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Third Circuit Holds That Layoffs Must Be Probable (Not Just Possible) for WARN Act Liability

Varela v. AE Liquidation, Inc. (f/k/a Eclipse Aviation Corp.) (In re AE Liquidation, Inc.), No. 16-2203, 2017 WL 3319963 (3d Cir. Aug. 4, 2017)

As we have discussed prior, under the Worker Adjustment and Retraining Notification (WARN) Act, employers may be liable if they do not give fair warning to their employees before a mass layoff.  Liability can be avoided if, among other things, the “mass layoff is caused by business circumstances that were not reasonably foreseeable at the time that notice would have been required.”  20 C.F.R. § 2102(b)(2)(A).  The question for the Third Circuit Court of Appeals in this appeal was what makes a business circumstance “reasonably foreseeable.”  Does an event need to be “probable” (i.e. more likely than not) or simply “possible”?  Every Circuit Court deciding the issue as well as the Delaware District Court and the Delaware Bankruptcy Court have adopted the probability standard, and by this Opinion, the Third Circuit joined the club.  In doing so, the Court noted that the probability standard strikes the appropriate balance of the WARN Act’s employee protections and employer burdens and also highlighted a concerning result if the lower threshold “possibility” test was adopted.  More specifically, because it is quite possible that a company in financial distress will close or effect a layoff, every company in or near bankruptcy would be forced to send a WARN notice to their employees that is not only costly, but also likely to cause panic and accelerate their own demise.  As explained by the Court, the WARN Act was not meant to impose such a burden on an employer and thus, “a layoff becomes reasonably foreseeable only when it becomes more likely than not that it will occur.”  Op. at *11.