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WARN Act Exception: Faltering Company

Recently, we've highlighted the WARN Act and its notice requirements and exceptions for employers. Today we'll continue that coverage by discussing the Faltering Company Exception to the WARN Act's notice requirements. Remember, if your business is facing a closure or mass layoff situation, you should contact a local attorney to determine whether your actions will be WARN Act compliant, or may fall within one of its exceptions.

Typically, an employer must give employees at least 60 days notice before a sizable layoff or closure. The Faltering Company exception does not completely excuse a failure to notify employees prior to a closure or mass layoff event, but it does ease the WARN Act's timing requirements for such notice.

The exception allows for reduced notice in certain situations where the company is looking for capital to prevent the closure or layoffs from happening in the first place. Typically, the Faltering Company exception will apply if:

  • 1) The employer was actively seeking capital at the time the notice would have been required;
  • 2) There was a realistic opportunity to obtain the financing sought;
  • 3) The financing would have been sufficient to enable the employer to keep the facility open for a reasonable period of time; and
  • 4) The employer reasonably and in good faith believed that giving the required notice would have precluded the employer from obtaining the needed capital or business.

As with the Unforeseeable Business Circumstances exception, whether the exception applies is largely determined by what was reasonable given the particular facts surrounding the event. Since that determination requires a thorough analysis of both the company's practices and policies, as well as the relevant local law, an employment law attorney is best suited to advise you whether the exception may apply.

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