AMERICAN BAR ASSOCIATION
SECTION OF LABOR & EMPLOYMENT LAW
COMMITTEE ON FEDERAL LABOR STANDARDS LEGISLATION
2011 MIDWINTER MEETING
REPORT OF THE SUBCOMMITTEE ON THE WORKER ADJUSTMENT & RETRAINING NOTIFICATION
ACT AND THE EMPLOYEE POLYGRAPH PROTECTION ACT
Recent Developments Under
the WARN Act and the EPPA.
February 2011
Covering 2010 Case Law
NICHOLS KASTER, LLP
Matthew C. Helland
One Embarcadero Center, Suite 720
San Francisco, California 94111
Special Thanks to Arianna Halper
Toll Free Telephone: (877) 4480492
Email: helland@nka.com
Website: www.nka.com and www.overtimecases.com
CONTENTS
RECENT DEVELOPMENTS UNDER THE WARN ACT ................................................................................................. 1
I. CLASS ACTIONS UNDER THE WARN ACT. .............................................................................................. 1
A. GRANTING CLASS CERTIFICATION. ........................................................................................................... 1
B. DENYING CLASS CERTIFICATION. ............................................................................................................. 2
C. DEFINITION OF THE CLASS. ....................................................................................................................... 3
II. WARN ACT CLAIMS IN BANKRUPTCY PROCEEDINGS. ........................................................................... 4
A. WHEN A CLAIM ARISES. ............................................................................................................................ 4
B. PROPER STANDING TO FILE INVOLUNTARY BANKRUPTCY ACTION. ..................................................... 5
III. LIABILITY OF AFFILIATED CORPORATIONS—20 C.F.R. § 639.3(A)(2). ........................................... 5
.
IV. STATUTORY TERMS AND DEFINITIONS . .................................................................................................. 9
A. SINGLE SITE OF EMPLOYMENT—29 U.S.C. § 2101(A)(2), (3)(B). ................................................... 9
B. MASS LAYOFF—29 U.S.C. § 2101(A)(3). ......................................................................................... 10
C. EMPLOYMENT LOSS—29 U.S.C. §2101(A)(6). ................................................................................ 11
V. AFFIRMATIVE DEFENSES. ....................................................................................................................... 14
VI. DISCOVERY ISSUES. ................................................................................................................................. 15
VII. MISCELLANEOUS CASES GRANTING SUMMARY JUDGMENT ................................................................. 16
VIII. STATE WARN STATUTES 2010 UPDATE ............................................................................................ 17
A. NEW YORK .............................................................................................................................................. 17
B. NEW HAMPSHIRE ................................................................................................................................... 17
C. IOWA ........................................................................................................................................................ 17
RECENT DEVELOPMENTS UNDER THE EMPLOYEE POLYGRAPH PROTECTION ACT (EPPA) ............................. 19
I. RIGHT TO CONSULTATION WITH COUNSEL BEFORE ADMINISTRATION OF EXAMINATION ............. 19
II. ONGOING INVESTIGATION EXEMPTION – 29 U.S.C. § 2006(D). ......................................................... 20
III. DEFINITION OF EMPLOYER. ................................................................................................................... 21
RECENT DEVELOPMENTS UNDER THE WARN ACT
I. CLASS ACTIONS UNDER THE WARN ACT.
A. GRANTING CLASS CERTIFICATION.
In re Taylor Bean & Whitaker Mortgage Corp., Bankruptcy No. 3:09-bk-07047 JAF,
Adversary No. 09-ap-00439 JAF, 2010 WL 4025873 (Bkrtcy. M.D. Fla. Sep. 27, 2010)
(denying defendant’s motion to dismiss adversary class action complaint and granting plaintiff’s
motion for class certification of their adversarial WARN Act claims).
Prior to filing bankruptcy, debtor operated one of the largest wholesale mortgage lending
companies in the nation, employing more than 3,000 employees in the United States. On
August 5, 2009, debtor ceased substantial operations. On August 24, 2009, debtor filed a
petition for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code.
Plaintiffs sought relief under the WARN Act alleging that debtor violated the WARN Act by
failing to provide employees with 60 days advanced written notice of their termination prior
to ceasing operations. Debtor argued that the adversary proceeding should be dismissed and
the WARN Act claims handled through the claims administration process.
In finding that a class action adversary proceeding to resolve the claims was appropriate and
preferable to the claims procedure, the court reasoned that due to the size of the class
involved “resolving the WARN Act claims collectively through a class action adversary
proceeding will be more efficient than handling them in a piece-meal fashion through the
claims process.” The court also found that an adversary proceeding was necessary “to
protect the employees’ rights, given the relatively small nature of their individual claims and
the concern as expressed by the Eleventh Circuit in In re Charter Co., 876 F.2d 866, 877
(11th Cir. 1989), that persons holding small claims may not prosecute their claims absent
class procedures.” Finally, the court noted that because the putative class members are
spread out in different states, it is likely that they would “suffer geographical hardship if
required to defend their claims individually.”
The court granted plaintiff’s motion for class certification finding that each of the four
requirements of Federal Rule of Civil Procedure 23(a) was satisfied and treatment of a class
action was appropriate under Federal Rule of Civil Procedure 23(b)(3). The court found that
the predominant issue in the case “clearly is whether [debtor]’s actions violated the WARN
Act.”
Day v. Celadon Trucking Services, Inc., No. 4:09-cv-00031 SWW, 2010 WL 3270760 (E.D.
Ark. Aug. 16, 2010) (granting plaintiffs’ second motion for class certification under the WARN
Act).
On December 4, 2008, Defendants purchased plaintiffs’ employer and plaintiffs learned that
their employment would end effective December 17, 2008. Plaintiffs allege that between
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December 5 and 17, defendant terminated plaintiffs’ employment and the employment of
other similarly-situated employees without notice and in violation of the WARN Act.
The court held that the requirements of Fed. R. Civ. P. 23(a) and (b)(3) were met. The
“numerosity” requirement was satisfied because plaintiffs demonstrated that approximately
449 individuals qualify for membership in the joined class and that joinder is impracticable.
The “commonality” requirement was satisfied because “all members of the putative class
claim that they did not receive advance, sixty days’ notice regarding termination of their
employment in violation of the WARN Act” and “[w]hether [defendant] purchased all or part
of [the] business and had a duty to provide notice under the WARN Act is a question
common to all putative class members’ claims.” The “typicality” requirement was satisfied
because “Plaintiffs’ grievances are indistinguishable from the putative class claims.” The
“adequacy of representation” requirement was met because the court found no evidence that
“the named plaintiffs have ceded control to counsel, and there is no indication of competing
interests between the named plaintiffs and the class they seek to represent.”
Next, the court found that the requirements of Fed. R. Civ. P. 23(b)(3) were met.
Specifically, the court found that “there is no indication that class members would prefer to
bring separate actions” and that “it is likely that the costs of litigation would preclude most
individual employees from bringing separate actions.” The court reasoned that
“concentrating the litigation in this Court and proceeding on a class-wide basis will conserve
judicial and private resources.” Therefore, the court granted plaintiffs’ motion for class
certification.
