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Second Circuit Finds Parent Company Liable for Subsidiary's Failure to Provide WARN Notice

    Client Alerts
  • January 03, 2014

Under the federal Worker Adjustment and Retraining Notification Act (WARN), covered employers are required to provide employees with 60 days advance notice of a facility closing or mass layoff. In many cases, the employer becomes insolvent or bankrupt, and employees who fail to receive the required notice have little direct financial recourse against that employer. Last month, the Second Circuit Court of Appeals concluded that the defunct employer’s parent corporation can be liable for its failure to provide WARN notice.
Guippone v. BH S&B Holdings, LLC was a class action claim brought by employees of the defunct Steve & Barry’s clothing chain. The employees sued both their employer and its parent when they did not receive the full WARN notice period before being laid off. The district court dismissed the parent corporation from the suit, finding that it was not an employer as defined under WARN.
The Second Circuit reversed this decision, concluding that in this case, the parent company and its subsidiary could be considered a “single employer” under the Department of Labor’s WARN regulations. Those rules use a five-part test for determining when a parent exercises such day-to-day control over its subsidiary that it becomes legally indistinguishable for WARN liability purposes. In this case, the actual employer was a holding company with no board of directors, and little ability to make decisions independent of its parent. Therefore, a jury could conclude that the parent company made the decisions with regard to provision of WARN notice.
WARN along with other federal employment laws do not automatically exclude separately incorporated entities from joint liability with regard to employment decisions. Courts and administrative agencies will look beyond corporate status to determine whether the entities share ownership, management, personnel, finances and human resource functions to the extent that they should be considered one company for liability purposes.