Fifth Circuit Rules That COVID-19 Does Not Satisfy the “Natural Disaster” Exception to the Warn Act’s Notice Requirement

On June 15, 2022, in Easom v. US Well Services, Inc., the Court of Appeals for the Fifth Circuit reversed a decision by the District Court for the Southern District of Texas and held that “the COVID-19 pandemic is not a natural disaster” within the meaning of the Worker Adjustment and Retraining Notification Act (“WARN Act”) and thus may not exempt employers from providing the required notice of COVID-related layoffs.[1] The Fifth Circuit’s unanimous decision is the first by a federal circuit court to address whether there is a COVID-related exception to the application of the WARN Act and is at odds with a recent federal bankruptcy court’s that came to the opposite conclusion. Significantly, the Fifth Circuit did not address whether the pandemic fell within the “unforeseeable business circumstances” exception, which has been considered by some district courts to excuse not giving workers advance notice of COVID-related layoffs. Accordingly, an employer that is located within the jurisdiction of the Fifth Circuit may still seek relief from the WARN Act requirements under the “unforeseeable business circumstances” exception.

Background

The WARN Act generally requires most businesses with 100 or more employees to provide their employees with 60 days’ notice of plant closings or mass layoffs.[2] If an employer fails to comply with the WARN Act, it may be required to provide affected employees with back pay and benefits for each day of the violation and be subject to civil penalties.[3]

The WARN Act was designed to protect employees and to allow a transition period “to adjust to the prospective loss of employment.”[4] As such, the exceptions to the WARN Act notification requirements are construed narrowly. There are three primary exceptions to the notice requirement:

1. Where the employer was faltering, actively seeking capital to prevent a plant closing and, at the time of the required notice, reasonably believed that providing such notice would have precluded it from raising the capital it needed to avoid having to shut down;[5]
2. Where the plant closing or mass layoff was the result of unforeseen business circumstances (the “unforeseeable business circumstances” exception);[6] or
3. Where the plant closing or mass layoff was “due to any form of natural disaster, such as a flood, earthquake, or [] drought” (the “natural disaster” exception).[7]

None of these exceptions eliminate the WARN Act’s notice requirements. The requirements are relaxed, but employers must still provide their workers with notice as soon as practicable.[8]

Several states have enacted so-called “mini-WARN Acts” that generally mirror the requirements of the federal WARN Act. In the wake of the COVID-19 pandemic, however, some states, including California, Hawaii and Vermont, amended their laws or issued executive orders to exempt employers from their state’s notice requirements for layoffs that result from the impacts of COVID-19. The federal government took no such action, which has led to litigation, including in Easom.

Case Law

Because the WARN Act does not define “natural disaster,” the Fifth Circuit turned to the statutory context of the term to determine legislative intent. The Fifth Circuit concluded that “the appearance of ‘natural disaster’ in a list with ‘flood, earthquake, or drought’ suggests that Congress intended to limit ‘natural disaster’ to hydrological, geological, and meteorological events.”[9] The Fifth Circuit further found that since Congress could have, but did not, include terms like “disease, pandemic, or virus in the statutory language of the WARN Act,” it must have excluded those terms from the natural disaster exception deliberately.[10] The Fifth Circuit also deferred to the Department of Labor’s interpretation of the WARN Act and held that to qualify for the natural disaster exception, an employer must “‘demonstrate that its plant closing or mass layoff is a direct result of’” the alleged natural disaster.[11] The Court equated “direct result” to “proximate causation,” therefore imposing a proximate causation requirement on the natural disaster exception.[12]

On March 21, 2022, about three months before the Fifth Circuit issued its decision, the United States Bankruptcy Court for the District of Delaware reached the opposite conclusion in In re Art Van Furniture, LLC.[13] There, the court held that the natural disaster exception is a broad exception that applies to “any form of natural disaster,” including pandemics like COVID-19.[14]

The Fifth Circuit did not address whether the COVID-19 pandemic fell under any other exception to the federal WARN Act, including the unforeseeable business circumstances exception. The district courts that have addressed this issue have reached conflicting results. Indeed, the court in In re Art Van Furniture, LLC not only found that COVID-19 fell under the exception to the federal WARN Act for natural disasters, but held that employer defendants were not required to provide their employees with notice of their termination because COVID-19 also constituted an unforeseeable business circumstance and was the but-for cause of the layoffs.[15] The court explained that “COVID-19 and the ensuing government-ordered shutdowns” “unquestionably impacted the [defendants’] operations.” It also described COVID-19 as “the straw that broke the camel’s back and caused the …layoff.”[16]

In Benson v. Enterprise Leasing Company of Orlando, a Florida federal district court found that although “COVID-19 may be a natural disaster within the meaning of the WARN Act,” the connection between COVID-19 and the company’s layoffs was “tenuous” and that “the proper focus” of the lawsuit was the “unforeseeable business circumstances exception.”[17] The court explained that COVID-19 and the layoffs had a tenuous connection because COVID-19 was not the direct cause of the layoffs.[18] In the court’s view, the impact of COVID-19 on the defendants’ labor force was “more akin to a factory that closes after nearby flooding depressed the local economy.”[19] Having decided that the natural disaster exception does not apply, the court deferred to the Department of Labor’s guidance on the WARN Act, which states that “[w]here the layoffs occur “as an indirect result of a natural disaster, the [natural disaster] exception does not apply but the ‘unforeseeable business circumstance’ exception” may still apply.[20] The court also relied on a document of Frequently Asked Questions published by the Department of Labor, which falls short of stating that COVID-19 necessarily falls under the unforeseeable business circumstances exception, but provides examples of “unforeseen business circumstances” stemming from COVID-19, e.g., “major economic downturn[s]” and “government ordered closing[s] of employment site[s],” which might exempt employers from their WARN obligations.[21]

Finally, in Jones v. Scribe, a different Florida federal district judge denied an employer defendant’s motion to dismiss a complaint brought by a former employee who was terminated as a result of the pandemic’s impact on the employer’s business.[22] The court concluded that even if COVID-19 qualified for the natural disaster exception, the alleged natural disaster was not the but-for cause of the resulting layoffs.[23] The court noted, however, that its interpretation of the WARN Act “does not leave employers indirectly impacted by a natural disaster without relief” because even if the natural disaster exception does not apply, employers may invoke the unforeseeable business circumstances exception.[24]

Takeaway

There are a number of WARN Act cases related to the COVID-19 pandemic pending across the country, and the legal landscape is, accordingly, continuing to develop. However, even if other circuits adopt the Fifth Circuit’s reasoning in Easom, there may be relief for employers under the WARN Act’s unforeseeable business circumstances exception.