B. DENYING CLASS CERTIFICATION.
Austen v. Catterton Partners V, LP, 268 F.R.D. 146 (D. Conn., June 07, 2010) (denying
plaintiffs’ motion for class certification without prejudice because class certification was not
warranted where plaintiffs did not make a showing that common issues would predominate over
individualized ones as required by Federal Rule of Civil Procedure 23(b)(3)).
Plaintiffs, former employees of a bankrupt cookie manufacturer, filed a class action against
the manufacturer’s parent company alleging liability under the WARN Act for the
manufacturer’s failure to provide employees with 60-day advanced notice of job termination.
Plaintiffs filed a motion for class certification for a class defined as:
“Persons who worked at or reported to one of the Archway Facilities and were
terminated without cause on or about October 3, 2008, within 30 days of
October 3, 2008, or in anticipation of, or as the foreseeable consequence of,
the mass layoff or plant closings on or about October 3, 2008, who were not
given sixty days advance written notice of their terminations, who are affected
employees, within the meaning of 29 U.S.C. § 2101(a)(5), and who have not
filed a timely request to opt-out of the class…”
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Defendants argued that certification was inappropriate as to some employees referred to as
“remote employees” who were employed in defendants’ facilities that employed fewer than
50 people because the WARN Act would not apply to them and any attempt to apply the
WARN Act to those individuals would require individualized inquiries, making class
certification inappropriate. The court declined to make a determination on the merits, but
concluded “it is not clear at this stage whether individualized inquiries for each remote
employee will be necessary to determine Defendants’ liability under the WARN Act.” The
court said that before certifying a class, it “must be convinced by a preponderance of the
evidence, that common issues will predominate over individualized ones” and as related to
this class the court did not feel that plaintiffs “made such a showing.” The court denied the
motion to certify “for now” but acknowledged that it may certify the proposed class in the
future “after Plaintiffs have had a chance to conduct discovery to determine whether
individualized inquires will be necessary for the remote employees, or whether their WARN
Act claims can be resolved with more generalized proof.”
Eash v. Export Packaging Co., Inc., No. 09-cv-1217, 2010 WL 3724770 (C.D. Ill. Sep. 15,
2010) (denying plaintiff’s motion for class certification without prejudice because plaintiff’s
motion failed the numerosity requirement of Federal Rule of Civil Procedure 23(a)).
In their motion for class certification, none of the plaintiffs explained how they knew that at
least 225 employees were terminated by Defendant during the relevant time period and
Defendant did not admit that fact. The court denied plaintiff’s motion for class certification
because the motion failed the numerosity requirement of Fed. R. Civ. P. 23(a). The court
noted that it “finds it hard to believe, based on the declarations, that any of these employees
would be intimately familiar with the work status of over 200 of Defendant’s employees” in
part because “[n]one of these Plaintiffs appear to have worked in the human resources
department of Defendant such that they may even have access to such records.” In light of
plaintiff’s failure to meet the numerosity requirement, the court found it unnecessary to reach
the other requirements of Rule 23 and denied plaintiff’s motion for class certification.
C. DEFINITION OF THE CLASS.
In re ABMD Ltd., 439 B.R. 475 (Bkrtcy. S.D. Ohio Nov. 17, 2010) (granting plaintiffs’ motion
for class certification in adversary proceeding but modifying the class definition to better reflect
the employees actually harmed and modifying notice to include addresses of affected facilities).
Plaintiffs filed a class action adversary complaint on behalf of themselves and other similarly
situated former employees of debtor ABMD Limited alleging that they and the similarly
situated former employees constituting 100 persons, were terminated without cause and
without 60 days advance written notice from one of ABMD’s facilities as part of, or the
result of, mass layoffs or plant closings ordered by ABMD on or about December 30, 2008.
Defendants argued that plaintiffs’ motion for class certification should be denied because
plaintiffs failed to meet the numerosity requirement in Fed. R. Civ. P. 23(a)(1). Plaintiffs’
proposed definition of their class was:
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Persons who worked at or reported to one of Defendant’s Facilities and were
terminated without cause on or about December 30, 2008, within 30 days of
December 30, 2008, or in anticipation of, or as the foreseeable consequence
of, the mass layoffs or plant closings ordered by Defendant on or about
December 30, 2008, and who are affected employees, within the meaning of
29 U.S.C. § 2101(a)(5), and who have not filed a timely request to opt-out of
the class (the “Class”).
The court found that the time frame in the class definition was adequately limited, but that
the proposed definition did not adequately limit the class to those employees who were
actually harmed. “More specifically, the proposed class is not limited to employees who
failed to receive the appropriate advanced notice prior to their termination, the triggering
event for potential employer liability under the WARN Act.” The court ordered the
definition amended to limit the class of employees, “terminated without cause and without
receiving the advanced notice required by the WARN Act…” The court also found that
reference to “Defendant’s Facilities” in the proposed class definition “would be best clarified
through an addendum to the ‘Notice of Class Action’ specifying the addresses for all of the
facilities that the Plaintiffs intend to include in the class.” The Court ordered the plaintiffs to
attach an Addendum to the Notice of Class Action specifying such. Finally, the court found
the class met the four requirements of Fed. R Civ. P. 23(a) and met the requirement of
23(b)(3).
II. WARN ACT CLAIMS IN BANKRUPTCY PROCEEDINGS.
A. WHEN A CLAIM ARISES.
In re Circuit City Stores, Inc., Bankruptcy No. 08-35653 KRH, Adversary No. 09-03073
KRH, 2010 WL 120014 (Bkrtcy. E.D. Va. Jan. 11, 2010) (granting defendant’s motion to
dismiss plaintiff’s adversary proceeding but allowing plaintiff to pursue a pre-petition claim
because claim arose as of the date defendant failed to give notice).
The court was asked to determine when a claim arises for an alleged violation of the WARN
Act in connection with a Bankruptcy case. The plaintiff argued that a claim arises under the
WARN Act on the date that the employment of an aggrieved employee is terminated and
defendant argued that such a claim arises on the date that an employer fails to give the
requisite statutory notice of an aggrieved employee’s pending termination. The resolution of
the question determined whether the resulting claim, as that term is defined in the
Bankruptcy Code, arises pre-petition or post-petition. The court held that the claim arising
from defendant’s violation of the WARN Act arose pre-petition when defendant failed to
give the notice required under the WARN Act and therefore that plaintiff’s claim should
properly be administered through the bankruptcy claims resolution procedure rather than as
an adversary proceeding.
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B. PROPER STANDING TO FILE INVOLUNTARY BANKRUPTCY ACTION.
In re Tama Mfg. Co., Inc., 436 B.R. 763 (Bkrtcy. E.D. Pa. June 22, 2010) (granting debtor’s
motion to dismiss involuntary Chapter 7 case, holding that the issue of the WARN Act notice is
the subject of a bona fide dispute by the putative debtor and that the petitioning creditors did not
have standing to file an involuntary bankruptcy action).
On March 11, 2009, creditors filed a class action complaint against their employer alleging
violations of the WARN Act. The alleged violation arose when the employer closed the
company and terminated its employment without proper notice. The action was stayed on
May 29, 2009, because on May 29, 2009, the same creditors initiated an involuntary
bankruptcy action against the debtor. Debtor answered the involuntary petition arguing that
petitioning creditors lacked standing to file because their claims were both contingent as to
liability and the subject of a bona fide dispute. Debtor argued that the unforeseen business
circumstances exception applied to the WARN Act claim.
