The 'Faltering Company' and 'Unforeseen Business Circumstances' Exceptions Under The WARN Act

The predictable response of many employers faced with the issue of whether, and when, to issue WARN notices to employees is that they simply do not know 60 days before a shutdown of operations that it will be necessary — in many cases, employers have only a few days' notice (or less) before a decision to shutter a facility is made. Indeed, employers correctly conclude that providing WARN notice to employees as soon as a shutdown appears reasonably likely will prompt the type of response from employees that would harm the company's efforts to rescue the business — including loss of workforce morale, employee defections, and adverse publicity. The alternative, of course, is to refrain from providing notice as long as possible, and risk significant liability.

The WARN Act contains several affirmative defenses that are designed to address this conundrum, and provide employers with a complete defense to liability under the statute when a company's exigent condition forces an immediate cessation of operations. These exceptions to the WARN notice obligations are identified as the “Faltering Company” and “Unforeseen Business Circumstances” exceptions. Codified together (at 29 U.S.C. sec. 2102(b)(1) — (2)), the two exceptions are often analyzed together and confused. They are distinct, however, and employers faced with possible pending layoffs or facility closures should consider both of them independently. This article identifies the key features (including the benefits and drawbacks) of each.