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April 13, 2009
Was It an 'Unforeseeable Business Circumstance'?
An Oklahoma employer suddenly laid off some 200 workers, providing only 2 days’ notice. Many went to court, arguing that their rights under the Worker Adjustment and Retraining Notification (WARN) Act had been violated. Courts studied whether the employer could have foreseen the layoffs.

What happened. The Hale-Halsell Company (HHC), a wholesale grocery warehouse and distribution center, owned 51 percent of United Supermarkets, its largest customer, with whom it had a 31-year relationship. And, United was responsible for some 40 percent of HHC’s orders.

In late 2002, HHC reported that it was out of stock on just 6 percent of the merchandise United had ordered. But HHC’s finances were apparently already shaky at that point, because nearly a year later, “stockouts” were up to almost 19 percent of United’s orders. The situation worsened: In January 2004, stockouts reached an “all-time high” of nearly 54 percent.

Nevertheless, United expressed reluctance to modify its relationship with HHC—that is, until January 15, when it wrote HHC that it had chosen a different primary supplier, leaving HHC as its secondary source. HHC had sought a big bank loan to help with restocking, and the bank had been optimistic that the loan would be approved.

So HHC hedged with United the next day, the Friday before a 3-day weekend on which banks were closed. The following Tuesday, HHC’s bank rejected the loan, and HHC knew it might not survive.

The next day, management met with warehouse employees to announce the layoff of 200 people, who were officially notified in their paychecks the day after that. But WARN says that any employer laying off at least 100 employees owes them 60 days’ warning, calculated backward from when the layoffs are expected to occur.

Given 2 days’ notice, employees sued. But a federal district judge heard testimony that convinced him HHC’s problems were not foreseeable. The workers appealed to the 10th Circuit, which covers Colorado, Kansas, New Mexico, Oklahoma, Utah, and Wyoming.

What the court said. Appellate judges reviewed provisions of the WARN Act and HHC’s situation, and affirmed the district court’s ruling that the company qualified for an “unforeseeable business circumstance” exception to the law’s requirements. Gross et al. v. HHC, U.S. Court of Appeals for the 10th Circuit, No. 08-5028 (2009).

Point to remember: When a bank loan suddenly falls through, as HHC’s did, courts are inclined to rule that such a circumstance was unforeseeable in a WARN suit, especially when, as in this case, bank officials initially indicated that it would be approved.

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