WARN Act Did Not Apply to Sudden Closure of Nuclear Plant Construction

Two contractors building a nuclear power plant that suddenly ceased operations and laid off 4,000 workers with little notice did not violate the Worker Adjustment and Retraining Notification Act (WARN), the 4th U.S. Circuit Court of Appeals ruled.

In 2008, SCANA, an electric and natural gas public utility, along with Santee Cooper, a state-owned electric and water utility, set out to build a nuclear power plant. The project was two nuclear reactors at the V.C. Summer Nuclear Station in central South Carolina as part of the first new generation of nuclear power plant construction in the United States in 30 years.

To build the project, the two utilities entered into an agreement with Westinghouse Electric Co. (WEC), which was tasked with designing and manufacturing the reactors. Eight years later, the project was substantially over budget and behind schedule. WEC needed a new subcontractor to manage construction at the site and turned to Fluor. Fluor conducted an analysis that concluded that the project would run a further $6 billion over budget and would take another three years to complete. WEC would be liable for those costs since it had agreed to build the project for a fixed price.

In March 2017, WEC filed for Chapter 11 bankruptcy. Under an interim agreement between SCANA and WEC, WEC would continue to perform work at the site, while SCANA would make payments to Fluor directly. In the summer of 2017, SCANA, WEC and Fluor all continued to work at the plant. SCANA held the license from the Nuclear Regulatory Commission and was required to oversee the project and ensure that the work conformed with the terms of the license. WEC was solely responsible for the means and methods employed.

Fluor meanwhile, under the terms of its own agreement with WEC, managed the actual construction on the site. Fluor had no direct contractual relationship with SCANA.

On July 7, 2017, Santee Cooper informed SCANA that it intended to discontinue funding its portion of the project. SCANA could not continue the project on its own, and on July 31, after Santee Cooper's board formally voted to suspend funding, SCANA abruptly stopped all construction at the site. SCANA alone ordered the plant's closure and gave neither Fluor nor WEC any advance notice.

According to SCANA, it had to wait on Santee Cooper's board to vote before stopping construction, and any advance notice of the project's closure could violate insider trading laws and would jeopardize ongoing efforts by SCANA and Santee Cooper to recover a contractual guarantee from WEC's parent company, Toshiba.

When the site closed, Fluor and WEC laid off a total of approximately 4,000 workers at the project. Employees of both WEC and Fluor then sued SCANA and Fluor, alleging that they had failed to give notice of the plant closure and layoffs as required under the WARN Act.

The district court granted summary judgment to both defendants, holding that SCANA was not required to give notice to the employees of contractors working onsite and that Fluor had complied with the WARN Act.

On appeal, the 4th Circuit considered whether SCANA functioned as the plaintiffs' "employer" for WARN Act purposes. The court considered U.S. Department of Labor regulations concerning when a contractor acts as an employer under the WARN Act. These regulations include factors such as the existence of common owners and common directors, unity of personnel policies, and dependency of operations that were not present between SCANA and its contractors.

Even though SCANA exercised a level of control over its contractors, it did so at arms' length as a prime contractor and did not control them as a parent company would a subsidiary. Thus, the court confirmed that SCANA did not act as an employer of any of the plaintiffs.

The plaintiffs further argued that Fluor should have provided 60 days' notice of the closure to its employees. However, the 4th Circuit determined that the unforeseeable business circumstances exception applied because Fluor was unaware of SCANA's sudden decision to close the plant. Fluor need only give "as much notice as is practicable," which it did by providing prompt notice after it was notified of the closure.

The 4th Circuit upheld the district court's grant of summary judgment to the defendants.

Pennington v. Fluor Corp., 4th Cir., No. 21-1141 (Nov. 30, 2021), motion for rehearing en banc denied (Dec. 28, 2021).

Professional Pointer: While the WARN Act imposes strict notice obligations when a plant closure or mass layoff occurs, it contains several exceptions that often apply. In many instances, a sudden plant closure or mass layoff will surprise the employer, thus protecting it from liability.

Jeffrey Rhodes is an attorney with McInroy, Rigby & Rhodes LLP in Arlington, Va.