It has been more than 15 years since Congress enacted the Worker Adjustment and Retraining Notification (WARN) Act and the U.S. Department of Labor issued its interpretive regulations - which left many issues for litigation and judicial construction. The more obvious and recurring questions have now been resolved, though the statute still creates nettlesome planning and timing issues for businesses that are downsizing or closing operations. And from time to time the courts are called upon to address WARN issues raised by a union or employee group.

One theory that was popular for a time, but now appears defunct, is that the sale of a business as a going concern, which understandably results in the "termination" of the seller's workforce as employees of that entity, requires 60 days' advance notice under WARN. The U.S. Court of Appeals for the Eighth Circuit recently ruled in Smullin v. Mity Enters, Inc. that WARN's definitions were not implicated by the sale of a business where the buyer retained two-thirds of the plant's employees, effectuated the sale over a weekend, and continued the same business in essentially the same form thereafter.

A second WARN theory that has found greater acceptability concerns the potential WARN liability of lenders or affiliates that become involved in the operation of a failing business. In Smith v. Ajax Magnathermic Corp., the Sixth Circuit recently allowed a WARN claim to go forward against a consortium of lenders that were alleged to have appointed a new management group and to have become sufficiently entangled with the actual owner of the business that it had undertaken responsibility for its overall management. While the courts have recognized that a lender or affiliate is not liable under WARN if it is merely protecting its financial interest or preserving assets, the Sixth Circuit concluded that there were sufficient factual issues regarding the roles in Ajax Magnathermic to allow the litigation to go forward.

Theodore R. Opperwall

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