Bankruptcy, Biglaw, Dewey & LeBoeuf, Dissolution, Health Care / Medicine, Labor / Employment, Layoffs, Partner Issues, Perks / Fringe Benefits, Unemployment

Dewey Have Any WARN Act Liability? Let’s Discuss

This past Friday, we broke the news of the troubled Dewey & LeBoeuf law firm issuing WARN Act notice to its employees. This federal law generally requires an employer “to provide notice 60 days in advance of covered plant closings and covered mass layoffs.”

That was Friday, May 4. Earlier this week, Dewey informed many support staff members that their last day of work would be this Friday, May 11. It then informed many associates that their last day of work will be this coming Tuesday, May 15. Both staffers and associates will be paid through the 15th and will have health insurance through May 31st.

My math skills have atrophied from disuse, but I am still capable of counting to 60. And it seems to me that Dewey did not provide its employees with 60 days notice of its mass layoffs.

So, Dewey have any WARN Act liability?

One WARN Act expert, who reviewed the Dewey WARN notice last week for Am Law Daily, offered these comments:

[T]he so-called WARN notice sent to employees Friday may not be enough to protect the company from liability, according to attorney Jack Raisner, who specializes in WARN Act work. Raisner, a partner at Outten & Golden, said via e-mail Friday that in his opinion, it would provide “weak insulation” for the firm if it terminates employees before the required 60- or 90-day window closes. “It arguably does not constitute conditional notice, nor preserve the exemptions that excuse shortened notice,” Raisner said.

So what kind of WARN Act liability might Dewey be looking at? How would damages be calculated? What defenses could Dewey invoke? What remedies might be available to prevailing employee plaintiffs? Are these remedies — as a practical matter, giving how Dewey might end up in dissolution or bankruptcy — going to be of any value to ex-employees?

To get a better handle on these issues, earlier today we interviewed Frank Scruggs, a shareholder at Berger Singerman in Fort Lauderdale, who often advises companies facing WARN Act compliance crises. Scruggs, a graduate of Cornell, Princeton (Woodrow Wilson School), and Harvard Law School, previously served as Florida’s Secretary of Labor and Employment Security. In his capacity as secretary, he received WARN Act notifications tendered by companies engaged in plant closings and mass layoffs in the state of Florida. He now counsels companies who are facing WARN Act issues.

Scruggs did not wish to discuss the specifics of the Dewey case, which could end up in litigation. But he did agree to discuss with us, on a general level, the operation of the WARN Act and the remedies available under it. (Of course, feel free to take the observations about the law made by Scruggs and apply them to the facts of Dewey, in the comments to this post. You can think of it as a law school exam hypothetical — what fun!)

Here is a lightly edited and condensed version of our telephone conversation.

For people who are not familiar with it, what exactly is the WARN Act, and what purpose is it intended to serve?

The statute is the Worker Adjustment and Retraining Notification Act. It was enacted by Congress to give affected employees time to adjust to the reality of being without jobs, so that they can plan for a transition, so that the communities in which they work can absorb the blow of having large numbers of people out of work, and so that these workers can be compensated when not notified as required by law. The statute provides financial consequences for employers that do not provide 60 days notice of a plant closing or mass layoff, as required by law, and that do not have the basis for invoking an exception. (The terms “plant closing” and “mass layoff” are terms of art that are defined in the statute and the U.S. Department of Labor regulations.)

And does the statute specify what type of notice is required?

Yes. The statute and federal regulations set out in detail who is to provide a notice, under what circumstances, what the notice must contain, who should receive the notice, and what the consequences are when notice is not provided.

What types of considerations does an employer analyze when consider potential WARN Act liability?

An employer might look at issues such as whether to provide notice, when to provide notice, how to lay the groundwork for the assertion of defenses that notice was not required, and how to mitigate or avoid financial liability. These big questions are part of why WARN Act issues present such a challenge to companies in distress: they touch upon financial risk management, legal liability for potentially significant amounts of money, project management, crisis management, and corporate communications.

To frame this in practical terms, here’s one of the first things an employer wrestles with: cash. How much cash is there, how long will it last, and what should we do with it? In this context, the WARN Act presents a cash question: How long shall we continue to pay the employees? Should we use cash to reduce our exposure by virtue of trying to pay wages in lieu of notice? There might still be a WARN Act violation, but the company could reduce its exposure by continuing to pay wages and reducing liability for back pay.

A similar cash question involves benefits. Should we keep our plans in place and continue to provide health insurance coverage with our finite amounts of cash? It’s not only humane, but the WARN Act creates exposure to liability not just for money, for wages or back pay, but for benefits.

Benefits can include the cost of medical insurance premiums the employer would have paid for group health insurance coverage and the cost of unreimbursed medical expenses incurred during the period of employment loss that would have been covered under the employee benefit plan. For any company, but especially a professional services organization with highly compensated employees, such back pay and benefit costs can be significant.

What types of exceptions are there to the WARN Act’s notice requirement?

