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Legal Briefing: Fair Warning on WARN Act

Separate organizations can be held to be a single employer under the WARN Act if the entities are not sufficiently distinct from one another.

February 12, 2014
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Steve & Barry’s Industries Inc. operated the Steve & Barry’s clothing chain stores. After it filed for bankruptcy, several investment firms established a series of other entities to buy and manage its assets.

One such entity, Holdco, operated as the holding company and sole managing member of another entity, Holdings. Holdings was funded by another entity and did not have its own board of directors, and Holdco hired its CEO and chief financial officer. Holdco’s board hired RAS Management Advisors to manage the “wind-down” of Holdings’ operations, approved a resolution mandating an employee reduction and authorized Holdings to provide reduction-in-force notices to Steve & Barry’s employees.  Michael Guippone, one of the laid-off workers, sued several of these entities. He alleged there were violations of the Worker Adjustment and Retraining Notification Act because employees had not been given advance notice of their terminations as required by the WARN Act.

The U.S. District Court for the Southern District of New York dismissed Holdco, ruling that it did not operate as a single employer with Holdings to be held liable under the WARN Act. The 2nd Circuit Court of Appeals reversed, and held that there was evidence from which a jury could conclude that Holdco directed the layoffs. The 2nd Circuit relied on the U.S. Labor Department’s regulations, which specify that a single employer relationship could exist where there are such factors as: common ownership, common directors and/or officers, and de facto exercise of control. Guippone v. BH S&B Holding LLC, 2d Cir. No. 12-183 (Dec. 10, 2013).

IMPACT: Separate organizations can be held to be a single employer under the WARN Act if the entities are not sufficiently distinct from one another.

James E. Hall, Mark T. Kobata and Marty Denis are partners in the law firm Barlow, Kobata and Denis, which has offices in Los Angeles and Chicago. To comment, email editors@workforce.com. FollowWorkforce on Twitter at @workforcenews.

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