In a groundbreaking decision of first impression, the Ninth U.S. Circuit Court of Appeals recently held that employees who stopped returning to work after receiving notice that their employer intended to shut down operations suffered an “employment loss” within the meaning of the Worker Adjustment and Retraining Notification Act (“WARN Act,” “WARN,” or the “Act”), 29 U.S.C. 2101 et seq. The ruling holds that where an employee has left a business “because the business is closing,” that employee has not “voluntarily departed” within the meaning of the WARN Act and is thus entitled to the full statutorily required 60-days’ notice, where appropriate, or damages in lieu thereof. Collins v. Gee West Seattle, No. 09-36110, 2011 WL 182447 (9th Cir. Jan. 21, 2011).

The Facts

In September 2010, Gee West, the owner of several automobile franchises, issued a written memo to its 150 employees stating that while it had been actively pursuing the sale of the business, absent finding a purchaser within the next 11 days, it intended to close its doors and terminate all but certain specifically designated employees. The memo explained that Gee West had not given notice sooner because it had been “concerned that potential purchasers would not have made a purchase, had its workforce been seeking alternate employment.” Within several days following the announcement, employees stopped reporting to work, such that nine days later only 30 employees remained. Because too few employees remained to maintain operations, Gee West was forced to shut down two days prior to its planned closing date. Although it reopened for one day to show its facilities, it did not find a purchaser. Documents created by Gee West’s human resources director showed that all employees who abandoned their jobs after receiving the memo regarding the expected closing did so because the “business closed.”

WARN Act Requirements

The WARN Act requires that: “An employer shall not order a plant closing or mass layoff until the end of a 60-day period after the employer serves written notice of such an order (1) ... to each affected employee.” 29 U.S.C. § 2102(a) (emphasis added). An “affected employee” is one who “may reasonably be expected to experience an employment loss as a consequence of a plant closing ...” 29 U.S.C. § 2101(a)(5). The 60-days’ notice requirement, however, applies only “if the shutdown results in an employment loss … for 50 or more employees....” 29 U.S.C. § 2101(a)(2) (emphasis added). “[T]he term ‘employment loss’ means (A) an employment termination, other than a discharge for cause, voluntary departure, or retirement....” 29 U.S.C. § 2101(a)(6) (emphasis added). In short, WARN requires that if an employer expects 50 or more of its employees to incur an employment loss as a result of closing its plant or business, it must provide 60 days’ notice to all employees who are reasonably expected to experience the employment loss, or, other than to those who it expects to or terminates for cause, or those who “voluntarily depart” or retire.

The District Court Decision

After Gee West closed its facilities, the former employees brought an action alleging the company had violated WARN by failing to give them the full 60 days’ notice. Both parties filed motions for summary judgment. Granting Gee West’s motion, the district court determined that the approximately 120 employees who stopped coming to work after notice was provided “voluntarily departed” and therefore did not suffer an “employment loss” within the meaning of WARN. Thus, since only 30 employees, fewer than the statutorily required 50, actually incurred the “employment loss,” WARN liability was not triggered. The employees appealed, claiming that the district court erred in determining that those who departed after learning the facilities would close did so voluntarily.

The Court of Appeals Decision

The Ninth Circuit rejected the district court’s conclusion that employees who chose to quit after learning of the plant closing satisfied WARN’s “voluntary departure” exception to employment loss. Instead, the circuit court focused on the Act’s definition of “affected employee” as one who “may reasonably be expected to experience an employment loss as a consequence of a plant closing.” It reasoned that these individuals were still employees at the time Gee West should have given the 60-day WARN notice, and as of that date they were “reasonably expected to experience an employment loss” as a result of the plant closing. Thus, more than 50 employees suffered an employment loss and Gee West violated WARN by failing to give 60 days’ notice of the plant closing. The court then concluded that as a policy matter, it will presume that the departure of an employee after an employer says it will close a plant is not voluntary unless the employer demonstrates a concrete, specific reason for the employee’s departure that is unrelated to the business closing, such as because of pregnancy, health reasons or a better job opportunity. The decision goes on to reject Gee West’s argument that WARN was not intended to provide double income to employees who secure alternate employment prior to the end of the notice period.

Finally, the Ninth Circuit noted that employers in Gee West’s position still may avoid liability for failing to give a full 60-day WARN notice under the Act’s “faltering company exception.” Under this exception, an employer may provide less than 60 days’ notice of a plant closing, if at the time that notice would have been required, it was actively seeking financing or business, that if obtained, could have enabled it to postpone or prevent a shutdown, and that it reasonably believed that by providing the notice, potential customers or sources of financing would have been unwilling to provide the funding. Thus, the court concluded that the district court erred in its interpretation of “voluntary departure” and instead held that where an employee leaves a business “because the business is closing,” even if he or she does so before the closing, that employee has not voluntarily departed within the meaning of WARN.

The Dissent

In a strong dissent, Chief Judge Richard F. Cebull argued that the decision creates a bright line rule, unintended by the Act’s drafters, that every employee who abandons their job because their employer is closing has not voluntarily departed and thus suffers an employment loss within the meaning of WARN. Such a rule, he objected, directly contradicts the Department of Labor commentary accompanying the Act’s passage providing that an employee who leaves early after announcement of a business closing has not necessarily been constructively discharged or quit involuntarily. (A constructive discharge occurs when an employer creates employment conditions so adverse that a reasonable employee would feel compelled to resign.) Judge Cebull further expressed concern that the new presumption of involuntary departure shifts the burden of proving a WARN Act violation from the employee to the employer.

Practical Implications

The Ninth Circuit’s decision in Gee West calls into question both court of appeals and district court precedent holding that employees who resign after a plant closing is announced but before it actually occurs depart voluntarily and thus do not suffer an employment loss under WARN. In addition, this decision is at odds with prior court of appeals precedent concluding that employees’ resignations after notice of intention to close a plant or business is given do not on their face imply constructive discharge.

If followed by other circuits, this decision will place a burden on employers by providing employees with an incentive to abandon their jobs immediately upon receiving 60 days’ notice of a possible layoff or closing, in order to secure other employment while still being qualified to receive full wages and benefits for the entire notice period. Thus, the decision will decentivize employers from providing notice in borderline situations in cases where they may be hoping to obtain outside funding and do not want to prematurely place the nail on the coffin of their operation by risking an early shut-down because the employees, as in Gee West, walk off the job.

Finally, this decision is a reminder that employers should keep accurate personnel records detailing the reasons for their employees’ departures so they can show that the employee’s decision was voluntary, even given the Gee West decision.