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Economic Downturn Resulted in Unforeseeable Economic Circumstances Excusing WARN Notice

    Client Alerts
  • July 20, 2012

The first cases involving layoffs resulting from the 2008 economic crisis are making their way through the federal appellate courts. Earlier this month, the Eighth Circuit Court of Appeals concluded that U.S. Steel's advance notice of the downturn did not mean that the actual impact of the crisis on its business was foreseeable.

In United Steel Workers Local 2660 v. U.S. Steel Corp., U.S. Steel laid off workers at a Minnesota facility without providing 60 days' advance notice as required under the Worker Adjustment and Retraining Notification Act (WARN). When sued by the union, U.S. Steel claimed the "unforeseen economic circumstances" defense to WARN claims. The company alleged that the precipitous drop in demand for steel products in the fourth quarter of 2008 was not reasonably foreseeable.

The union argued that the overall economic crisis was apparent to U.S. Steel well in advance of the actual layoffs, and that its impact on the business was clearly foreseeable. The Eight Circuit disagreed, affirming summary judgment for the defendant. The court noted that the unforeseeable economic circumstances defense applied to the layoffs, because knowledge of the general economic turndown was not the same as specific knowledge of the actual impact of the crisis on U.S. Steel's business. The company was able to demonstrate that the drop in demand for steel was unprecedented as compared to any prior economic downturn.

Whether a particular employer acted within reasonable business judgment with respect to the financial crisis depends on the particular business, and management's predictions of its impact. However, the Eight Circuit's decision makes clear that general knowledge of the downturn itself does not remove the employer's ability to claim that the need for actual layoffs was unforeseeable.