Eighth Circuit holds purchaser liable for seller’s WARN violation

WARN is the federal law that, when applicable, requires 60-day notice before a plant closing or mass layoff. When terminations occur as part of the sale of a business, WARN provides that sellers are responsible for WARN compliance up to and including closing, purchasers thereafter. It is not uncommon for asset purchase agreements to flesh out that general rule.

In this case, the asset purchase agreement unambiguously confirmed that general rule. It even included language excluding liabilities for WARN and expressly providing that purchaser did not assume any WARN liability.

Seller terminated employment of individuals, not hired by purchaser, without giving the 60-day notice. Citing WARN’s general rule and the purchase agreements, the purchaser moved to be dropped from the case, but the Eighth Circuit disagreed. The court held that, generally, a buyer in an asset purchase agreement can buy the assets without being liable for the seller’s violation of WARN, but the Eighth Circuit drew a line between an asset purchase agreement that is “merely a sale of assets” versus the sale of assets that is really — in the mind of the Eighth Circuit — the sale of the business “as a going concern.” The court held that this purchaser had bought the assets as a way of buying the business “as a going concern” and therefore was responsible for seller’s WARN violation.

Celadon’s liability turns on whether the APA (asset purchase agreement) constituted a sale of assets or a sale of a business as a going concern.

Purchaser emphasized the clear language in its purchase agreement, but the court held that language had at best a “binding effect as between (purchaser) and (seller)” but “the protections that the WARN Act affords employees are not determined by contract.” In other words, the purchaser could not contract its way out of statutory liability for seller’s WARN violation.

Next purchaser argued that it hadn’t really bought the business as a “going concern.” It noted it had not either acquired seller’s accounts receivable or required an automatic transfer of seller’s employees. The court held those distinctions were not sufficient.

The Eighth Circuit’s decision is surprising to many. It remains to be seen if it will be followed by other courts.

It may also be limited to one particular, relatively unusual fact noted by the Eighth Circuit. The agreement required the seller’s workers “to remain employed for 14 days following the date of the sale.” Thus, the Court held that it was purchaser who “as the statutory employer, not (seller), caused the employment loss” “at the expiration of this 14-day period.”

The case is a reminder to purchasers to consider WARN when engaged in asset purchase agreements.

The case was Day v. Celadon Trucking Servs., 827 F.3d 817 (7/15/16).