The court analyzed the claims of both parties without concluding if the exception applied,
instead finding that the putative debtor “has established facts sufficient to show a meritorious
contention that the unforeseeable business circumstances exception to the WARN Act’s
requirement that an employer provide affected employees with sixty days notice of a plant
closing applies to this case.” The court held that petitioning creditors’ claims are the subjects
of bona fide disputes and therefore petitioners lacked standing to file an involuntary petition.
III. LIABILITY OF AFFILIATED CORPORATIONS—20 C.F.R. § 639.3(a)(2).
Austen v. Catterton Partners V, LP, 709 F.Supp.2d 168 (D. Conn. Feb. 17, 2010) (denying
defendants’ motion to dismiss because plaintiff’s complaint sufficiently alleged “common
directors and/or officers,” “unity,” “dependency of operations,” and “defacto control” under the
Department of Labor’s five-factor test, necessary to show “single entity” under the WARN Act
and the CAL-WARN Act).
In October 2008, defendant Archway Entities (comprised of defendant Archway & Mother’s
Cookies, Inc., non-party Archway Cookies LLC, and non-party Mother’s Cake & Cookie
Co.) filed for bankruptcy and as a result Archway Entities’ facilities were closed and its
employees terminated. Plaintiffs claimed that defendant failed to provide 60-days advance
notice of their termination in violation of the WARN Act and filed suit against Archway
Entities, three Catterton companies collectively referred to as “Catterton” (which owned
stock in Archway Entities), and Insight Holdings LLC referred to as “Insight” (which was the
management firm through which Catterton operated the Archway Entities). Defendants
Catterton and Insight argued that plaintiffs failed to plead sufficient facts from which the
Court could conclude that Catterton and Insight were plaintiffs’ employers subject to liability
under the WARN Act or the CAL-WARN Act. Plaintiffs claimed that Catterton operated
and managed the Archway Entities directly as well as through Insight, and that Catterton and
Insight made the decision to have Archway Entities file for bankruptcy, close their plants,
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and fire their employees. Plaintiffs therefore alleged that defendants and Archway Entities
were a “single employer” for purposes of WARN Act liability.
The court used the Department of Labor test (“DOL test”) (as agreed by the parties) to
determine whether to impose WARN Act liability on a parent corporation. Importantly, the
court discussed the trend towards using the DOL test in the various circuits but felt
“fortunate[]” to not have to “wade into the debate.” The court listed the five factors to
consider: (1) common ownership; (2) common directors and/or officers; (3) de facto exercise
of control; (4) unity of personnel policies emanating from a common source, and (5) the
dependency of operations. See 20 C.F.R. § 639.3(a)(2). The test “requires a fact-specific
inquiry” and “no one factor is controlling and all factors need not be present for liability to
attach.” The purpose of the test is to determine whether defendants “had ‘de facto control of
the decision to effect a mass layoff of employees.’”
Using these factors, the court determined that plaintiffs pled sufficient facts regarding the
“common directors and/or officers,” “dependency of operations,” and “de facto control”
prongs of the DOL test as to Catterton and Insight, as well as the “common ownership”
prong as to Catterton to state a plausible claim for employer liability under the WARN Act.
The court held that “[m]ost importantly, Plaintiffs have alleged that Catterton and Insight
were responsible for making and implementing the decisions that give rise to this litigation.”
In re Consolidated Bedding, Inc., 432 B.R. 115 (Bkrtcy. D. Del. May 11, 2010) (granting
equity firm’s motion to dismiss with prejudice because former employees failed to state claim
against firm for lender liability under WARN Act).
Plaintiffs brought a class action pursuant to the WARN Act and its California counterpart,
California Labor Code §§ 1400-1408 against defendants Consolidated Bedding, Inc.,
American Bedding Industries, Inc., Spring Air partners- California, and Spring Air Partners-
Texas, and American Capital Strategies, Ltd. Plaintiffs were terminated without sixty days
advance notice when the board of directors for the debtors (populated with American Capital
employees) voted to close the debtors’ facilities. Defendant argued that as a private equity
fund with investments in the debtors, it did not employ plaintiffs and cannot be considered a
“single employer” with the debtors for purposes of WARN Act liability.
To determine parent and lender WARN Act liability, the court applied the five-factor DOL
test. The court explained that the factors are not exhaustive and the court must “take a more
fundamental approach to determining whether or not to pierce the veil under WARN by
focusing on the nature and degree of control possessed by one corporation over another.”
Citing Pearson v. Component Tech. Corp., 247 F.3d 471(3d Cir. 2001). The court said that
in order for plaintiffs to have a plausible claim for relief, two corporations must be “‘highly
integrated with respect to ownership and operations’ before being imposing single employer
WARN Act liability.” The Court found that the plaintiffs sufficiently alleged common
ownership, but did not sufficiently allege facts supporting any of the other factors in the DOL
test.
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Guippone v. BH S & B Holdings LLC, No. 09-civ-1029 CM, 2010 WL 2077189 (S.D.N.Y.
May 18, 2010) (granting a motion to dismiss on the part of some defendants and denying a
motion to dismiss on the part of other defendants, applying the DOL five-factor test).
The court was asked whether the group of defendants, each a separate corporate entity,
operated collectively in such a way that they may all be held liable under the WARN Act
even though only one, Steve and Barry’s, directly employed the plaintiff. The court cited
DOL’s regulation that “independent contractors and subsidiaries which are wholly or
partially owned by a parent company are treated as separate employers or as part of the part
or contracting company depending on the degree of their independence from the parent.” 20
C.F.R. § 639.3(a)(2) The court then analyzed the DOL five-factor test as applied to the facts
to determine liability. The court found that plaintiff’s allegation that HoldCo directed Steve
and Barry’s to enter bankruptcy and shut its facilities was sufficient to warrant denial of
HoldCo’s motion to dismiss. However, the allegation that “HoldCo’s board was comprised of
representatives from various other defendants is not enough, in and of itself, to subject those
defendants to liability under the WARN Act.” The court dismissed the defendants other than
Steve and Barry’s and HoldCo from the case.
Richards v. Advanced Accessory Systems, LLC, No. 09-11418, 2010 WL 3906958 (E.D.
Mich. Sep. 30, 2010) (granting investment company’s motion to dismiss because the first two
factors alone – common ownership and common directors/officer – are insufficient to establish
liability under the DOL test).
The court was asked to determine whether defendant Castle Harlan, whose primary role was
as investor in AAS, a now bankrupt company, was subject to WARN Act liability. The court
used the five-factor DOL test and concluded that only factors one and two favored plaintiffs
and “such factors are alone insufficient to establish that Castle Harlan and AAS constituted a
single business enterprise.” The court relied heavily on the fact that Castle Harlan’s
“management of AAS was limited to ensuring its financial success and played no part in the
day-today operations of AAS” and that “the decision to close the plants was made by AAS’s
CEO, who did so without advice or encouragement from Castle Harlan.” The court found
that plaintiffs failed to demonstrate that Castle Harlan is subject to WARN Act liability for
AAS’s alleged failure to notify its employees of the plant closings.
