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​​​WARN - Transactions


Sale of Assets

  • A sale of a business does not by itself establish Employment Losses for WARN purposes, provided the acquisition agreement provides for continuity of employment.  In such cases, the employees of the seller are deemed to be employees of the buyer on the effective date of the sale.  29 U.S.C. sec. 2901(b)(1).  Accordingly, an asset sale does not trigger liability for the buyer if it hires a sufficient number of the seller's employees.  See e.g., Alter v. SCM Office Supplies, 906 F. Supp 1243. 1247-48 (N.D. Ind. 1995).  
  • The WARN Act rules that impute seller employment to buyer provide as follows: In the case of the sale of part or all of a business, section 2(b)(1) of WARN defines who the “employer” is. The seller is responsible for providing notice of any plant closing or mass layoff which takes place up to and including the effective date (time) of the sale, and the buyer is responsible for providing notice of any plant closing or mass layoff that takes place thereafter.”
    • 2016.07.22 WARN Violation Imputed to Buyer after Asset Purchase.   Despite an asset purchase agreement’s allocation of WARN liabilities to the seller, a post-closing reduction-in-force triggered WARN liability for the purchaser because (i) after buyer had hired 201 of seller’s employees at the time of the closing, seller terminated the remaining 457 of its 658 employees, and (ii) ) the sale documents indicated that the business was sold as a going concern, rather than as a mere sale of assets.  The 8th Circuit found it persuasive that “The APA reflects that Celadon purchased Continental intending to continue Continental's existing trucking business indefinitely.”  Relying on WARN regulations applicable to business transactions (see the quoted text below), the court found that the APA provisions evidencing transition of the indicated that the APA transaction was not a mere sale of assets, thereby opening the door for purchaser’s WARN liability because seller had not made employment terminations before the closing.  Day v. Celadon Trucking is the case.
    •  For employers in the oil and gas industry, a Texas court recently became the second district court to find that, based on the applicable facts and pleadings, layoffs at multiple oil rigs were not aggregated for WARN purposes.  Accordingly, the Texas court dismissed the WARN action through its decision on Meadows v. Latshaw Drilling (N.D. TX, 5/31/2016). See also Voissin v Axxis Drilling (E.D.LA, 10/21/2015) in which a Louisiana district court reached the same conclusion (namely, that each rig was a separate site of employment because, quoting the employer’s position, “the rigs were separate facilities that functioned independently from each other and the office, and each rig had its own employees who reported for duty to wherever the rig was located”).
  • If, however, an asset purchase disrupts employment for a seller’s employees, they may have viable WARN Act claims. The 7th Circuit held that this occurred in one transaction involving a one week delay between seller’s termination of its employees and the buyer’s hiring of them when the sale closed a week later.  Phason v. Meridian Rail Corp., 7th Cir., No. 06-2942, 3/15/07.
  • Even if the buyer agrees offer employment to a sufficient number of the seller's employees to avoid triggering WARN, the buyer should take care not to make the proposed terms of employment so unfavorable as to trigger a constructive discharge claim.  
    • There is very little authority on whether a constructive discharge triggers liability under WARN.  In other employment contexts, however, a constructive discharge is generally found where the facts demonstrate that the employer did not intend to hire the employee but instead offered terms of employment that were so unfavorable that the employee would reject the offer of employment.  
    • Even if a buyer's compensation and benefits were not as favorable as the seller's, a constructive discharge would not likely be found if the value of the total compensation and benefits in the aggregate was equal to about 80% of the value of the total compensation and benefits that the employees had with the seller.


2013.Mar.26  Asset Purchaser Held Liable for Seller's Employment Liabilities (7th Cir).  The 7th Circuit decision reported below provides a good reminder about the federal common law of successor liability for employment-related liabilities, and its potential in asset purchase transactions to surprise buyers – and those who lend to them. Below are two notable quotes from the court’s decision. The case does not relate to WARN claims, but the analysis is worth considering: 

  • "We suggest that successor liability is appropriate in suits to enforce federal labor or employment laws—even when the successor disclaimed liability when it acquired the assets in question—unless there are good reasons to withhold such liability. Lack of notice of potential liability— the first criterion in the federal standard as usually articulated—is an example of such a reason.”

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  • “As a result the bank’s secured claim would in effect become junior to the workers’ unsecured claim by the amount by which that claim depressed the price that the successor would pay for Packard. . . . That is a good reason not to apply successor liability after an insolvent debtor’s default, whether its assets were sold in bankruptcy or outside (by a receiver, for example, as in this case): to apply the doctrine in such a case might upend the priorities of competing creditors. See In re Trans World Airlines, 322 F.3d 283, 290, 292-93 (3d Cir. 2003); Douglas G. Baird, The Elements of Bankruptcy 227-28 (5th ed. 2010). It’s an example of a good reason not mentioned in conventional formulations of the federal standard for not imposing successor liability. But it doesn’t figure in this appeal. Thomas & Betts has not urged it. It says that it didn’t discount its bid for Packard because of the workers’ claims; this both suggests that it didn’t anticipate successor liability and may explain why the bank has not complained about the imposition of that liability.”