Until recently, an employee who quit his or her employment was not counted as an "employment loss" for the purpose of federal WARN Act liability. However, in Collins v. Gee West Seattle LLC, the U.S. Court of Appeals for the Ninth Circuit just held that, "if an employee leaves a job because the business is closing, that employee has not 'voluntarily departed' within the meaning of the WARN Act. Rather, that employee has suffered an 'employment loss."

In this case Gee West operated three new-car dealerships, a used-car facility, a body shop, and an auto loan department. The company had about 150 total employees, and all its operations were treated as a single "site of employment" for WARN Act purposes. On September 26, 2007, Gee West issued a "notice of possible sale" to its employees, letting them know that it was actively seeking a buyer for the business but that, if the business could not be sold by October 7, 2007, it would close. After receipt of this notice, most of the 150 employees stopped coming to work. By October 5, 2007, only eight days after this notice, only 30 employees remained at the employer's facilities. Gee West ceased operations that day and on October 7 permanently closed.

Its former employees brought suit under the federal WARN Act (the "Act"), which requires that employers of more than 100 employees must provide 60 days' notice in advance of a plant closure if it will result in a 30-day period of an "employment loss" for 50 or more employees. Thus, but for the voluntary quits, Gee West clearly would have been obligated to provide the 60 days' advance notice to all 150 employees who were facing the loss of their jobs. However, Gee West argued that, at the time of the closure, it employed only 30 employees and thus was not obligated to give WARN Notice.

While the trial court agreed with Gee West, the Ninth Circuit reversed. While acknowledging that "voluntary departures" are excluded from the term "employment loss," that Court found that a strict adherence to the "dictionary definition" of "voluntary" in this case would "flip[] the basic structure of the WARN Act on its head." To the Ninth Circuit majority in this decision, the Act requires employers to give 60 days' notice of a plant closing to employees who "may reasonably be expected to experience an employment loss," thereby adding a definition not found in the Act itself.

The Ninth Circuit majority held that excusing Gee West from the 60-day advance notice requirement because 120 employees decided to stop coming to work days before the business closed would frustrate the Act's basic purpose. The majority opinion noted that "[t]he unexpected and urgent need to find new employment is precisely the type of pressure that this Court held that Congress was attempting to eliminate by creating the WARN Act." "Employees' departure because of a business closing," the majority determined, "is generally not voluntary, but a consequence of the shutdown and must be considered a loss of employment when determining whether a plant closure has occurred. Gee West's argument that only 30 employees lost employment as a consequence of the plant closing is thus not credible."

The Ninth Circuit majority did not address the question of just how "imminent" or "probable" the job losses must be for employee departures not to count as "voluntary" for purposes of the Act. Accordingly, it is no longer certain when an employee's seemingly voluntary departure will still be counted as an "employment loss" under the Act.

After this decision, if an employer believes that a plant closing may occur in which 50 or more employees would lose their jobs, it might be advisable to issue the 60-day advance notice contemplated by the Act even if the plant closure is not inevitable.

ASK MS&K - Q&A Session

Q: What employers are covered under the federal WARN Act? What about the California version of the law, known as Cal-WARN?

A: Under the federal WARN Act, a covered employer is a business enterprise that employs 100 or more full-time employees or 100 or more employees who work a combined 4,000 hours per week, exclusive of overtime hours. Under Cal-WARN, a covered employer is any person or business entity that owns and operates any "industrial or commercial facility" that employs (or has employed within the past 12 months) at least 75 persons. There are other differences between these two statutes, with Cal-WARN usually providing more employee protection than the federal act.

Q: What if an employer is trying to avoid a plant closing, but it is worried that sending WARN notices to employees will hamper its efforts to keep the plant open (by scaring away potential investors or business partners, for example)? Does the law provide any respite from this Catch-22 situation?

A: Both the federal WARN and Cal-WARN Acts provide an exception for employers who are actively seeking capital or business that would keep an operation running and who reasonably and in good faith believe that providing the notices would prevent it from obtaining that capital or business. Because of the narrowness and complexity of this exception, please consult with experienced employment counsel before relying on this or any other federal WARN or Cal-WARN exceptions.