Bankrupt Law Firm Denied WARN Act Defense When It Failed To Give Employees Written Explanation For Shortened Notice, New York Bankruptcy Court Rules

By Peter D. DeChiara

pdechiara@cwsny.com

Posted April 2014

The WARN Act generally requires an employer to give its employees 60 days’ advance notice of a shutdown or mass layoff, but it contains exceptions:  the employer can give fewer than 60 days’ notice, for example, if the shutdown is caused by business circumstances that weren’t reasonably foreseeable or if giving full advance notice would have stymied the employer’s efforts to continue operations.  The statute says that an employer relying on one of these exceptions must not only give as much notice to its employees as practicable but must “at that time” give a “brief statement” explaining the reasons for the shortened notice.  The statute is silent as to whether this “brief statement” must be in writing and included in the WARN Act notice that the employer issues to its employees.  In the Chapter 11 case of the failed law firm Dewey & LeBoeuf, the bankruptcy court for the Southern District of New York ruled that the “brief statement” must be part of the employer’s written WARN Act notice, and that explanations given to employees at meetings do not suffice.  See In re Dewey & LeBoeuf LLP, Case No. 12-12321 (Bankr. S.D.N.Y. April 10, 2014).

A global law firm with a venerable history, Dewey & LeBoeuf collapsed in 2012, terminating its remaining employees in a mass layoff shortly before filing for Chapter 11 bankruptcy.  Fewer than 60 days before the layoff, it sent WARN letters to the employees, but the letters contained no explanation for the shortened notice.  In meetings held with most of the employees, firm management explained that the firm had been unsuccessful in extending its credit facility and in its other efforts to continue operations.  After the Chapter 11 was filed, the terminated employees brought an adversary proceeding over the law firm’s failure to provide them the full 60 days WARN notice.

In striking the law firm’s shortened notice defense, Bankruptcy judge Martin Glenn adopted a sensible reading of the statute, that the “brief explanation” for any shortened notice must be written into the WARN Act notice given by the employer.  He reasoned that “[e]ven under the most extenuating circumstances” an employer can give its explanation in writing to employees and doing so prevents information “from trickling out in piecemeal fashion.”

In so holding, the New York court parted company with the bankruptcy court for the Eastern District of Michigan, which in Richards v. Advanced Accessory Systems LLC, 443 B.R. 756 (Bankr. E.D. Mich. 2011), permitted an employer to explain its reasons for shortened notice in employee meetings.  The Michigan court requiring only that the employer convey its explanation in a manner “practicable under the circumstances.”  Judge Glenn expressly rejected the Michigan court’s permissive reading of the statute, insisting that the written explanation requirement was a bright-line rule.

The WARN Act, meant to protect workers and their families by giving them time to prepare for job loss, is already riddled with exceptions.  The Dewey case commendably resists the effort of an employers to read out of the statute one of the few bright-line rules the statute does contain.