If an employer terminates employees on the day it sells its business and the buyer hires them (or offers to hire them) shortly thereafter, the employees generally have not suffered an “employment loss” for which a WARN Act notice would be required. However, the employer in Parsons v. Meridian Rail Corp., 2007 WL 764250 (7th Cir. 2007) learned the hard way that terminating the employees ahead of time can result in a WARN Act violation, even if the buyer eventually hires the employees.

The WARN Act generally requires employers to provide advance notice to employees if at least 50 of them will suffer an “employment loss,” i.e., if at least 50 of them will be involuntarily laid off for at least six months. The WARN Act also includes an exception to this notice requirement where an employer sells all or part of its business and the employees are hired by the buyer. 

In the event of a sale, “an employee of the seller (other than a part-time employee) as of the effective date of the sale shall be considered an employee of the purchaser immediately after the sale.” 28 U.S.C. §2101(b)(1). As a result, employees who are terminated on the day of the sale, but are then hired (or offered employment) by the buyer within six months have not suffered an “employment loss” for which advance notice is required. See, e.g., Smullen v. Mity Enterprises, Inc., 420 F. 3d 836 (8th Cir. 2005).

Unfortunately, Meridian Rail Corp. (“Meridian”) learned the hard way that these rules will be strictly construed. In mid-December 2003, Meridian agreed to sell its assets to NAE Nortrak, Inc. (“NAE”). On December 31, 2003, Meridian notified its employees that the facility was closing — immediately. Meridian also informed the employees that NAE had agreed to buy its assets and that they could apply for jobs with NAE. In fact, NAE had invited Meridian's employees to apply for jobs in mid-December, shortly after NAE and Meridian shook hands on the deal. Nonetheless, Meridian did not close on the sale of its assets until January 8, 2004.

NAE eventually hired most of Meridian’s employees. As a result, Meridian argued that its former employees had not suffered an “employment loss.” The employees, however, argued that an agreement to sell is not the same as an actual sale, and since they were terminated before the sale closed, Meridian did not literally fall within the WARN Act’s sale exception.

The court agreed. The court reasoned that on the date of the sale, Nortrak did not have any employees. As a result, Meridian could not rely on the sale exception, even though Nortrak ultimately hired nearly all of its employees. The court recognized that this was a rather harsh result, but observed that the WARN Act is filled with bright line tests that must be honored.

The lesson to be leaned is that the WARN Act establishes clearly delineated timelines and responsibilities in the event of a sale of a business. Employers must be mindful of and fully comply with these strict notice requirements when planning such a transaction.