The statute has several exceptions by virtue of its definitions. There are two particularly prominent exceptions for statutorily covered employers. First, there’s the “faltering company” exception. This applies to cases of “plant closings” where the company is actively seeking new capital or additional business, and where giving notice would affect getting the new capital or additional business. There are various requirements, and they’re a bit intricate. The highlights are that the company was seeking new financing or additional business at the time the notice would have been required, there was a realistic opportunity of obtaining the financing or business, and the financing or business would have been sufficient so that, if obtained, it could have avoided or postponed the shutdown.

Another prominent exception is the “unforeseeable business circumstances” exception. The company asserts that the reason for shutdown was not reasonably foreseeable and that the circumstances were caused by sudden, dramatic, and unexpected action or conditions outside of the employer’s control. One of the analyses that takes place during a WARN Act compliance crisis is whether or not a particular business crisis qualifies for the “unforeseeable business circumstances” exception.

What remedies are available to employees who feel that their WARN Act rights have been violated?

There are three dimensions. The first is what the statute calls back pay — back pay for each day of violation, calculated based on the employee’s final rate of pay or the average regular rate of pay for the employee over the last three years of employment. For a professional services organization in a big city, paying market rates for hundreds of people, for the equivalent of 60 days of their regular pay, can become significant.

Second, there are benefits under employee benefit plans. This includes the cost of medical expenses incurred during the period of lost employment. Assume for the moment that a company doesn’t provide WARN Act notice as required by law and that it doesn’t use its cash to keep the health insurance in place. Somebody gets sick during this period and needs health care coverage. The company’s WARN Act exposure can include the cost of health insurance premiums paid by the sick person during the period of employment loss.

Third, there are attorneys’ fees for employees who are determined by a court not to have been provided proper notice. Assume for the moment that a bankruptcy takes place and a lawsuit is filed to seek WARN Act compensation in the context of a bankruptcy proceeding. In that context, not only might there be a claim for the attorneys’ fees of employees who didn’t get proper WARN Act notice, but in the bankruptcy, those fees could have a priority status over certain other claims. These fees may enjoy administrative priority. This becomes enormously important as a practical matter.

Any employer making decisions in the midst of a WARN Act compliance crisis will be looking at these three sources of potential exposure and weighing them to assess the financial risk to the organization.

If a company that violates the WARN Act enters bankruptcy, are former employees really going to get anything out of suing? Aren’t they really out of luck?

Not necessarily. In the context of a bankruptcy proceeding, the Warn Act issues don’t go away, they simply present themselves in a different forum with different rules. How much the employees get paid will depend upon what’s in the estate. What, as a practical matter, will be the recovery of employees as against other parties seeking compensation out of assets that are not sufficient to pay everybody?

You focus on representing and counseling employers in such WARN Act situations. How can an individual employee go about vindicating her WARN Act rights if she feels they have been violated?

Congress has vested employees with a claim for attorneys’ fees. Employees, suing individually or as a class, can seek to have the court award attorneys’ fees, to help individuals enforce their rights through litigation. These fees are awarded in addition to back pay and other remedies, so employees do not have to pay their lawyers out of their recovery.

What services do you provide to employers that find themselves looking at a WARN Act compliance crisis?

I’m called by employers who are contemplating plant closings or mass layoffs to determine whether or not the statute applies and, if it applies, whether and how they need to give notice. Typically it’s a question not only of becoming informed of what the law requires but also of helping to orchestrate the other types of management — financial management, risk management, and avoiding other kinds of employment litigation that might be spawned during this time, such as litigation over who stays and who goes.

These circumstances can generate claims that the selection of people for layoffs was done on a discriminatory basis, for example. As is always the case with employment law, one law, like the WARN Act, can implicate many other laws. That’s a large part of my perspective, being brought into the huddle to assist executives in making decisions about plant closings or layoffs.

I previously served as the secretary of labor for Florida, so I was the governor’s appointee to whom WARN Act notifications had to be tendered. I have also been the executive of a large company, heading human resources, as well as a lawyer. I bring all of this expertise to bear when advising an executive team that’s making complicated decisions about when and how to give notice.

These situations present so many complex factors that an employer must carefully weigh and analyze. A crisis tends to be not one big explosion, but something that goes on and on, for weeks or even for months.

And it’s quite possible that the Dewey crisis will go on and on, for weeks or even for months. If you have information to share with us, please feel free to email us, subject line “Dewey and LeBoeuf,” or text us (646-820-8477; texts only, not a voice line). We will continue to serve as a clearinghouse for information from our readers, our tipsters, and other news outlets.

One final note. We generally do not allow the comments section to be used for commercial purposes; if you want to communicate commercially with our readership, we ask that you advertise with us. But we will make an exception for this post: if you are an employee-side lawyer who does WARN Act work and would be interested in working with Dewey plaintiffs, feel free to provide your name and contact information in the comments. We will not delete them, as we usually do for spam or spam-like comments, since they might be helpful to Dewey employees seeking representation. Thanks.

Frank Scruggs [Berger Singerman]
The Worker Adjustment and Retraining Notification Act [U.S. Department of Labor]

Earlier: When Dewey WARN People?
Dewey Have an End in Sight? Friday Will Be the Last Day for Some Employees
Dewey Know When LeBoeuf Is Cooked? When Associates Are Laid Off En Masse

(hidden for your protection)

comments sponsored by

Show all comments