Bennett v. Roark Capital Group, Inc., Civil No. 09-421-P-S 2010, 2010 WL 3699980 (D. Me.
Sep. 16, 2010) (granting in part and denying in part defendants’ motion to dismiss under both the
DOL five-factor test and the Integrated Enterprise test because plaintiffs plausibly alleged that
defendants exercised control over labor relations and that they operated as an integrated
enterprise).
Individual plaintiffs, former employees of Wood Structures, Inc (WSI) and plaintiff United
Brotherhood of Carpenters and Joiners of America, Local 1996, the collective bargaining
representative of non-exempt hourly employees of WSI, together, brought an action against
four corporate defendants and one individual defendant they allege participated in the
ownership and operation of WSI under the WARN Act. Defendants brought a motion to
dismiss.
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In denying the motion to dismiss on all but one count, the court analyzed the claim under
both the Department of Labor (DOL) five-factor test and the Integrated Enterprise test as set
out in Romano v. U-Haul Int’l, 233 F.3d 655 (1st Cir. 2000). The Integrated Enterprise test
allows the court to consider a nonexhaustive list of factors, including “(i) common
ownership, (ii) common directors and/or officers, (iii) de facto exercise of control, (iv) unity
of personnel policies emanating from a common source, and (v) the dependency of
operations.” See Childress v. Darby Lumber, Inc., 357 F.3d 1000, 1006 (9th Cir. 2004)
(quoting Int’l Bd. of Teamsters v. American Delivery Serv. Co., 50 F.3d 770, 775 (9th Cir.
1995)). The court determined the most important question under the Integrated Enterprise
test was “[d]id WSI have an insufficient degree of independence from one or more of the
Defendants?” The court found under either test that the plaintiffs “have a plausible claim
that one or more Defendants exercised control over WSI’s labor relations and ran WSI as an
integrated enterprise” and that “it is likewise plausible on its face that WSI did not have a
sufficient degree of independence from one or more Defendants.”
Blair v. Infineon Technologies AG, 720 F.Supp.2d 462 (D. Del. June 29, 2010) (denying
defendants’ motion to dismiss because plaintiffs sufficiently alleged “single employer” liability
using the DOL five-factor test under the WARN Act).
Plaintiffs, former employees of Qimonda North America Corporation and Qimonda
Richmond LLC (collectively, “the Qimonad Subsidiaries”), wholly-subsidiaries of Qimonda
AG, allege that defendants (Infineon Technologies AG, Infineon Technologies North
America Corporation, and Qimonda AG), during mass layoffs, violated the WARN Act and
the California WARN Act by terminating plaintiffs without proper legal notice. Plaintiffs
sought a declaration that defendants are alter egos and, thus, as a single economic entity,
subject to liabilities for employment-related claims brought by former employees of the
Qimonda Subsidiaries. Both Infineon defendants were substantial shareholders in Qimonda
AG, helped recruit employees for Qimonda AG positions without identifying Qimonda AG
as the employer and even counted Qimonda AG’s employees in its own employee totals and
reported Qimonda AG’s earnings on its own financial statements until April 2008. Plaintiffs
allege that, up to the time of the plant closings, the Infineon defendants continued to run and
control Qimonda AG as “[their] own internal division” and reaped the benefits from this
arrangement, to the detriment of Qimonda AG. As a result, they argue, the corporate veil
should be pierced and defendants should be treated as an alter ego or “single employer,”
liable for plaintiff’s back pay and benefits.
The court relied on the five-factor DOL test in its determination that plaintiffs sufficiently
alleged “single employer” liability under the WARN Act. Both parties agreed this was the
proper test. The court found all five factors present and denied defendants’ motion to
dismiss.
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IV. STATUTORY TERMS AND DEFINITIONS .
A. SINGLE SITE OF EMPLOYMENT—29 U.S.C. § 2101(a)(2), (3)(B).
In re Storehouse, Inc., No. 06-11144 SSM, 2010 WL 4453849 (E.D. Va. Nov. 03, 2010)
(finding that plaintiff who worked in a store with twelve employees, but who reported and
traveled to corporate headquarters, was not a mobile employee and did not work at a single site
of employment with 50 or more employees).
Debtor, a retailer of home furnishings filed a voluntary petition on September 18, 2006
for reorganization under chapter 11 of the Bankruptcy Code, and shortly thereafter
conducted going-out-of business sales and ceased operations. Plaintiff was a logistics
manager for debtor beginning in 2005. Plaintiff reported to the Vice-President of
Logistics whose office was at debtor’s corporate headquarters in Atlanta, Georgia.
Plaintiff worked out of an office space in the back of one of debtor’s retail locations in
Richmond, Virginia. The store employed under a dozen full-time people. The plaintiff
spent much of his time traveling to locations he oversaw and traveled every few months
to corporate headquarters in Atlanta where he would work out of a conference room.
Plaintiff sought damages under the WARN act after his termination in October 2007
arguing he was a corporate employee and that his place of employment should be
considered corporate headquarters in Atlanta. Debtor objected to the claim arguing that
plaintiff was not an employee at a location that employed more than 50 full-time
employees.
The court first determined that plaintiff was not a mobile worker covered under the
WARN Act because plaintiff had a regular fixed place of work. See Meson v. GATX
Technology Services Corp., 507 F.3d 803 (4th Cir. 2007). The court then considered the
term “single site of employment” under 29 U.S.C. § 2102(a)(3) to determine where
plaintiff’s work site was. The court reasoned that “[w]hen [plaintiff] was not traveling
for work, [plaintiff] consistently reported to his small office in the back of the retail store
in Richmond.” The court found that the Richmond office was plaintiff’s single site of
employment because “it was where he went to work when not on the road.” The court
further explained the term single site of employment by saying that even if the plaintiff
had worked from home instead of using the small office, “he would still have had a single
site of employment” because his residence “would have been his fixed workspace when
he was not traveling for work.” The court explained that “the alternative to finding that
telecommuter’s single site of employment is his or her home would be to find that the
single site of employment is determined by where he or she receives work from and
reports to… and “such an interpretation would not make sense within the broader outlines
of the WARN Act.”
Davis v. Signal Intern., LLC, Civil Action No. 2-10-cv-62 TJW, 2010 WL 2787554 (E.D.
Tex. July 14, 2010) (denying defendant’s motion for summary judgment).
The court found that a genuine issue of material fact existed and denied defendant’s motion
for summary judgment because there was a dispute as to whether a fabrication yard and an
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administration building of defendant’s which are separated by one mile are both part of a
single site of employment. Plaintiff sufficiently alleged that the two sites of employment
shared staff and management.
B. MASS LAYOFF—29 U.S.C. § 2101(a)(3).
Beach v. JD Lumber, Inc., No. CV08-416-N-EJL, 2010 WL 678955 (D. Idaho Feb. 23, 2010)
(denying defendant’s motion for summary judgment finding that the WARN Act did apply to
early termination of 40 employees who had previously received WARN Act notice).
