Hunton Employment & Labor Perspectives

The federal Worker Adjustment and Retraining Notification Act (“WARN Act”) was enacted in 1988 to help protect employees, their families, and communities from the sudden and potentially severe impact of large-scale company closures and layoffs.

The WARN Act generally requires employers with 100 or more employees to provide employees with 60 days’ advance notice of a plant closing or mass layoff. A “plant closing” or “mass layoff” is generally deemed to occur when the employment of 50 or more employees is terminated within a 30-day period, including look-forward and look-back periods. Employers must provide the 60-day notice to each affected employee, as well as to certain state and local authorities.

Failure to provide the required employee notice can result in steep employer penalties, including back pay, the cost of benefits for each day the employer failed to provide the required notice, and attorneys’ fees.

Because the penalty of back pay and benefits is limited to the 60-day notice period, some employers choose to pay affected employees wages and benefits equal to 60 days’ pay in lieu of providing 60 days’ notice. This approach, while not specifically contemplated under the WARN Act, effectively zeros out any damages and associated attorneys’ fees an employee might claim for not receiving the required notice.

However, the WARN Act also recognizes circumstances under which the failure to provide notice,  (or pay in lieu of notice) is excusable. Affirmative defenses to the notice requirements exist when: (i) the business is a “faltering company”; (ii) the plant closing or mass layoff was caused by an “unforeseeable business circumstance”; or (iii) where the plant closing or mass layoff was caused by a “natural disaster.”

While the requirements of the “unforeseeable business circumstance” and “natural disaster” exceptions are fairly self-explanatory, what satisfies the “faltering company” exception is less obvious.

The faltering company exception applies when a company is actively seeking financing or other opportunities that could avoid or delay a shutdown or layoff if that company reasonably believes that giving advance notice to employees and the community at large would hamper those efforts. In other words, if a company legitimately attempts to save its business by securing financing, it should not be required to disclose that it may have to shut the business down if it does not retain financial backing, which would jeopardize its ability to secure such financing.

The faltering company exception was recently tested, and the employer succeeded with respect to that exception, giving further clarity to employers considering whether WARN Act notice is required or excused when undergoing mass layoffs or plant closures.

In 2023, trucking company Yellow Corp. laid off 25,500 employees—approximately 3,500 non-unionized employees and 22,000 unionized employees—with only one week’s notice, and then filed for chapter 11 bankruptcy. The number of employees affected by the layoff well exceeded the WARN Act’s employee threshold for a mass layoff requiring notice, and the employees complained to the bankruptcy court that the notices Yellow Corp. sent to its employees did not satisfy the WARN Act’s notice requirements, with which the bankruptcy court agreed.

However, after a 2025 trial on the merits, the bankruptcy court excused Yellow Corp. from satisfying the notice requirements as a “faltering company.” The bankruptcy court found that Yellow Corp. qualified for the WARN Act’s “faltering company” exception because, leading up to the layoffs, it was $1.5 billion in debt and attempting to raise new capital and refinance its debt, which may have helped it avoid a shutdown and mass layoffs.

Union representatives appealed that decision, and this June a Delaware federal court upheld the bankruptcy court’s decision, finding that “Yellow was a faltering company at the time notice was required” and that “Yellow was actively seeking capital at the required time, thereby qualifying for the exception, even if those efforts ‘were ultimately unsuccessful.’” The court agreed that Yellow Corp. “reasonably and in good faith” believed that providing 60 days’ notice would have prevented Yellow Corp. from obtaining the capital it sought to continue operations.

Although Yellow Corp. has avoided WARN Act liability related to its 2023 layoffs, the U.S. Supreme Court declined to change the trial court’s ruling that Yellow Corp. owes billions of dollars to union employees’ retirement funds. Regardless of Yellow Corp.’s retirement fund liability, its WARN Act victory further confirms and clarifies that companies may have protection under the faltering company exception to the WARN Act when certain requirements are met.

As the Yellow Corp. case illustrates, the WARN Act is frequently implicated and litigated, and clients require guidance to ensure WARN Act compliance. Employers should consult with legal counsel regarding whether any layoffs or plant closings trigger WARN Act notice or pay obligations, and whether any exceptions to such requirements might exist.