Childress v. Darby Lumber, Inc.
357 F.3d 1000, 2004 WL 225013 (2004)
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Rule of Law:
Two or more distinct corporate entities may be treated as a single employer under the Worker Adjustment and Retraining Notification (WARN) Act if a multi-factor analysis reveals a lack of an arm's-length relationship between them, thereby requiring the aggregation of their employees to meet the Act's 100-employee threshold.
Facts:
- Darby Lumber, Inc. (DLI) was a lumber mill and Bob Russell Construction, Inc. (BRC) was a construction company.
- In 1996, DLI acquired 100% of the shares of BRC, making BRC its wholly-owned subsidiary.
- Robert E. Russell owned approximately 49% of DLI's stock and was the trustee for the remaining 51% held by an employee stock ownership trust.
- BRC operated primarily to support DLI, with over 90% of its activities and revenue in 1998 derived from building roads, hauling timber, and managing the log yard for DLI.
- In 1998, DLI had 88 full-time employees and BRC had 18, which was fewer than 100 employees individually but more than 100 employees combined.
- On September 24, 1998, DLI's general manager placed a note in employee paychecks advising of financial difficulties and an impending 'major layoff.'
- The next day, September 25, 1998, DLI shut down its mill and laid off its employees without providing the 60-day notice specified in the WARN Act. BRC employees were laid off in the following months.
Procedural Posture:
- Former employees of Darby Lumber, Inc. (DLI), led by Sharon Childress, sued DLI and Bob Russell Construction (BRC) in the U.S. District Court for the District of Montana for violations of the WARN Act.
- The parties filed cross-motions for summary judgment.
- The district court granted summary judgment for the plaintiff employees, finding that DLI and BRC were a 'single employer' and that none of the WARN Act's exceptions applied.
- The district court awarded the plaintiffs $60,345.45 in damages and $123,033.44 in attorney's fees.
- Darby Lumber, Inc. and Bob Russell Construction, Inc. (appellants) appealed the district court's judgment to the U.S. Court of Appeals for the Ninth Circuit.
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Issue:
Do a parent company and its wholly-owned subsidiary constitute a 'single employer' under the Worker Adjustment and Retraining Notification (WARN) Act when factors indicate common ownership, common management, de facto control, and significant operational dependency?
Opinions:
Majority - Illston, District Judge
Yes, a parent company and its subsidiary constitute a 'single employer' under the WARN Act when the totality of the circumstances demonstrates a sufficient degree of integration and lack of independence. The court applied the five-factor test from WARN regulations, finding four of the five factors supported treating DLI and BRC as a single employer. There was common ownership (DLI owned 100% of BRC), common directors/officers, de facto control (DLI management directed BRC activities and made the ultimate decision to shut it down), and significant dependency of operations (90% of BRC's revenue came from DLI). Although the companies had different personnel policies, this single factor was not enough to overcome the evidence of an integrated enterprise. The court also rejected the employers' affirmative defenses, finding that ignorance of the law does not constitute 'good faith,' the financial troubles were foreseeable and not a sudden 'unforeseeable business circumstance,' and the 'faltering company' defense failed because there was no proof that giving the required notice would have prevented them from obtaining financing.
Analysis:
This decision solidifies the application of the 'single employer' doctrine within the context of the WARN Act, emphasizing that courts will look beyond corporate formalities to the operational reality of affiliated businesses. It serves as a precedent for holding parent companies and their dependent subsidiaries jointly liable for WARN Act violations, preventing employers from structuring their operations with multiple smaller entities to circumvent the 100-employee threshold. The ruling reinforces that the multi-factor test is a practical, fact-intensive inquiry into control and dependency, and it clarifies the high bar employers must meet to successfully invoke the Act's affirmative defenses, particularly requiring more than mere ignorance of the law for a 'good faith' defense.
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