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Monday
Nov262012

“Wonder”ing about the WARN Act?

The 82-year-old producer of Wonder bread, Hostess CupCakes, Ding Dongs, Ho Hos and Drake’s Devil Dogs will begin winding down all operations and liquidating assets in the coming days and months.  In the wake of this news, former Hostess employee Mark Popovich has filed a complaint alleging that Hostess Brands Inc. and related companies violated the Worker Adjustment and Retraining Notification (“WARN”) Act when Hostess terminated employees without providing sixty (60) days’ advance written notice.  Mr. Popovich filed the proposed class action on November 21, 2012, in the United States Bankruptcy Court for the Southern District of New York.  He brings the action on behalf of himself and other similarly situated former employees who were fired on or within thirty (30) days of November 21.

Background

Hostess sought court protection in January of this year, its second time in bankruptcy, listing assets of $982 million and debt of $1.43 billion.  On November 9, 2012, Hostess Bakery, Confectionary, Tobacco and Grain Millers Union (“BCTGM”) members, including members of Biddeford, Maine production plant, went on a nationwide strike.  After failed negotiations, Hostess filed a motion to wind-down business on November 16, 2012, which the S.D.N.Y. Bankruptcy Court approved on November 21, 2012, after the parties were unable to reach an agreement through court-mandated mediation.  Chief Executive Officer Gregory Rayburn stated that approximately 15,000 workers would be fired on November 21, 2012, so that they could begin receiving unemployment benefits.

Prior to its decision to close, Hostess employed approximately 18,500 workers.  Hostess reports that it intends to retain “approximately 3,200 employees to assist with the initial phase of the wind down,” however approximately 94% of employees are expected to be fired within the first sixteen (16) weeks of the wind-down.  The entire process is expected to be completed in one year and will result in the closure of 33 bakeries, 565 distribution centers, 5,500 delivery routes, and 570 bakery outlet stores.

Popovich’s Complaint

Popovich’s Complaint alleges violation of the WARN Act.  The WARN Act requires most employers with one hundred (100) or more employees to provide notification sixty (60) calendar days in advance of plant closings and mass layoffs.

Popovich worked as a loader in the shipping department of a Hostess facility in Ohio.  His Complaint seeks unpaid wages, vacation pay and benefits for sixty (60) days with “first priority administrative expense status.”  While the Complaint currently alleges federal WARN Act violations, it indicates that plans to amend the filing to include claims under similar state statutes.  Hostess claims that it issued notices to employees in May, September, and October and thus no WARN Act violation occurred.

The WARN Act

The purpose of the WARN Act is to give advanced notice to workers and their families and provide “some transition time to adjust to the prospect of loss of employment, to seek and obtain other jobs, and, if necessary, to enter skill training or retraining that will allow these workers to compete successfully in the job market.”  Employees entitled to notice under the WARN Act include managers and supervisors in addition to hourly and salaried employees.  The Act requires written notice of the plant closure or mass layoff be given to each representative of the affected employees and if there are no representatives, to each affected employee.  

The WARN Act does exclude certain layoffs and plant closures from coverage, including if the closing of the plant or layoff “constitutes a strike or constitutes a lockout not intended to evade the requirements” of the WARN Act.  Further, Hostess may rely on 29 U.S.C. § 2101(b)(2)(A) which provides: “[a]n employer may order a plant closing or mass layoff before the conclusion of the 60-day period if the closing or mass layoff is caused by business circumstances that were not reasonably foreseeable as of the time that notice would have been required.”  The Act, however, is silent on the effects of a Chapter 11 bankruptcy.

Maine Statute

Popovich’s Complaint states that amendments may occur to add state law claims.  In Maine, 26 M.R.S.A. § 625-B covers severance pay upon the closure of a “covered establishment”, which is defined as any “industrial or commercial facility or part thereof which employs or has employed at any time in the preceding 12-month period 100 or more persons.”  26 M.R.S.A. § 625-B(1)(A).  The statute provides that any “employer who relocates or terminates a covered establishment shall be liable to his employees for severance pay at the rate of one week’s pay for each year of employment by the employee in that establishment.” 26 M.R.S.A. § 625-B(2).  Accordingly, the Maine statute, unlike its federal counterpart, provides for severance pay to employees of a covered establishment even if the company gives 60 days advance notice of the closing of the facility.  The Maine statute, however, does not require severance pay if the establishment files for protection under Chapter 11 of the United States Bankruptcy Code.  This bankruptcy exemption, however, disappears if the bankruptcy is converted to a Chapter 7 liquidation.  The U.S. Trustee has argued that Hostess should convert from a Chapter 11 reorganization to a Chapter 7 liquidation, however Judge Robert D. Drain found that the Chapter 11 process already under way was preferable to starting over with appointment of a Chapter 7 trustee, which would use up time the company purports to need to sell perishable products and seize asset sale opportunities.

It will be worth following the Hostess bankruptcy to see whether any of its employees in Maine can collect severance under Maine’s severance pay law or damages under the federal WARN Act.

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