Employers Still Have Obligations Under the WARN Act Even During Bankruptcy

In order to protect employees from the devastating blow of an unexpected layoff, the Worker Adjustment and Retraining Notification (WARN) Act was enacted to force companies to provide advanced notice to employees. Any business that has 100 or more employees must give its employees at least 60 days advance written notice of a plant closing or a mass layoff. This notice must be provided to each employee that will be terminated. In some cases, the mass layoff or plant closing may come about in association with the company filing for bankruptcy. It is important for employees to understand that a bankruptcy filing by their employer does not automatically terminate their rights under the WARN Act.

Three Facts About the WARN Act and Corporate Bankruptcy

Under the terms of the WARN Act, employers can avoid the advance notice requirement with regard to mass layoffs or plant closings under certain limited situations. These three exceptions include cases where the employer reasonably believes that advance notice would impede the company’s active pursuit of capital or business, unforeseeable business circumstances, or natural disasters. In some cases, employers can rely on the unforeseeable business circumstances defense in order to avoid the WARN Act requirements during a bankruptcy proceeding. Similarly, some employers have avoided the WARN Act provisions by asserting that it was no longer a business enterprise but simply a “liquidating fiduciary” at the time of the layoff. Generally, however, employees should not give up on a WARN Act claim just because their employer files for corporate bankruptcy. The following are three tips about how the Act applies with regard to bankruptcy:

  1. Employees have rights under the WARN Act regardless of whether the bankruptcy was filed before or after the layoff.
  2. WARN Act claims may take priority over other creditors in bankruptcy court.
  3. Wage claim adjustments under the WARN Act are taken from the corporate estate during the bankruptcy proceedings.

Determining whether you have potential for a claim under the WARN Act when your employer files for bankruptcy requires the knowledge and guidance of an experienced legal professional. We are here to help. We encourage you to check out our client testimonials page today for more information.