The court was asked to determine whether plaintiffs who received 60 days notice of mass
layoff, could be terminated without WARN Act protections before the Notice Period had
run. Defendant gave 60 days notice of mass layoffs to plaintiffs on August 1, 2008 that
they would be laid off as of October 3, 2008 resulting from the anticipated asset purchase
sale which would result in the closing of the mill and termination of employment for all
220 employees. On August 22, 2008, defendant terminated 40 employees that worked
the night shift. Defendant alleged that, despite its best efforts to acquire logs, there was
an unforeseen log shortage in August 2008 that forced defendant to terminate its second
shift. Defendant stopped running its business completely on September 25, 2008.
Defendant argued that the WARN Act provision for mass layoff did not apply as the
number of persons terminated on August 22, 2008 was less than 50, and therefore the
terminations could not be considered a “mass layoff” under the statutory definition. The
court found that “reading the statute in this manner eviscerates the purpose of the statute
which is to give employees at least 60 days notice of a plant closing or mass layoff.” The
court further reasoned that “if an employer gives over 50 employees notice of a mass
layoff and then terminates any of those ‘affected employees’ the employer is liable for
back pay for each day of violation (up to a maximum of 60 days calculated from the date
of termination to the date the statutory 60 day notice period would have expired) unless
an unforeseen business circumstance justifies the employer terminating any of those
noticed employees prior to the 60 day notice period.”
Sanders v. Kohler Co., No. 4:08-cv-00222 SWW, 2010 WL 1735031 (E.D. Ark. Mar. 18,
2010) (granting defendant’s motion for partial summary judgment because former employee
plaintiffs were “replacement workers” whose employment ended when a strike of the regular
unionized employees ended and therefore defendant did not experience a reduction in force
sufficient to meet the “mass layoff” standard required by the WARN Act).
In 2006, over ninety-five percent of defendant’s employees were members of the UAW
Local 1000 union. On December 9, 2006, the union voted to go on strike. On February
12, 2007, defendant began hiring replacement workers to fill the positions vacated by the
247 striking union members. On or about March 6, 2008, defendant and the union settled
all disputes with an agreement to, among other things, return 103 of the striking workers
to work. On March 20, 2008, defendant terminated all 123 replacement workers it had
hired, including the 111 plaintiffs. Their positions were filled by 103 workers who had
previously been on strike. Plaintiffs alleged that defendant violated the WARN Act by
10
failing to give them notice of their termination. Defendant moved for summary judgment
arguing that plaintiffs were not entitled to notice because they were not discharged in
conjunction with a “mass layoff” as defined in the Act.
The court relied on the definition of mass layoff in 29 U.S.C. § 2101(a)(3) finding that
“[w]hen the employment losses do not result from a reduction in force, they do not count
toward the requisite number of affected employees” to trigger the WARN Act. The court
said that the 123 employment losses of the replacement workers did not result from a
reduction in force “as those employees were replaced” and the termination of 20
replacement workers whose jobs were not replaced “does not trigger the notice
requirements of the WARN Act.”
Platt v. Freedom Mortg. Corp., Civil No. 10-968 RBK/KMW, 2010 WL 4810652 (D. N.J.
Nov. 16, 2010) (denying defendant’s motion to dismiss for failure to state a claim because under
the WARN Act and the NJWARN Act, plaintiffs alleged that defendant terminated enough
employees to constitute a mass layoff).
Defendant moved for dismissal for failure to state a claim and submitted charts alleging
defendant fired only 44 of its employees. Plaintiffs pled that defendant had 100 or more
full-time employees, had been operating for more than three years, that on January 8,
2010, January 11, 2010, and January 15, 2010, defendant ordered a mass layoff at its
facility resulting in employment losses for at least fifty of defendant’s employees as well
as thirty-three percent of defendant’s workforce at the facility, excluding part-time
employees, and that each of them was a full-time employee of defendant who was laid off
in January 2010 as part of the mass layoff without the required sixty-day written notice as
required in the WARN Act and New Jersey’s counterpart (NJWARN Act). The court
held that plaintiffs alleged facts sufficient to show that defendant is an employer subject
to the WARN Act’s 60-day notice provision and that defendant’s layoffs constituted a
mass layoff within the meaning of the statute.
C. EMPLOYMENT LOSS—29 U.S.C. §2101(a)(6).
Guippone v. BH S & B Holdings LLC, 681 F.Supp.2d 442 (S.D.N.Y. Jan. 05, 2010) (holding
that employees continued to be employed by purchasing company after purchase, and
accordingly were not part time or short tenure employees when purchasing company closed the
business three months later).
In August 2008 defendant BH S & B Holdings LLC purchased the assets of Steve &
Barry’s Manhattan LLC. The Asset Purchase Agreement entered into by the parties
provided that defendant desired to purchase substantially all the assets with the “present
intention of operating the Business as a going concern” and referred to the individuals
who worked for Steve & Barry’s prior to the sale as “Transferred Employees” for
employee benefits purposes. The Agreement specifically provided that BH S & B could
hire any, all or none of the employees of Steve & Barry’s and required the Seller to
provide information about its existing employees so Purchaser in its sole discretion would
then “deliver, in writing, an offer of employment to those Employees as determined by
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Purchaser.” The new employment of each employee who accepted Purchaser’s offer
would then commence “with effect from the Closing Date . . . .” Three months after the
sale, on November 17, 2008, defendants fired all carryover employees without giving
them notice under the WARN Act. Plaintiffs brought a class action suing BH S & B
Holdings LLC and three of its affiliates.
All defendants filed motions to dismiss the complaint arguing that plaintiffs were not
employed by any of the defendants for six months prior to being dismissed rendering
them “part time” workers who are not counted toward the number of workers required to
meet the WARN Act’s threshold for giving notice. Defendants argued that employment
with BH S & B Holdings LLC began after the purchase and at the time notice was due
under the WARN Act, plaintiffs had only been employed by defendants for one month.
Plaintiff argued that the change in ownership of the company he worked for (Steven &
Barry’s) was irrelevant because he worked for the company for more than six months; the
relevant measuring time period under the WARN Act beginning the day he commenced
his employment.
The court granted defendants’ motion to dismiss because the complaint was “a model of
deficient pleading.” However, the court expressly explained that the motion was not
granted based on defendants’ theory that plaintiffs were part time employees. The court
found that plaintiff was not a part time employee and did count towards the mass layoff
threshold, reasoning that “[p]laintiff was ‘employed’ at Steve & Barry’s during the entire
twelve month period preceding the closure of the business, working in the same place,
doing the same job. Different people owned the business during that period, but the
definition of ‘part time employee’ does not literally exempt multiple owners; rather, it
focuses on the length of time that the employee worked.” The court asserted that plaintiff
did not experience any gap in employment or employment loss due to the sale of the
business which would have rendered him a part-time employee of BH S & B Holdings
LLC because “BH S & B bought the assets of Steve & Barry’s with the stated intent of
running the business as a going concern and it carried out that intention. It kept plaintiff
and his co-workers on for several months- hiring them, supervising them and paying
them…” In addition, the court found that BH S & B Holdings LLC succeeded to the
obligations imposed by the WARN Act including the notice requirement, the moment the
sale closed by way of assignment. “Just as there is no gap in employment for WARN Act
purposes when a business operates as a going concern after a sale, so too there is also no
gap in WARN Act coverage for employees who continue to work for that business after
the sale.”
