Opting for a literal interpretation of the WARN Act, the Seventh Circuit has held that an “employment loss” occurs when a company shuts down operations and severs all ties with its employees in anticipation of an imminent sale of the business. Although the deal closed eight days later and most of the employees promptly found work with the new owner, an “employment termination” nevertheless occurred, and WARN notices should have been provided. See Phason v. Meridian Rail Corp., __F. 3d __, No. 06-2842, 2007 WL 764250 (7th Cir. March 15, 2007). The case was remanded so that the district court could fashion an appropriate remedy, which could include backpay and attorneys’ fees.

The Worker Adjustment and Retraining Notification Act of 1988 (“WARN”), 29 U.S.C. §§ 2101 et seq., in relevant part, requires employers with 100 or more full-time employees to provide written notice 60 days in advance of a plant closing that will result in an “employment loss” for 50 or more employees. 29 U.S.C. § 2101(a)(2). The term “employment loss” means an extended layoff; a severe cut in hours; or “an employment termination, other than a discharge for cause, voluntary departure, or retirement.” 29 U.S.C. § 2101(a)(6).

In Phason, Meridian, the original employer, argued that no “employment loss” occurred because the new owner, Novtrak, hired most of the workers as soon as the sale of the business closed. In fact, that was the plan from the very beginning. When Novtrak and Meridian shook hands on the deal in mid-December 2003, Novtrak issued an invitation for Meridian employees to apply for a job with its company as soon as the transaction closed. Phason, 2007 WL 764250, at *1. However, the deal did not close until January 8, 2004. Id. Meanwhile, Meridian shut down operations and let its employees go on December 31, 2003. The district court granted summary judgment in favor of Meridian, agreeing that WARN did not apply because fewer than 50 employees experienced eventual employment loss.

The Court of Appeals reversed. The important question was not how many people failed to find work with the new owner in January 2004, but how many lost their jobs with Meridian on December 31, 2003. The court reasoned that being told “‘You’re fired, but you have prospects of catching on with someone else real soon’ is a ‘termination’ under [29 U.S.C. § 2101(a)(6)(A).]” Phason, 2007 WL 764250, at *2.

Moreover, the WARN provision relating to the sale of a going concern did not prevent a “termination” from taking place, the Seventh Circuit ruled. That provision states that anyone “who is an employee of the seller . . . as of the effective date of the sale shall be considered an employee of the purchaser immediately after the effective date of the sale.” 29 U.S.C. § 2101(b)(1). Meridian argued that, even though the formal closing did not occur until January 8, 2004, the sale was effectively completed in December 2003. The problem with that argument, the court said, was that it ignored the plain language of the statute and “complicates an analysis that is supposed to be simple.” Phason, 2007 WL 764250, at *3. Bright-line rules make WARN easier to administer, while a results-driven approach of the kind advocated by Meridian would replace concrete rules with whatever standard a particular judge thinks preferable, a result the Seventh Circuit found untenable. Id.