Opinion ID: 171651
Heading Depth: 2
Heading Rank: 1

Heading: The Unforeseeable Business Circumstance Exception

Text: The WARN Act requires employers to give at least sixty days' notice in advance of a mass layoff, 20 C.F.R. § 639.2, calculated from a fourteen-day window during which the layoff is expected to occur, 20 C.F.R. § 639.7(b); Hotel Employees and Rest. Employees Int'l Union Local 54 v. Elsinore Shore Assocs., 173 F.3d 175, 187 (3d Cir.1999). Under 29 U.S.C. § 2102(b)(2)(A), [a]n 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 employer bears the burden of proof that conditions for the exceptions have been met. 20 C.F.R. § 639.9. To satisfy these conditions, the defending party must establish that (1) the circumstance was unforeseeable, and (2) the layoffs were caused by that circumstance. See Roquet v. Arthur Andersen LLP, 398 F.3d 585, 588 (7th Cir.2005).
An important indicator of a business circumstance that is not reasonably foreseeable is that the circumstance is caused by some sudden, dramatic, and unexpected action or condition outside the employer's control. 20 C.F.R. § 639.9(b)(1). For example, a principal client's sudden and unexpected termination of a major contract with the employer... might ... be considered a business circumstance that is not reasonably foreseeable. Id. The regulations instruct that the test for foreseeability focuses on an employer's business judgment. The employer must exercise such commercially reasonable business judgment as would a similarly situated employer in predicting the demands of its particular market. Id. § 639.9(b)(2). The Department of Labor has indicated that the exception should not be narrowly construed, that we apply an objective test to analyze the commercial reasonableness of the employer's actions, and that [e]ach claim of unforeseeable business circumstances must be examined on its own merits ... in terms of whether the employer reasonably ... could not foresee that the event would occur.... Employment and Training Administration, 54 Fed.Reg. 16,042, 16,061-63 (April 20, 1989) (codified at 20 C.F.R. pt. 639). Plaintiffs argue that the grant of summary judgment was improper because they presented a genuine issue of material fact as to whether the unforeseeable business circumstance exception applied to HHC. See Aplt. Br. 7-14. They argue that the facts relied upon by the district court were legally insufficient and not conclusively established. The disputed facts are as follows: (1) that HHC and United had suffered through similar business difficulties before and their relationship had survived, (2) that HHC had reason to believe its financial position would improve over time, and (3) that HHC had reason to believe its relationship with United would continue because of a long-standing relationship between the parties. See Aplt. Br. 8-9. In Loehrer v. McDonnell Douglas Corp., the Eighth Circuit explored the application of the unforeseeable business circumstance exception, stating that, in light of the commercially reasonable business judgment test, the WARN Act necessarily recognize[s] that even the most conscientious employers are not perfect, and ... thus allow[s] needed flexibility for predictions about ultimate consequences that, though objectively reasonable, proved wrong. So long as it may still fairly be said that the eventual plant closing or mass layoff is caused by a sudden, dramatic, and unexpected event outside the employer's control, the exception applies. 98 F.3d 1056, 1061 (8th Cir.1996). Just as in that case, where the United States government withdrew its support for a new fighter plane, resulting in private contractors laying off employees, we believe that the facts of the instant case also fall squarely within the exception for unforeseeable business circumstances. Id. at 1062. Moreover, we take heed of the Fifth Circuit's reasoning that it is the probability of occurrence that makes a business circumstance `reasonably foreseeable' and thereby forecloses use of the [exception] to the notice requirement. A lesser standard would be impracticable. Halkias v. Gen. Dynamics Corp., 137 F.3d 333, 336 (5th Cir.1998); see also Watson v. Mich. Indus. Holdings, Inc., 311 F.3d 760, 765 (6th Cir. 2002) (WARN was not intended to force financially fragile, yet economically viable, employers to provide WARN notice and close its doors when there is a possibility that the business may fail at some undetermined time in the future. Such a reading of the Act would force many employers to lay off their employees prematurely....). Therefore, we do not rely on the mere possibility that layoffs will occur, but rather look for their probability. At the end of 2003, HHC was experiencing financial difficulties that affected its relationship with its largest customer, United. Gross, 2006 WL 2666993, at . These difficulties culminated in United's January 8, 2004, letter, indicating that it would be placing orders with other suppliers and that HHC should not be surprised that the orders from United [would] declin[e]. Aplt.App. 100-02. As noted above, the stockouts at the close of 2003 had increased from the same time the year before, and United's orders had decreased in the same fashion. Aplt.App. 168, 173. However, even with these facts known to it, United simply did not decide until its January 15, 2004 letter to terminate its primary supplier relationship with HHC. Aplt.App. 103-04 While HHC was aware of United's dissatisfaction, that knowledge alone does not bar the application of the unforeseeable business circumstance exception. See Loehrer, 98 F.3d at 1062. Rather, an