The court also held that “a purchaser of a going concern cannot contract away its liability
under a statute passed by Congress.” Defendant had suggested that it had contracted its
way out of WARN Act liability by including in the Purchase Agreement a clean rehire of
plaintiff and his coworkers without any successor liability under the statute.
Service Employees Intern. Union v. Prime Healthcare Services, Inc., No. CIV. S-08-2980
LKK/CMK, 2010 WL 2843942 (E.D. Cal. July 19, 2010) (granting defendants’ motion for
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summary judgment on plaintiffs WARN Act claim where plaintiffs could not show an
employment loss had occurred of either 500 employees or 33 percent of employees).
Plaintiff, the Service Employees International Union, United Healthcare Workers-West
brought an action against numerous defendants for failing to notify hospital employees
about the change in management of Shasta Regional Medical Center (“Hospital”). Prior
to November 1, 2008, the hospital was managed by Shasta Regional Medical Center,
LLC (“SRMC LLC”) which leased the hospital from MPT pursuant to a management
contract. SRMC LLC suffered financial difficulties, could not pay its rent to MPT, and
lost its lending money. Due to its concern over SRMC LLC’s viability, MPT executed a
lease with Prime to take over running the hospital as of November 1, 2008 and terminated
its management agreement with SRMC LLC effective October 23, 2008 because SRMC
LLC was in default. On October 31, 2008, all 768 employees were terminated by SRMC
LLC and 605 were given offers from Prime that did not include union membership
effective November 1, 2008.
Defendants argued that they were not required to comply with the WARN Act because no
actionable employment loss occurred; that an insufficient number of employees were
terminated to create liability under the Act. The court, following the WARN Act,
determined that in order to survive the motion for summary judgment, plaintiff must have
demonstrated either that “33 percent of the full-time employees of the hospital suffered
an employment loss” and “the total number of employees who suffered such a loss was at
least 50 or that 500 full-time employees suffered an employment loss.” Plaintiffs showed
that only approximately 159 employees suffered an employment loss constituting 21% of
the workforce where 605 received offers of employment from Prime. Because plaintiffs
could not show that 33% of the hospital’s workforce was terminated or that employees
suffered an employment loss, the court granted defendants’ motion for summary
judgment.
Plaintiffs also argued that all hospital employees, including those who were offered
positions with Prime, suffered an employment loss because the employment offers from
Prime included wage reductions for some employees, health and fringe benefit
reductions, loss of seniority, loss of Union representation, and loss of vacation. The court
found that an employment loss as defined under the WARN Act did not occur. See 29
U.S.C. § 2101(a)(6).
Foster v. K-V Pharmaceutical Co., No. 4:09-cv-408 DDN, 2010 WL 979445 (E.D. Mo. Mar.
12, 2010) (holding that plaintiff who resigned during temporary layoff did not suffer an
employment loss and could not prosecute a class action on behalf of other similarly situated
employees).
Plaintiff brought this action alleging defendant terminated his employment in violation of
the WARN Act. Defendant temporarily laid off a number of its employees, later
recalling some of them and providing WARN Act compensation to the rest. The court
received evidence that after being temporarily laid off but before defendant began
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recalling employees or notifying employees of permanent termination, plaintiff sent in a
resignation letter.
The court found that an employee who was temporarily laid off and resigned from
employment during the period he was laid off did not suffer employment loss triggering
the WARN Act because “[a]n employee’s subjective belief about the likelihood of his or
her future employment is not to be used in determining whether that employee suffered
an employment loss.” The court further stated that “any suggestion that a layoff
continues beyond an employee’s voluntary departure date would produce illogical results
… it would force employers to hypothesize about every departed employee’s future recall
status, and would allow departed employees to collect WARN Act payments despite
being employed or retired.” The court held that plaintiff did not suffer an employment
loss and therefore could not prosecute a class action on behalf of other similarly situated
employees.
V. AFFIRMATIVE DEFENSES.
In re FF Acquisition Corp., 438 B.R. 886 (Bkrtcy. N.D. Miss. Oct. 26, 2010) (granting
summary judgment, holding that “unforeseen business circumstances” exception to WARN Act
liability applies to exempt debtor from liability for failing to give notice prior to date that it filed
for Chapter 11 relief and also holding that the “faltering company” exception to WARN Act
liability applied).
On September 9, 2005, debtor was compelled to file for bankruptcy protection after its
customers placed their orders for debtor’s products on hold, its financing company
reduced its advance rate on debtor’s receivables from eighty percent to fifty percent, and
then to zero, and then the financing company refused to infuse any additional capital into
the business. Debtor had no clue that the financing company was contemplating reducing
its advance rate to 50% and then to zero and also had no clue that the financing company
would decline to provide additional capital. Plaintiffs alleged that debtor failed to
comply with WARN Act requirements by failing to give its employees a sixty day layoff
notice. Debtor did not dispute the provisions of the WARN Act were triggered but
asserted the defenses of unforeseen business circumstances, the faltering company
exception, and that it gave as much notice as possible under the circumstances.
The court determined that for the unforeseen business circumstances exception to the
requirement of a 60 day written layoff notice to apply, the employer must show, (1) the
circumstances were unforeseeable, and (2) the layoffs were caused by those
circumstances. Citing Roquet v. Arthur Anderson, LLP, 398 F.3d 585, 588 (7th Cir.
2005); Halkias v. General Dynamics Corporation, 137 F.3d 333 (5th Cir. 1998). To
assess whether the faltering company exception applied, the court relied on the
Department of Labor regulation that interprets the exception by listing four requirements
that must be established by the employer to establish the exception, to-wit: (1) the
employer must have been actively seeking capital at the time the 60 day notice would
have been required; (2) the employer had a realistic opportunity to obtain the financing
sought; (3) the financing would have been sufficient, if obtained, to enable the employer
14
to avoid or postpone the shutdown; and (4) the employer reasonably and in good faith
believed the 60 day notice would have precluded it from obtaining financing. 20 C.F.R.
§ 639.9(a). The court held that both the unforeseen business circumstances exception and
the faltering company exception applied to the debtor’s actions and accordingly ruled in
favor of the debtor.
Beach v. JD Lumber, Inc., No. CV-08-416 N JLQ, 2010 WL 3363921 (D. Idaho Aug. 24,
2010) (entering judgment in favor of plaintiffs and awarding plaintiffs attorney fees pursuant to
29 U.S.C. § 2104(a)(6)).
In the spring of 2008, defendant, an Idaho corporation which for 26 plus years
continuously operated lumber mills, negotiated with a company to the end that one of its
Idaho mills and the mill’s assets would be sold to the company and the mill closed. On
August 3, 2008, defendant gave all of its employees the 60 day Notice required by the
WARN Act, informing them of the permanent mass layoff and termination of all
employees effective October 3, 2008. Defendant continued to operate the mill until
August 22, 2008, when it immediately terminated the employment of 40 plaintiff
employees working the night shift. Defendant stated it did so due to an insufficient
supply of logs and the “poor market conditions.” At no prior time in the history of the
operation of the mill had employees been laid off due to an insufficient supply of logs,
there was no evidence that defendant made a concerted effort to obtain logs prior to the
termination of the plaintiffs, and following the termination of the employees, defendant
ran newspaper ads stating that they were “still buying logs” but had not done so prior to
the terminations.
