WARN Act and Bankruptcy: 5 Situations Where Notice Is Still Owed

Five Situations in Which the Notice Is Still Owed

If your company has 100 or more employees, federal law requires that you give 60 days of notice in advance of the layoff (but see below for exceptions). Filing for bankruptcy does not, by itself, exempt you from the WARN Act. Only a fiduciary whose sole job is to liquidate the company is off the hook. If the business keeps operating, then it is still an employer and may owe WARN notice. Here are five situations in which the notice is still owed.

The law requires written notice to affected employees (or their union). It should go also to the state dislocated worker unit and the chief elected official for the affected locale. WARN applies when there will be a ”plant closing” at a single site of employment. That is defined as losing 50 or more full-time people in a 30-day period.

First, when the doors are still open for business as usual, an employer must still give advance notice of closings and large layoffs, whether before, during, or after the bankruptcy filing. In the 2020 bankruptcy of furniture retailer Art Van, the company said it was going out of business and started sales, then it filed Chapter 11. It kept its stores open and continued to operate its business after the filing. What made a difference was whether Art Van was now only a liquidating fiduciary. The court concluded it was not really a liquidating fiduciary but was still an employer under the WARN Act.

Courts look at whether the company looks like a business in operation or a business winding up. The key is to look to how things are happening, not what someone plans or says is the plan. Filing to liquidate does not, by itself, mean you are not a going concern.

Does your 60 days of notice still matter if your company has already put people out the door before filing? In the 2026 Yellow Corp. case, a Delaware federal court was skeptical that the liquidating fiduciary defense could cover layoffs made before a bankruptcy was filed. If you laid people off while you were still in business, a court may decide that you owed them notice.

A third situation in which WARN notice is still needed is if an exception applies under the law, but your company should still give as much notice as practicable, even after the fact, with a brief reason. Those exceptions are when the company is faltering, facing unforeseeable circumstances, or hit with a natural disaster.

The faltering-company exception is for a plant closing, but not for mass layoffs. The company must be actively seeking capital or business to avoid the shutdown and the notice would have scared it away.

The law provides a limited exception for unforeseeable business circumstances. These circumstances must be sudden, dramatic, and unexpected. They must be outside of your control as a business. The event must have caused the layoff. Several appeals courts have concluded an event is foreseeable only if probable, not merely possible. When a company is still vulnerable and working to stay alive, bankruptcy is not inevitable.

The 2020 shutdown orders in response to the COVID-19 pandemic caused Art Van to close all its stores. Art Van did give a second notice. It did not have to be a 60-day notice, only as much notice as practicable. What the closure orders did was act like the straw that broke the camel’s back and as a natural disaster, and the later WARN notice explained why.

The problem is that you have the burden to prove these exceptions. No notice at all may land you in hot water. Your best bet is to keep records of your capital-raising or other efforts. Courts judge each case by its own facts, so yours is not a sure bet.

A fourth situation in which a company does not avoid WARN notice is when you sell the business in bankruptcy. The company that sells owes notice for layoffs up to and including the sale date. The buyer must give notice for layoffs after the sale. Since notice is owed by the employer, the responsibility passes from one to the next like a torch.

The fifth situation for layoff notice comes from states with their own layoff-notice laws, such as New York. New York requires 90 days of notice to workers. It applies to employers with 50 or more full-time workers in the state. New Jersey even requires severance payments, even if your company gave timely notice. The employee must be paid one week’s pay for every year of service. In the Yellow case, the federal WARN claims were denied under the faltering-company exception. However, the court held that Yellow was still an employer under New Jersey law. Check the laws in each state where you do business and where you have workers.

Skipping Notice

The cost of skipping notice will be back pay and benefits per employee for each day of the violation, up to 60 days but never more than half the days that the employee worked. For failing to notify the local government, the penalty can be up to $500 a day, but may be waived if you pay employees what you owe them within three weeks.

The bottom line is that if layoffs are in the picture, assume you will owe notice, no matter what happens after you file in court. Send as much notice as you can, saying why you are closing and why it is short. Each exception is a judgment call, and each court is looking over your shoulder.