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Delay in Closing Subjects Asset Seller to WARN Act Requirements

    Client Alerts
  • March 23, 2007

Employers that engage in plant closings or mass layoffs are subject to the notice requirements of the Worker Adjustment and Retraining Notification Act (“WARN”).  WARN questions frequently arise in the context of sales of parts or all of a business.  Department of Labor regulations issued by WARN establish a fairly clear dividing line for WARN responsibilities in corporate transactions.  If the employment loss occurs before closing of the sale, the seller must comply with the notice requirements.  If the buyer terminates employees after closing, it becomes responsible for providing notice.  A new Seventh Circuit Court of Appeals case demonstrates the danger to sellers when the closing date is delayed.


The case was filed by rail workers whose division was sold in an asset transaction.  These employees were advised that they were invited to apply for work with the buyer of the division.  However, the closing of the deal was delayed until eight days after the employees were actually terminated.  Even though most of them were in fact hired by the buyer, they sued the seller for failure to provide sufficient notice under WARN.  The Seventh Circuit concluded that under the plain language of the statute, the plaintiffs suffered an employment loss because they were not able to seek employment with the buyer for eight days after they were terminated.  In retrospect, there was no guarantee that the deal would ever close, and the seller was required to provide notice.


The seller could have prevented this situation by delaying the employment terminations until the actual date of closing.  In this case, the last day of employment was December 31, and a delay would have entitled the terminated employees to substantial benefits accrual as of January 1.  This case does not present the same facts or legal conclusions as one where the employees are terminated by the seller and immediately offered employment by the buyer.  In these cases, numerous courts have held that such instantaneous reemployment is not a loss of employment under WARN.  However, as this case demonstrates any delay between termination and offers of hiring will subject the seller to notice requirements.