After trial, the court found that the running of ads after the termination of the plaintiffs’
employment was “a post facto effort by the Defendant to support its position that the
termination of the Plaintiffs was due to a shortage of logs, rather than, in fact, the
impending termination of all log milling operations which had been previously scheduled
for September 25, 2008 as part of the closing of the mill.” The court also found that
defendant “did not produce reliable and sufficient evidence to satisfy the court that the
layoff of the Plaintiffs on August 22, 2008, was the result of unforeseen business
circumstances.” Pursuant to the stipulation of the parties, the court found that plaintiffs
were entitled to a judgment against defendant and awarded plaintiffs $86,220 plus their
“reasonable attorney fees” to be determined at a later date.
VI. DISCOVERY ISSUES.
Davis v. Signal Intern., LLC, Civil Action No. 2-10-cv-62 TJW, 2010 WL 2853880 (E.D.
Tex. July 16, 2010) (denying plaintiff’s motion to compel but ordering disclosure of other
materials related to tangible things that show specific facts about the operation of the defendant’s
facilities).
Plaintiff brought motion to compel discovery related to plaintiff’s specific site of
employment, an administration building, in addition to discovery related to the
fabrication yard site one mile away alleging the two constituted a single site of
15
employment. Specifically, plaintiff sought production of documents and information
relating to the employment and termination of employees at the fabrication facility.
Defendant disputed that the two are a single site of employment.
The court ordered that defendant produce certain materials saying, “this information may
become relevant if Plaintiff can show that the fabrication yard and administration
building constitute a single site of employment,” and “information about the nature of the
two facilities is relevant and must be produced.” The court ordered that defendant
produce “tangible things that would tend to show specific facts about the operation of the
two facilities, including but not limited to whether the two facilities share managerial and
support staff such as janitors, security guards, health and safety personnel, payroll staff,
and maintenance staff; whether the two facilities share capital equipment; the extent to
which the two facilities operate in tandem or separately to fulfill contracts; and the degree
of control that the administration building exerts over the fabrication yard.” The court
further ordered that only upon a showing that the two facilities are to be treated as a
single site of employment would the plaintiff be entitled to the records requested in the
motion to compel and denied the motion to compel without prejudice to refilling.
VII. MISCELLANEOUS CASES GRANTING SUMMARY JUDGMENT
Michel v. DHL Worldwide Exp., Inc., Civil Action No. 3:08-cv-1909 JCH, 2010 WL
3033794 (D. Conn. Aug. 3, 2010) (granting defendant’s motion for summary judgment because
defendant’s evidence, which was not contradicted by plaintiffs, indicated that fewer than five full
time employees suffered an employment loss under the WARN Act).
Plaintiff brought an action against his former employer, DHL Worldwide Express, Inc.
(“DHL”), as well as his former union, Local 295, International Brotherhood of Teamsters
(“the Union”) for damages he suffered when DHL terminated his employment in
September 2008. As against DHL, plaintiff argued that DHL violated the WARN Act.
On September 9, 2008, DHL notified the Union that it planned to downsize its operations
at plaintiff’s facility. Soon thereafter, plaintiff was given the choice of either accepting a
part-time position at another facility for 25 hours per week or bidding on a full-time
position at another facility. Plaintiff bid on the full-time position and the bid was
accepted. On September 22, 2008, plaintiff worked out of the new facility. On plaintiff’s
third day of employment he failed to deliver 27 out of 35 packages and failed to retrieve
2 packages he was supposed to pick up. Plaintiff failed to inform DHL of his location
until later in the afternoon despite knowing that he had a responsibility to do so earlier.
The following day, on September 25, 2008, DHL terminated plaintiff’s employment and
the Union agreed that the termination should be upheld.
The court found that it was unclear whether plaintiff alleged a plant closing or mass
layoff and importantly that “there is simply nothing in the record indicating that 50 or
more DHL employees, at either [ ] facility, suffered an employment loss during any 30-
day period.” Most importantly, the court found that “the evidence DHL cites- which is
nowhere contradicted by the evidence [plaintiff] cites- clearly and unambiguously
indicates that, between June 21, 2008, and December 24, 2008, fewer than five full time
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employees at each of those sites suffered ‘employment losses’ within the meaning of the
WARN Act.” Therefore, the court granted defendant DHL’s motion for summary
judgment.
Poland v. CSC Applied Technologies, LLC, No. 1:10-cv-326, 2010 WL 5401406 (S.D. Ohio
Dec. 21, 2010) (granting motion for summary judgment and denying request for continuance
based on a plain reading of the notice which was sufficient in both time and manner).
Fifty-one plaintiffs initiated a suit against Computer Science Corporation Applied
Technologies, LLC (“CSC”), their former employer, and the American Postal Workers
Union, AFL-CIO alleging CSC violated the WARN Act by giving them only three days
notice prior to the termination of their employment due to a plant closing. Plaintiffs also
alleged violation of the National Labor Relations Act, NLRA § 8, 29 U.S.C. § 158. On
April 30, 2009, CSC delivered a conditional notice to all of its EEs at plaintiffs’ branch,
providing the address of the specific facility expected to close, the date of expected
closure, that the closure was expected to be permanent, that the closure would affect the
entire facility and all employees, and provided a name and phone number of a company
official to contact for further information. The branch stayed open until July 1, 2009.
The court found the notice sufficient in both time and manner and granted CSC’s motion
for summary judgment “based on a plain reading of the notice.”
VIII. STATE WARN STATUTES 2010 UPDATE
A. NEW YORK
On August 31, 2010, the New York Department of Labor filed a Notice of Adoption of
WARN Regulations found in 12 NYCRR Part 921. The rules became permanently effective as
of September 15, 2010.
B. NEW HAMPSHIRE
As of January 1, 2010, New Hampshire effected a state law that will require all New
Hampshire employers with 75 or more full-time employees to issue a warning before closing
facilities or laying-off more than one-third of the workforce. Damages and civil penalties can be
assessed against employers who violate the Act. The new law is N.H. Rev. Stat. Ann. § 275-F.
The Act requires employers to provide notification 60 calendar days in advance of
closings and mass-layoffs. The employer must give notice if there is: an employment loss at a
single site during a 30 day period of at least 250 employees or at least 25 employees if that
constitutes 33% of the fulltime employees. A plant closing means the permanent or temporary
shutdown of a single site of employment in New Hampshire if the shutdown results in an
employment loss at the single site of 50 or more employees.
C. IOWA
On March 22, 2010, Iowa’s governor signed Iowa’s WARN Act, found at Iowa Code Ann. §
84C. The Act became effective on July 1, 2010 and applies to Iowa employers who employ 25
17
or more employees, excluding “part-time” employees. The Act requires that covered employees
get at least 30 days written notice of a business closing or mass layoff exceeding 6 months if the
closing or layoff results in an employment loss of more than 25 employees, excluding part-time
employees. Written notice is also required if there are two or more layoffs within 90-days that
result in 25 or more employees laid off.
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RECENT DEVELOPMENTS UNDER THE EMPLOYEE POLYGRAPH PROTECTION ACT (EPPA)
There is one case regarding the EPPA in 2010, Maybury v. Slaton, No. 3:06cv363, 2010 WL
518041 (S.D. Ohio Feb. 2, 2010). The below summary applies to each EPPA section.
