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Lender Held Liable For WARN Notice

    Client Alerts
  • July 29, 2011

The Worker Adjustment and Retraining Notification Act ("WARN") requires employers to provide eligible employees with 60 days advance notice of a facility closing or mass layoff. In recent years, terminated workers have brought WARN claims against lenders and creditors, claiming that they fall within the definition of an employer under the Act. Earlier this month the U.S. Bankruptcy Court for the District of Delaware (where many large corporate bankruptcy cases are filed) issued an opinion considering the lender and debtor a single employing entity for WARN purposes.

In D'Amico v. Tweeter Opco, LLC, the court concluded that the lender had de facto control over the debtor's day-to-day operations. The creditor placed persons on the debtor's board of directors, and on multiple occasions pushed for workforce reductions as a cost saving measure. Even though the debtor did not directly control the employer's human resource functions or policies and procedures, its overall influence on firing decisions made the two companies a legal single employer for WARN Act purposes.

Creditors working with debtors to reduce costs should make certain that either (1) they are not forcing decisions regarding key human resource functions; or (2) that the debtor is providing statutorily required WARN notice and other legal entitlements to terminated employees. Based on this and similar decisions, more affected employees will look to lenders rather than defunct employers for compensation relating to their terminations.