Buyer of Business Assets Liable Under WARN Act

By Jeffrey Rhodes August 10, 2016
Buyer of Business Assets Liable Under WARN Act
A company that bought a trucking business's assets was liable when employees received no Worker Adjustment and Retraining Notification (WARN) Act notice. 

A company that bought a trucking business's assets under a purchase contract stating that the seller had to notify employees of discharge under the Worker Adjustment and Retraining Notification (WARN) Act was liable when the employees received no such notice, the 8th U.S. Circuit Court of Appeals ruled.

Continental Express Inc., based in Little Rock, Ark., owned and operated a commercial trucking business that serviced customers throughout the United States. On Dec. 4, 2008, Celadon Trucking Services Inc. signed an asset purchase agreement (APA) with Continental to buy Continental's trucks, trailers and other assets. These assets included agreements, leases, computer programs and software, databases, price books and price lists, customer lists, supplier lists, records, files, office supplies, furniture, company vehicles, and equipment. Celadon also purchased the right to use the name "Continental Express" and variants thereof. The purchase price under the APA was $24.1 million. 

The APA specifically excluded certain assets from the sale, including Continental's "customer accounts receivables" and "goodwill relating to the business other than the purchased assets." The APA required Continental's president and vice president to sign a noncompetition agreement stating that "Celadon has purchased the business and substantially all of the assets" and that "Celadon intends to merge the operation of the business known as [Continental]." Nevertheless, Celadon would not be responsible for any liabilities or obligations of Continental under the WARN Act. However, the parties agreed that Continental shall send the notices required by WARN and be responsible for any costs and expenses connected therewith.

Continental had 658 employees. Celadon agreed to deliver to Continental a list of employees to whom Celadon intended to offer employment. Celadon agreed to offer employment to all of Continental's drivers, except those who failed to meet its standard driver employment requirements. The drivers not hired were to stay employees of Continental for 14 days after the closing date of the sale. After the sale, Celadon offered employment to 201 of Continental's 658 employees. The nonhired employees were terminated between Dec. 5 and Dec. 17, 2008, and were not sent written notice of their employment termination as required by the WARN Act.

On Jan. 16, 2009, the employees filed a class-action complaint against Celadon seeking damages under the WARN Act. Celadon notified Continental of the complaint and invoked the APA provisions that placed WARN Act responsibility on Continental. While Continental paid for counsel to defend the case, after discovery closed Continental became insolvent and its lawyer had to withdraw from the representation. During that time, the court certified all of the discharged employees as part of a single class for the lawsuit, and the employees and Celadon filed cross-motions for partial summary judgment on the issue of WARN Act liability. 

The district court found that "Celadon purchased Continental's assets with the intent to run the business as a going concern" and granted the employees' motion for summary judgment on the issue of WARN Act liability. 

On appeal, Celadon argued that it was not liable under the WARN Act, that the district court erred on the class-certification issue and relied on inadmissible evidence in awarding damages, and that the district court erred in rejecting its good-faith defense under the WARN Act. 

The 8th Circuit found that Celadon was liable as the purchaser of Continental under the WARN Act's application to the sale of a business "as a going concern." While typically a purchaser of assets, rather than stock, would not assume the seller's responsibilities, in this case Celadon's agreement stated that it would merge Continental's business into its own. Additionally, because the employees continued to work after the closing date of the sale, the WARN Act considered them Celadon employees for purposes of its notice requirements. Thus, Celadon could not avoid WARN liability, despite its contract terms to the contrary.

The court rejected Celadon's claims concerning errors in class certification and upheld the district court's ruling on damages, reasoning that Celadon had failed to make objections and preserve records that might have been helpful to its defense. Finally, the court found that, even if Celadon had a subjective intent to comply with the WARN Act, Celadon had not shown that it had a reasonable basis for believing that it was not responsible for giving WARN notice.

Day v. Celadon Trucking Servs., Inc., 8th Cir., No. 15-1711 (July 5, 2016).

Professional Pointer: For many employment laws, like the WARN Act, employers cannot always "contract around" their requirements. Employers must make sure to comply with the WARN Act and should not rely on contract language that, while binding on the parties, does not necessarily remove the duties imposed by statute.

Jeffrey Rhodes is an attorney with Doumar Martin in Arlington, Va.



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