Sixth Circuit Agrees No WARN Act Liability For Supplier Layoff After Chrysler Bankruptcy
By Lawrence E. Dubé
The U.S. Court of Appeals for the Sixth Circuit June 19 agreed with a lower court that an automotive parts manufacturer did not violate the Worker Adjustment and Retraining Notification Act when it laid off its employees without advance notice in reaction to the 2009 bankruptcy of Chrysler Corp. (Pearce v. Faurecia Exhaust Sys. Inc., 6th Cir., No. 12-3983, unpublished opinion 6/19/13).
Writing for the court to affirm a summary judgment in favor of Faurecia Exhaust Systems Inc., Judge Richard F. Suhrheinrich said the Chrysler supplier was entitled to rely on an “unforeseeable business circumstances” exception to WARN’s general requirement that an employer provide 60 days of advance notice before instituting a mass layoff or shutdown covered by the federal law.
The Sixth Circuit agreed with the lower court that Brenda Pearce and 74 other plaintiffs failed to support their claim that Faurecia could have anticipated the Chrysler bankruptcy filing. The former employees offered nothing more than speculation that Faurecia had advance information about the automaker’s plan to file a bankruptcy petition, the appeals court said.
Sudden Layoff Followed Chrysler Announcements
According to the decision, Faurecia manufactured exhaust systems in Troy, Ohio, operating as a “just-in-time” supplier that provided its products to customers upon their demand. In 2008 and early 2009, the court said, Faurecia’s customers included Chrysler and General Motors Corp.
Suhrheinrich wrote that after failing to secure agreement from creditors on reducing the corporation’s secured debt, Chrysler filed for Chapter 11 protection on April 30, 2009, in the U.S. Bankruptcy Court for the Southern District of New York. The automaker announced it would close and sell a number of its plants, and the court said Chrysler notified Faurecia that the plants it served would be idled for the duration of bankruptcy proceedings.
With no Chrysler orders to fill and no definite information on when Chrysler might exit from bankruptcy, the court said, Faurecia May 1 gave its employees verbal instructions not to report for work. On May 8, the supplier informed its employees by letter that they were laid off immediately and indefinitely.
Faurecia told its workers that they were not receiving 60 days’ notice of “the mass layoff/shutdown” because of the “unforeseen and unprecedented” Chrysler announcements and because of the supplier’s “rapidly growing uncertainty” about its customer base.
Trial Court Rejected WARN Act Lawsuit
Pearce and other employees filed a WARN Act lawsuit in the U.S. District Court for the Southern District of Ohio, alleging Faurecia violated the federal statute by implementing a mass layoff without the 60-day notice required under the act.
Faurecia filed a motion for summary judgment, relying on 29 U.S.C. § 2102(b)(2)(A), the act’s provision: “An employer may order a plant closing or mass layoff before the conclusion of the 60-day period if the closing or mass layoff is caused by business circumstances that were not reasonably foreseeable as of the time that notice would have been required.”
The trial court granted the employer summary judgment, and the laid-off workers appealed to the Sixth Circuit.
Sixth Circuit Notes Statutory Exception
The appeals court said it was undisputed that Faurecia was covered by the act, and the only issue was whether the employees had demonstrated the existence of a dispute concerning the unforeseeable business circumstances exception that precluded summary judgment.
Citing a Labor Department regulation concerning the WARN Act, 29 C.F.R. § 639.9(b)(2), Suhrheinrich said a sudden and unexpected action outside the control of the employer would be an unforeseeable circumstance that could bring an employer’s action outside WARN’s 60-day requirement.
In Watson v. Michigan Industrial Holdings Inc., 311 F.3d 760 (6th Cir. 2002), the appeals court found that an employer’s loss of a major client could trigger the statutory exception.
No Evidence Supplier Knew in Advance
Pearce and the other plaintiffs contended that there was a genuine issue of material fact about the unforeseeability of the Chrysler bankruptcy. The former employees alleged that Faurecia had actual knowledge of Chrysler’s planned bankruptcy before the automaker filed its Chapter 11 petition.
Suhrheinrich said the employees had “no more than speculation” to support their claim that Faurecia had advance or inside information about Chrysler’s action. One former employee testified that weeks before the parts company sent its layoff notices to workers, he saw a stack of envelopes with a “similar” appearance in Faurecia’s office. The employee admittedly did not know what was inside the envelopes.
Pearce testified in a deposition that she heard “rumors” among employees before the Chrysler bankruptcy, and she described Faurecia employees as “nervous” about being laid off.
The appeals court said “this court cannot find that Plaintiffs demonstrated a genuine issue of material fact here.” Speculation cannot serve as a substitute for evidence that Faurecia knew in advance about the Chrysler bankruptcy, the court wrote.
No Support for ‘Common Knowledge’ Claim
The Sixth Circuit also rejected the employees’ argument that the filing of a bankruptcy petition was widely expected in 2009 because of decreased auto sales and “common knowledge” that some or all of the major U.S. auto manufacturers might seek bankruptcy protection.
Suhrheinrich said courts may take judicial notice of matters of common knowledge, but he wrote, “The only evidence Plaintiffs offer is their own depositions, stating that the bankruptcy was common knowledge, but Plaintiffs fail to present any source typically used for judicial notice such as a dictionary, public record, or even a newspaper article.”
The U.S. Court of Appeals for the Fifth Circuit held in Carpenters District Council of New Orleans & Vicinity v. Dillard Department Stores, 15 F.3d 1275 (5th Cir. 1994), that a “business development that had been expected for some time, even when the exact timing is unknown, is not unforeseeable,” but Suhrheinrich said the case involved an employer that knew about, and had endorsed, a proposed corporate merger.
That situation, the court said, was distinguishable from Faurecia’s in 2009. “Here,” the Sixth Circuit said, “there is no proof that Defendant had any advance knowledge of the bankruptcy, and Defendant was certainly not involved in its filing.”
Finding Faurecia was entitled to judgment as a matter of law, the appeals court affirmed the lower court’s summary judgment.
Matthew C. Schultz of Brannon & Associates in Dayton, Ohio, argued the appeal for the employees. Kathleen M. Anderson of Barnes & Thornburg in Fort Wayne, Ind., argued for Faurecia.
Judges Gilbert S. Merritt and Bernice B. Donald joined in the opinion.