WARN Act claims against Yellow likely to be reduced

There are still questions surrounding claims from Yellow Corp.’s former employees who say they weren’t properly notified ahead of mass layoffs in July 2023. A Thursday opinion from a judge in a federal bankruptcy court in Delaware provided some guidance, however, several open arguments will have to be settled at a Jan. 21 hearing.

A memorandum opinion issued by Judge Craig Goldblatt noted Yellow was correct in the application of certain defenses afforded to it under the Worker Adjustment and Retraining Notification Act. However, he ultimately found the company was in violation as the notifications given to employees were “insufficient.”

The federal statute typically requires employers to provide 60 days of advance notice to employees ahead of layoffs. However, there are certain circumstances in which a company can provide a shortened notice.

He said the brief statements weren’t detailed and didn’t contain enough facts about the reason the company was closing. He acknowledged that internal emails to employees and press reports were enough to keep employees informed, but that they didn’t necessarily meet the statute’s requirements.

Defenses fail due to procedural shortcomings

Yellow was pursuing both the “faltering company” and “unanticipated business circumstances” defenses.

The former allows a company to shorten the notice period when it’s attempting to secure additional financing to remain in business. The rationale is that an announcement of mass layoffs could scare off potential lenders and hasten a company’s demise. The latter addresses whether the company had a reasonable expectation that it would fail at the time the notice was required (in this case late May 2023).

Goldblatt said the record shows that Yellow continually worked with lenders from early 2023 up until its last days to obtain financing. The record also shows that it expected to get a deal done with lenders and the union, making the unforeseen business circumstances defense plausible.

Yellow contends it was a July 18, 2023, strike notice from the Teamsters union due to the company’s missed benefits contributions that precipitated its July 30 shutdown. The company said it had always been able to work out a deferral plan in the past when it was cash-strapped and that it expected to do so again.

By the time the pension funds (at the behest of the Teamsters) agreed to extend terms, the damage was done as Yellow’s customers had already fled to other carriers. Yellow terminated 3,500 nonunion employees on July 28, 2023, and 22,000 union employees two days later on July 30. It filed for bankruptcy protection on Aug. 6.

“Yellow and the Teamsters had a long history of engaging in brinksmanship, but, until the events of July 2023, had, in the end, always reached an agreement,” Goldblatt stated.

Goldblatt noted that testimony from Teamsters General President Sean O’Brien indicated that he too thought a deal would get done. O’Brien said he remained willing to work with Yellow even after the strike notice. The judge said that points to the unforeseen nature of Yellow’s shutdown, as all parties were expecting a deal.

“Indeed, it is not too much to say that Yellow’s ultimate failure was caused, at least in substantial part, by the Teamsters’ miscalculation about the effect of sending a strike notice,” Goldblatt said.

“What O’Brien apparently failed to appreciate, however, was the fact that issuing the strike notice would set in motion an irreversible course of events beginning with Yellow’s customers fleeing the business and ending in Yellow’s liquidation. It turns out that events unfolded in a way that surprised both the company and the Teamsters.”

Yellow didn’t contemplate issuing WARN notices 60 days prior, as required, because its demise “was not reasonably foreseeable” at the time.

“Asking whether the debtors considered issuing WARN Act notices when there was no reason to expect that they would have been required to do so is quite beside the point,” Goldblatt stated.

That rationale is for naught, as Yellow’s failure to provide detailed reasoning for the terminations on the notices voids those defenses.

Goldblatt classified the violation as “a technical one” but said the company appears to have acted in good faith in the handling of its WARN Act requirements, which may allow some of the claims to be reduced.

“The violations arise out of the fact that the notices the debtors provided were worded improperly,” Goldblatt said. “And much of the information that those notices should have contained had been separately communicated by Yellow to its employees and was widely publicized at the time. For those reasons, this seems like an awfully strong case for reducing the damages on the ground that the violation was a purely technical one and that the company had in fact acted in good faith.”

Was the company still a carrier when it terminated its union workforce?

The actual time of the company’s last delivered shipment, which occurred on July 30, could determine the viability of another defense.

A company can be designated as a “liquidating fiduciary” when it is strictly liquidating assets and not performing any business activities. That determination would allow for a shortened notification period.

Yellow was still handling shipments on July 28, and not a liquidating fiduciary, Goldblatt found. He ruled in favor of the company’s nonunion employees who were let go on that date. However, the timing of the company’s last shipment on July 30 could have some bearing on the claims from the 22,000 terminated Teamsters.

The validity of that defense will be heard at a three-day trial in January.

The court will also have to rule whether executed releases from employees were a condition for receiving severance.

Yellow paid some employees severance ahead of the bankruptcy filing to ensure funds would be distributed. It claims it did so with the requirement that the employees would have to later sign a release. Counsel for the employees said the releases were “procured by fraud” because the employees were going to get the payment anyway, however, the court views that as “far-fetched.”

Some of the Yellow’s defenses will not be applicable in New Jersey and California given the way state statutes define the terms “employer” and “business enterprise,” making the liquidating fiduciary defense invalid. Separate adjudication proceedings are occurring at the state level currently.

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