On September 11, 2006, as a result of an overspraying incident at Wayside Body Shop,
Inc. (“Wayside”), defendant Slaton (Wayside’s attorney) and Mark Campbell (Wayside’s
owner) met with persons suspected of being responsible for the overspraying including,
plaintiff Howard Maybury (“Plaintiff”) and two other employees in order to investigate
the incident. At the meeting, Slaton provided Wayside’s Policy 717 to the three suspects.
The policy provided that Wayside had the right to conduct investigations concerning any
possible wrongdoing and that its “investigation may include [an employee] submitting to
a lie detector test.” The policy also provided that failure to cooperate with an
investigation “will result in disciplinary action including termination.” On September 15,
2006, Slaton met again with plaintiff and handed him a copy of revised Policy 717 which
did not mention lie detector tests. During the course of the meeting, plaintiff refused to
sign an acknowledgment indicating that he received a copy of the revised policy. As a
result of plaintiff’s refusal to sign the acknowledgment, Slaton fired him.
Plaintiff’s complaint arose under the EPPA, 29 U.S.C. § 2001. The claim was predicated
upon the allegations that defendants: violated 29 U.S.C. § 2002(1) by requesting plaintiff
to submit to a lie detector test; violated 29 U.S.C. § 2002(3) by threatening plaintiff that
he would be disciplined or discharged if he refused to take a polygraph and by
terminating plaintiff’s employment for attempting to exercise his right to obtain and to
consult with counsel, before signing documents relating to a polygraph; violated 29
U.S.C. § 2003 by failing to post the required notices; and violated 29 U.S.C. § 2007(b)(2)
by failing to provide plaintiff with the required notices and written documentation.
Plaintiff also set forth a claim against defendant Slaton for intentional infliction of
emotional distress.
The court originally overruled plaintiff’s request for summary judgment and sustained
that of defendants on some aspects of plaintiff’s claim under the EPPA. Plaintiff then
brought a motion for reconsideration.
I. RIGHT TO CONSULTATION WITH COUNSEL BEFORE ADMINISTRATION OF
EXAMINATION
(overruling plaintiff’s motion for reconsideration of the conclusion that no evidence
exists from which a reasonable inference can be drawn that during the September 15
meeting, Slaton knew that plaintiff was asserting his right to consult with counsel or an
employee representative before signing the documents, and that such a finding is required
for plaintiff to prove his claim that he was terminated for exercising his rights under the
EPPA in violation of 29 U.S.C. § 2002(4)(C))
The court reaffirmed its decision to sustain defendant’s motion for summary judgment
and denied plaintiff’s motion for reconsideration as related plaintiff’s claim under the
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EPPA that plaintiff was fired because he wanted to consult with counsel before signing a
document acknowledging that he had been given a copy of revised Policy 717. The
EPPA provides for the Rights of Examinee during the pretest phase. “During the pretest
phase, the prospective examinee- (A) is provided with reasonable written notice of the
date, time, and location of the test, and of such examinee’s right to obtain and consult
with legal counsel or an employee representative before each phase of the test . . . .” 29
U.S.C. § 2007(b)(2).
The court found that the statutory language “merely prevents an employer, which fails to
comply with the obligations imposed therein, from relying on the exemptions to liability
set forth in § 2006(d), (e), and (f).” Section 2006(d) provides for the limited exemption
for ongoing investigations, section 2006(e) provides for the exemption for security
services, and section 2006(f) provides for the exemption for drug security, drug theft, or
drug diversion investigations. The court reasoned that “2007(b)(2) did not create a
separate right, the violation of which will permit the one whose right was violated to sue
the violator for damages proximately caused thereby” more specifically that “that
statutory provision does not afford Plaintiff the right to consult counsel.” The court
determined that “its violation would merely prevent the Defendants from raising the
exemptions to liability set forth in § 2006(d), (e) and (f).” Because the court concluded
that section 2007(b)(2) does not afford plaintiff a remedy, the court found that the
evidence failed to raise a genuine issue of material fact concerning the question of
whether Slaton knew that plaintiff wanted to consult an attorney.
II. ONGOING INVESTIGATION EXEMPTION – 29 U.S.C. § 2006(d).
The court addressed the ongoing investigation exemption found in § 2006(d) which
allows a covered employer to administer a polygraph examination if four factors are met.
The employer must demonstrate that: (i) the test is administered in connection with an
ongoing investigation involving economic loss or injury to the employer’s business; (ii)
the employee had access to the subject of the investigation; (iii) the employer has a
reasonable suspicion as to the employee’s involvement in the loss; and (iv) the employer
provides the employee with a signed written notice that specifically identifies the
economic loss at issue, indicates that the employee had access to the property being
investigated, and describes the basis for the employer’s reasonable suspicion. 29 U.S.C.
§ 2006(d)(1-4). The court relied on Polkey v. Transtecs Corp., 404 F.3d 1264 (11th Cir.
2005), and determined that an employer who does not furnish the written notice does not
lose the ability to rely upon the ongoing investigation if the employee does not take a
polygraph examination, since the fourth prong of the test applies only to examinees and
an employee who is not given a polygraph test is not an examinee. The court found the
exception inapplicable “unless there has been compliance with § 2007(b)” and also that §
2007(b)(2) applies to prospective examinees where the exemption in § 2006(d) applies to
examinees.
The court then attempted to determine whether plaintiff was a prospective examinee in
the pretest phase during the September 11 meeting. The court relied on 29 C.F.R. §
801.23(a) to define the “pretest phase” as “the questioning and other preparation of the
20
prospective examinee before the use of the actual polygraph instrument.” Because
neither party addressed the issue, the court could not conclude whether or not the events
of September 11 occurred during the pretest phase and therefore the court overruled
plaintiffs motion and held that defendants would be able to prevail on their assertion that
they are protected by the exemption, absent a showing that the events of September 11th
occurred during the pretest phase.
III. DEFINITION OF EMPLOYER.
The court also analyzed whether it erroneously concluded that an issue of fact existed
concerning the question of whether Slaton was acting as plaintiff’s “employer,” as
defined by the EPPA on September 11, 2006. The court determined the issue must be
resolved by utilizing the economic realities test “which is universally employed to
determine whether a defendant is a plaintiff’s employer in an action brought under the
Fair Labor Standards Act.” The court considered whether the examiner: (1) decided that
a polygraph examination should be administered; (2) decided which employee would be
examined; (3) provided expertise or advice to the employer regarding compliance with
EPPA’s requirements, or the employer relied on the examiner to ensure compliance; or
(4) decided whether the examined employee would be subjected to disciplinary action, or
merely reported the results of the polygraph examination to the employer. See Fernandez
v. Mora-San Miguel Electric Co-op., Inc., 462 F.3d 1244 (10th Cir. 2006). The court
found that plaintiff did not cite any evidence to support his assertion that Slaton was his
employer and that plaintiff “failed to show that the record contains evidence satisfying
his burden of persuasion, much less that the evidence is so powerful that no reasonable
jury could disbelieve it.” The court overruled plaintiff’s motion for reconsideration as it
related to this proposition.
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