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WARN Act Reaches Equity Owners

By Luis Salazar

The Federal District Court for the Southern District of New York has allowed a class of 6,500 plaintiffs to pursue their complaint against several investment companies for violations of the Workers Adjustment and Notification, or WARN, Act. In doing so, the court in In re Vogt, 2004 WL 187153, adopted and applied not the traditional piercing-the-corporate-veil test but instead the more narrowly focused and easier to establish “DOL test,” based on the Department of Labor's WARN regulations.

This case should be of concern to all employers, not just equity investors. The nation's economy now seems to be hovering between recession and recovery. Thus, employers may find themselves laying off employees for reasons as diverse as making way for strategic outsourcing, to facilitating effective integration of mergers and acquisitions, to true life-or-death restructuring. This new decision, then, makes the assertion of liability against parent companies and equity owners easier to establish and may give encouragement to effected employees to seek WARN penalties against deeper pockets.

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