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Showing 2 posts in Unforeseeable Business Circumstances.

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. Read More ›

Amid Unforeseeable Failed Sale, Debtor Gave Employees Enough WARNing For Layoffs

Varela v. Eclipse Aviation Corp. (In re AE Liquidation, Inc.), Adv. No. 09-50265 (MFW), 2014 WL 6460805 (Bankr. D. Del. Nov. 18, 2014)

Eclipse Aviation Corporation (“Eclipse”) engineered, manufactured, and sold jet aircrafts.  In 2008, Eclipse defaulted on its secured notes.  Its board of directors contemplated liquidation, but eventually decided on a sale as a going-concern through Bankruptcy Code section 363 to Eclipse’s largest shareholder, European Technology and Investment Research Center (“ETIRC”).  ETIRC funded the Eclipse bankruptcy with $20 million in debtor-in-possession financing.  ETIRC later emerged as the stalking horse bidder, financed through a Russian state-owned bank.  On January 23, 2009, the Court entered an order approving the sale to ETIRC.  However, despite repeated assurances from ETIRC, the Russian financing never came through and the sale did not close.  On February 24, 2009, upon the filing of a motion by the senior secured creditors, the Court entered an order converting the case to chapter 7.  Eclipse contacted its employees that same day and gave them the bad news.  Thereafter, former employees (the “Plaintiffs”) filed a class action lawsuit alleging a violation of the federal Worker Adjustment and Retraining Notification Act (the “WARN Act”).  For general background on the WARN Act as analyzed in another case, click here. Read More ›