objective focus is requiredwhether a similarly situated employer in the exercise of commercially reasonable business judgment would have foreseen United's withdrawal. Elsinore Shore, 173 F.3d at 186. In this evaluation, we consider the facts and circumstances that led to the [layoffs] in light of the history of the business and of the industry in which that business operated. Id. While the situation leading up to United's eventual termination of the primary supplier relationship would undoubtedly raise the eyebrows of any prudent businessperson, Loehrer, 98 F.3d at 1062, the evidence does not suggest that United's decision was reasonably foreseeable prior to HHC's receipt of the January 15 letter. For thirty-one years, United's relationship with HHC had flourished, and even when stockouts reached a new high in early 2004, United still confirmed its interest in doing business with HHC. See Aplt. App. 100-01; see also Local Union 7107 v. Clinchfield Coal Co., 124 F.3d 639, 643 (4th Cir. 1997) (indicating that a thirty-year business relationship contributes to an employer's expectation that the relationship would continue). In fact, United, in its January 8 letter, indicated that it valued its longstanding relationship with HHC a great deal, reiterated that the relationship had provided mutual benefit over the years, and acknowledged its hope that the LaSalle loan negotiations would close successfully. Aplt.App. 100. Moreover, even though HHC's warehouse operations had been disrupted, LaSalle continued to gather information concerning HHC to determine whether it would approve a sizeable loan and remained positive about the financing even in December 2003. See Aplt.App. 96-98, 120-25, 191. In addition, HHC's own attorneys indicated that the company should focus on turnaround efforts, and stated that the avoidance of bankruptcy filings was one of its primary goals, in addition to planning for the possibility, however remote, of bankruptcy filings. Aplt.App. 162. Free enterprise always involves risk, yet most businesses operate as going concerns, notwithstanding those risks. Business downturns in a cyclical economy are not unusual, and we should not burden employers with the task of notifying employees of possible contract cancellation and concomitant lay-offs every time there is a cost overrun or similar difficulty. Halkias, 137 F.3d at 336. Such an indiscriminate practice could undermine morale, let alone exacerbate the problem. Such difficulties are invariable, and most often do not lead to contract cancellation. Id. Here, HHC experienced the loss of a major customer in a very short period of time on top of all of its other difficulties; HHC met its summary judgment burden of establishing that United's January 15, 2004, withdrawal, while always a possibility, was unforeseeable.
Plaintiffs further argue that HHC failed to establish causation. Specifically, Plaintiffs dispute that United's termination of HHC as its primary supplier effected no actual change in the amount of business HHC was conducting with United, and that therefore the January 15 announcement was not the cause of the layoffs. See Aplt. Br. 13; see also 29 U.S.C. § 2102(b)(2)(A) (An employer may order a ... mass layoff before the conclusion of the 60-day period if the ... mass layoff is caused by business circumstances that were not reasonably foreseeable as of the time that notice would have been required.). We disagree. Plaintiffs point to other HHC financial problems that could have contributed to the layoffs; however, we can find no evidence in this record to support the claim that United's withdrawal was not the ultimate straw that broke the camel's back. Aplt.App. 78 (testimony of Robert Hawk, Sr., former chairman and chief executive officer of HHC). Plaintiffs' main argument is that United's withdrawal effected no actual change in the volume of business being transacted between the two companies, and that therefore it could not have been the cause of HHC's decision to lay off its employees. See Aplt. Br. 13. A review of the timeline of events leading to the layoffs refutes this claim. HHC's decision to shut down came in the immediate wake of United's withdrawal. While it had been suffering from financial troubles for months, as evidenced by its negotiations with LaSalle, its struggles with subsidiary companies, and the increasing number of stockouts, the decision to lay off employees only came when it received the withdrawal letter from United. In fact, up until that point, HHC had repeatedly communicated with United that HHC was about to turn[ ] the corner. Aplt.App. 102. The downturn was not industry-wide, given that United's new supplier was doing a lot better job of meeting United's needs and was providing better pricing, promotions, and rebates. Aplt.App. 104. Moreover, that the January 15 withdrawal may not have affected the actual volume of business being conducted between the two companies is of no importthe fact remains that HHC had a reasonable hope that business would improve with the LaSalle financing and that United would maintain the relationship. See Jones v. Kayser-Roth Hosiery, Inc., 748 F.Supp. 1276, 1285-86 (E.D.Tenn.1990) (holding that the loss of a major account satisfied the causation prong of the unforeseeable business circumstance exception). With United's withdrawal, hope was vitiatedHHC permanently lost forty percent of its potential business and operating the warehouse profitably was even less likely. The facts here unequivocally support the conclusion that United's withdrawal was the cause of HHC's decision to lay off its workers.