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Legal Updates

Federal Circuit Court: COVID-19 Pandemic Is Not A "Natural Disaster" Under The WARN Act

On June 15, 2022, the United States Court of Appeals for the Fifth Circuit ruled that the COVID-19 pandemic is not a “natural disaster” and, accordingly, does not relieve employers of their obligation to provide 60 days’ notice of job terminations covered by the federal Worker Adjustment and Retraining Notification Act (WARN Act). This decision is formally binding on employers within Louisiana, Mississippi, and Texas.

Although the Fifth Circuit is, to date, the only federal court of appeals that has addressed this issue, other federal courts may in the future reach the same conclusion. As such, all employers, regardless of their location, should ensure compliance with the WARN Act’s notice requirements prior to implementing layoffs falling within the statute’s reach, which may become more prevalent as a result of the current economic downturn.

Background: The WARN Act

Pursuant to the WARN Act, employers with 100 or more full-time employees are required to provide written notice at least 60 days prior to the commencement of a “plant closing” or a “mass layoff.” Employers must provide the written notice to the affected employees (if not represented by a union), the state’s rapid response dislocated worker unit, and the chief elected official of the local government of the location of the plant closing or mass layoff.

A plant closing takes place when an employer, during a 30-day period, permanently or temporarily shuts down a single site of employment, or one or more facilities or operating units within a single site, that employs 50 or more full-time employees. A mass layoff occurs when an employer, during a 30-day period, (i) lays off 50 or more full-time employees who comprise at least 33 percent of the employees at a single site of employment, or (ii) lays off at least 500 full-time employees, regardless of the overall number of employees at the employment site. Employers do not have to provide the required 60-day notice if the layoffs last for less than six months.

The WARN Act provides for three exceptions to the 60-day notice requirement. In particular, an employer may implement a plant closing before the conclusion of the 60-day notice period if the plant closing is due to the company’s faltering financial standing, unforeseeable business circumstances, or a natural disaster. Likewise, an employer may effectuate a mass layoff before the conclusion of the 60-day notice period if the layoff is due to unforeseeable business circumstances or a natural disaster. In such circumstances, the employer is nevertheless required to provide notice of the plant closing or mass layoff as soon as practicable, setting forth the reason why the employees did not receive full 60-day notices.

The WARN Act specifically lists floods, earthquakes, or droughts ravaging the farmlands of the United States as natural disasters. Moreover, the WARN Act’s regulations identify floods, earthquakes, droughts, storms, tidal waves or tsunamis as natural disasters. In addition, pursuant to the regulations, an employer relying upon the natural disaster exception must show that the plant closing or mass layoff is a direct result of the natural disaster.

Employers that violate the WARN Act may face significant legal liability, including the payment of back pay and benefits to each affected employee for up to 60 days. In addition, an employer may be required to pay $500 in civil penalties for each day it fails to notify the local government.

Easom v. US Well Services, Inc.

In March 2020, US Well Services, an oil industry fracking service provider, laid off 171 employees, without any notice, due to unforeseeable business circumstances resulting from a lack of available customer work caused by a significant drop in oil prices and the unexpected adverse impact of the COVID-19 pandemic. Thereafter, the employees filed a class action suit alleging that US Well Services violated the WARN Act when it failed to provide the required 60-day notice to the employees.

In its defense, US Well Services asserted that, pursuant to the WARN Act’s natural disaster exception, it was exempt from the notice requirement. In turn, the laid off employees claimed that COVID-19 did not constitute a natural disaster, and that the pandemic did not directly cause the layoff.

The United States District Court for the Southern District of Texas denied the employees’ motion for summary judgment. As part of the subsequent interlocutory appeal, the District Court certified two questions: (i) does COVID-19 qualify as a natural disaster under the WARN Act’s natural disaster exception; and (ii) does the WARN Act’s natural disaster exception incorporate a “but for” or a “proximate causation” standard?

The Fifth Circuit held that the COVID-19 pandemic did not qualify as a natural disaster under the WARN Act. In particular, the Court held, that based upon the specific examples of disasters listed in the statute, a natural disaster is limited to “hydrological, geological, and meteorological events,” of which the COVID-19 pandemic is not one. As such, the Court held that employers citing the COVID-19 pandemic as the reason for a plant closing or mass layoff must provide the requisite 60 days’ notice.

Furthermore, the Fifth Circuit, relying upon Department of Labor regulations and case precedents, held that the causation standard under the natural disaster exception is a proximate causation standard, and not a “but for” standard. In essence, an employer may avail itself of the natural disaster exception, when applicable, even if the natural disaster is not the sole and immediate cause of the layoff or plant closing.

Implications For Employers

Although the Easom decision is formally applicable only to employers in Texas, Louisiana and Mississippi, all employers should ensure that they provide the required 60 days’ notice to employees prior to covered plant closings and mass layoffs. Moreover, it is imperative that employers carefully consider, with the advice of experienced employment counsel, the applicability of any of the aforementioned notice exceptions in order to mitigate the risk of substantial monetary damages and civil penalties.

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Please feel free to reach out to one of our experienced employment attorneys if you have any questions about the Fifth Circuit Court’s Easom decision or your organization’s responsibilities pursuant to the WARN Act.