A Trap for the Unwary? Single Employer Liability for Related Entities Under the WARN Act
Equity sponsors or lenders involved with failing companies often are concerned with liability that may result from dealing with troubled employers stemming from the Worker Adjustment and Retraining Notification Act of 1988 (the WARN Act). The WARN Act generally imposes liability on an employer that fails to provide sufficient written notice in advance of a mass employee termination event. [FN2] Since the direct employer may be insolvent at the time of a plant closing or mass layoff, terminated employees frequently assert WARN Act claims against entities related to the direct employer, including parent companies and lenders, on the theory that such entities are the actual responsible parties under the statute.
A recent decision by the Delaware bankruptcy court in D'Amico v. Tweeter Opco, LLC (In re Tweeter OPCO, LLC), caught the attention of lenders and equity sponsors based on its potential to broaden the reach of WARN Act liability to investors who exercise significant control over a failing company. The decision in Tweeter can be read to impose WARN Act liability on distant parent companies, lenders and distressed investors who exercise de facto control over a debtor-employer. [FN5] This article examines the Tweeter decision and whether it could represent a seismic shift in the landscape of “single employer” liability under the WARN Act.