Gross v. Hale-Halsell Co.
2009 U.S. App. LEXIS 1300, 554 F.3d 870, 28 I.E.R. Cas. (BNA) 993 (2009)
Rule of Law:
An employer may be excused from the Worker Adjustment and Retraining Notification Act's (WARN Act) 60-day advance notice requirement for a mass layoff if the layoff is caused by business circumstances that were not reasonably foreseeable, provided the employer gives as much notice as is practicable upon learning of the causal event.
Facts:
- Hale-Halsell Company (HHC) operated a wholesale grocery warehouse and distribution center in Tulsa, Oklahoma, and owned 50% of United Supermarkets, its largest customer, with whom it had a 31-year business relationship.
- HHC experienced increasing 'stockouts' (failure to fulfill orders) for United, which reached 18.9% by November 2003 and an 'all time high' of 53.8% by January 7, 2004.
- During late 2003 and early 2004, HHC was awaiting approval of a working capital loan from LaSalle Bank, which remained 'positive' about the loan even in December 2003.
- On January 8, 2004, United wrote to HHC indicating it would place orders with alternative suppliers but expressed willingness to continue business and did not terminate their relationship.
- On January 15, 2004, United wrote to HHC, informing it of the 'difficult decision' to use Affiliated Foods as its primary supplier and HHC as a secondary supplier, signaling a significant reduction in orders.
- On January 16, 2004, HHC responded to United, stating the decision would 'put HHC in a bad situation' but still expressed hope for solving its difficulties.
- After meeting with its primary accounts holder and consultants on Tuesday, January 20, 2004 (following a Monday holiday), HHC decided that it would not be able to survive.
- On Wednesday, January 21, 2004, HHC met with staff, informing them of impending layoffs, and on Thursday, January 22, 2004, informed employees by letter that they would be laid off, citing the loss of United as its primary customer.
Procedural Posture:
- Plaintiffs, all former employees of Hale-Halsell Company (HHC), brought an action against HHC in the United States District Court for the Northern District of Oklahoma.
- HHC moved for summary judgment, arguing it was excused from WARN Act requirements under the unforeseeable business circumstance exception and the faltering company exception.
- The district court granted summary judgment in favor of HHC, ruling that United's termination of HHC as its primary supplier was unforeseeable and caused the mass layoffs, and that HHC had provided notice 'as soon as practicable'.
- Plaintiffs appealed the district court's grant of summary judgment to the United States Court of Appeals for the Tenth Circuit.
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Issue:
Does the unforeseeable business circumstance exception to the WARN Act's 60-day notice requirement apply when an employer, facing significant financial difficulties and declining customer orders, experiences the sudden and unexpected withdrawal of its largest customer as a primary supplier, and provides notice of layoffs within three business days of determining its inability to survive?
Opinions:
Majority - Kelly, Circuit Judge
Yes, the unforeseeable business circumstance exception to the WARN Act's 60-day notice requirement applies because the sudden withdrawal of HHC's largest customer was not reasonably foreseeable, directly caused the layoffs, and HHC provided notice as soon as practicable. The court applied an objective test for foreseeability, asking whether a 'similarly situated employer in the exercise of commercially reasonable business judgment would have foreseen' United’s withdrawal. Despite HHC’s prior financial difficulties and increasing stockouts, United had a long-standing relationship with HHC (31 years) and had repeatedly affirmed its interest in continuing to do business and its hope for HHC's financial turnaround, even as late as January 8, 2004. HHC was also actively pursuing a significant loan from LaSalle Bank, which seemed positive about the financing. The court emphasized that the WARN Act focuses on the probability of an event, not mere possibility, and that employers should not be burdened with notifying employees of potential issues every time there is a downturn. United’s decisive January 15, 2004, letter, which fundamentally changed the nature of their primary supplier relationship, was the 'straw that broke the camel’s back,' rendering HHC's financial situation unsalvageable. The court also affirmed that HHC gave notice 'as soon as practicable' by taking three business days after United’s withdrawal to consult with financial advisors and determine its viability before issuing layoff notices, which was a commercially reasonable response to a devastating event.
Analysis:
This case clarifies the application of the WARN Act's unforeseeable business circumstance exception, particularly in situations where a long-term business relationship unexpectedly sours. It underscores that prior financial struggles, or even a customer's dissatisfaction, do not automatically render a major contract termination 'foreseeable' under the Act if the ultimate decisive action is sudden and unexpected. The ruling emphasizes a commercially reasonable business judgment standard for foreseeability, allowing employers a short period to assess a catastrophic event's impact before issuing notice. This decision provides a shield for financially fragile companies against premature WARN Act liability, acknowledging the impracticality of mandating notice based on mere possibility of failure and its potential to exacerbate business difficulties.
