Carles Joe Smullin v. Mity Enterprises, Inc. Do Group Holding, Inc.

Citations: 420 F.3d 836; 23 I.E.R. Cas. (BNA) 449; 2005 U.S. App. LEXIS 18254; 2005 WL 2036260Docket: 04-3135

Court: Court of Appeals for the Eighth Circuit; August 25, 2005; Federal Appellate Court

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On November 8, 2002, Do Group Holding, Inc. sold the assets of its manufacturing plant in Marked Tree, Arkansas, to an unrelated buyer, who subsequently hired 44 of the 68 employees interviewed over the weekend. Forty former employees of Do Group alleged that the company, along with its parent Mity Enterprises, Inc., violated the Worker Adjustment and Retraining Notification Act (WARN Act) by failing to provide the required sixty-day notice before terminating their employment. The WARN Act mandates that businesses with 100 or more employees must provide advance notice for plant closings or mass layoffs. The district court granted summary judgment in favor of the defendants, concluding that Do Group and Mity are not a single employer, which meant Do Group employed fewer than 100 employees and was not subject to the WARN Act. 

Upon review, the Eighth Circuit Court affirmed the lower court's ruling without addressing the employee count issue, determining that the sale of the Marked Tree plant constituted a sale of business that did not result in an "employment loss" under the WARN Act. The definitions of "plant closing" and "mass layoff" were examined, with the court noting that the WARN Act requires notice only for employment losses that occur as a result of a plant closing or layoff. The plaintiffs contended that Do Group and Mity should be considered a single employer, that the exclusions in the WARN Act did not apply to the asset sale, and that their employment loss occurred prior to the sale's effective date.

The argument fails to consider the statutory definitions of "plant closing" and "mass layoff" as outlined in 2102(a) of the WARN Act. A "plant closing" refers to a permanent or temporary shutdown of a single employment site, defined as the effective cessation of production at that facility. In this case, the Marked Tree plant did not experience any shutdown, as it operated continuously without interruption, thus no "plant closing" occurred.

A "mass layoff" necessitates a reduction in force resulting in the loss of employment for at least fifty employees at a single site. The WARN Act’s advance notice requirement aims to provide workers time to prepare for potential job loss. Here, since the buyer hired nearly all but twenty-four employees from the Marked Tree plant, fewer than fifty employees experienced job loss, and WARN notice was only necessary if the buyer's hiring was disregarded.

The sale-of-business exclusion in 2101(b)(1) applies to any transaction involving the sale of part or all of an employer's business, without specific definitions regarding "sale of business." The plaintiffs contend this exclusion does not apply because the sale was an asset sale and employees were terminated without rehire rights. However, the statute employs the broader term "sale of a business," indicating any transaction that transfers an employer's operations as a going concern.

Interpreting the exclusion in this manner aligns with the WARN Act's objectives, as it anticipates the buyer of a continuing business will retain a significant number of employees. This interpretation also facilitates compliance, allowing parties to recognize when a transaction may trigger WARN notice requirements. Prior case law, such as Headrick v. Rockwell Int'l Corp., supports this functional approach, where the court ruled that a transfer of operations to a new contractor was deemed a sale of business, ensuring employees were considered as employees of the new contractor and no mass layoff occurred.

In International Oil, Chemical, Atomic Workers v. Uno-Ven Co., the court affirmed that 2101(b)(1) applies to an operating agreement that transferred refinery management to a new employer. Multiple cases, including Wiltz v. M/G Transp. Servs. Inc. and Int'l Alliance of Theatrical, Stage Employees v. Compact Video Servs. Inc., have similarly applied this exclusion to asset sales where the buyer retained most of the seller's employees. Conversely, in Oil, Chemical, Atomic Workers International Union v. CIT Group, the court declined to apply 2101(b)(1) to secure lenders purchasing assets at a foreclosure sale, indicating a distinction for going-concern transactions.

Plaintiffs referenced Burnsides v. M.J. Optical, Inc. as support for their position that 2101(b)(1) does not extend to asset sales. In Burnsides, the buyer opted to purchase equipment rather than take over operations, leading to a shutdown of the seller's plant and termination of employees. The court doubted 2101(b)'s applicability due to the absence of automatic employee retention and clarified that responsibility for WARN Act notices fell to the seller, as they initiated the plant closing.

The Burnsides ruling aligns with the going concern principle and the Department of Labor's regulation, which stipulates that the seller must provide WARN Act notice if a plant closing occurs before the sale's effective date. If a closing happens post-sale due to the buyer's decision, the buyer must issue the notice. This regulation aims to ensure that responsibility for notification is assigned to the party making the decision leading to employee dislocation.

The Worker Adjustment and Retraining Notification (WARN) Act mandates notice requirements concerning plant closings and mass layoffs. In the case of Burnsides, the court determined that the seller was responsible for providing WARN notice when a plant closing occurred simultaneously with the sale of the business. This principle aligns with the interpretation that 2101(b)(1) applies when assets are sold as a going concern. 

For the Marked Tree plant, its sale constituted a transaction under 2101(b)(1), as the buyer continued operations without interruption. Consequently, employees of the plant were considered employees of the buyer immediately post-sale. Since the buyer retained 44 of the 68 employees, there was neither a 'plant closing' nor a 'mass layoff,' thus exempting the buyer from the WARN notice requirement. 

The district court's decision to dismiss the plaintiffs' WARN Act claims was affirmed, confirming that no notice was necessary under 2102(a) due to the circumstances of the sale and retention of employees.