claims aren’t dismissed early, which gives plaintiffs’ lawyers more settlement leverage.

None of the 19 explicitly pandemic-related lawsuits with claims brought under the WARN Act or a state equivalent have been thrown out on a motion to dismiss, according to a Bloomberg Law review of the cases. Three of the lawsuits settled and a fourth is in settlement discussions.

Natural Disaster?

The scope of the natural disaster exemption is on tap at the Fifth and Eleventh circuits, which combined cover a six-state region spanning from Florida and Georgia in the East to Texas in the West. The Fifth Circuit has a dozen Republican-appointed judges in active status, compared to five named by Democrats. The partisan split in the Eleventh Circuit is closer, with seven GOP-appointed jurists on active status against five tapped by Democrats.

The WARN Act says no notice is required for layoffs triggered by “any natural disaster,” citing floods, earthquakes, and droughts as examples. A U.S. Labor Department regulation says the layoffs must be a “direct result” of floods, earthquakes, droughts, storms, tidal waves, and tsunamis, as well as “similar effects of nature.”

The Eleventh Circuit case stems from a Florida federal judge’s February decision rejecting a motion to dismiss filed by Enterprise, the employer in the case. The judge assumed without ruling that Covid-19 was a natural disaster under the WARN Act.

But the judge said the layoffs in question were caused by the economic downturn rather than the virus. That makes the unforeseen business exemption, which reduces rather than eliminates the notice requirement, the operative defense, the judge said.

While the Eleventh Circuit granted Enterprise’s request for emergency review of the natural disaster exemption June 7, it turned aside the company’s bid last week to challenge the judge’s May order certifying the lawsuit as a nationwide class action covering nearly 20,000 employees.

The Fifth Circuit agreed in April to consider the issue on an emergency appeal, a month after a Texas federal judge’s ruling that denied U.S. Well Services Inc.'s motion for summary judgment. Covid-19 is a natural disaster under the WARN Act, but the record isn’t clear about what caused the layoffs, the judge said.

An attorney for the workers suing U.S. Well Services, Gabriel Assaad of McDonald Worley PC, said the judge’s ruling is flawed in part because she gave no deference to the Labor Department regulation’s definition.

Lawyers for US Well Services and Enterprise didn’t respond to telephone and email requests for comment, nor did an attorney for the workers suing Enterprise.

The cases are Benson v. Enterprise, 11th Cir., No. 21-11911 and Easom v. US Well Services, 5th Cir., No. 21-90010.

To contact the reporter on this story: Robert Iafolla in Washington at riafolla@bloomberglaw.com

To contact the editors responsible for this story: Jay-Anne B. Casuga at jcasuga@bloomberglaw.com; John Lauinger at jlauinger@bloomberglaw.com

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