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Warner Norcross + Judd LLP is a corporate law firm with over 230 attorneys serving clients in nine offices throughout Michigan. Among the largest law firms in Michigan, Warner works in virtually all areas of business law.

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The Federal Worker Adjustment Retraining Notification (WARN) Act requires employers to give workers 60 days’ written notice of a plant closing or mass termination. In the latest update to an important case interpreting the WARN Act requirements, the federal bankruptcy court for the District of Delaware held late last month that Yellow Corp. was not liable for a failure to provide 60 days’ notice to approximately 22,000 union employees ahead of mass layoffs in 2023 because the company was a “liquidating fiduciary” winding down its business and not an “employer” at the time of the layoffs.

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In light of this recent development, this eAlert looks back to the In re Yellow Corp. court’s December 2024 67-page comprehensive analysis of the interpretation of defenses to WARN Act liability — in what circumstances an employer may invoke these defenses and where Yellow Corp. went wrong.

The WARN Act Notice Requirement and Exceptions

The WARN Act provides two exceptions to its 60-day notice requirements: The faltering company exception and the unforeseeable business circumstances exception.

The faltering company exception — available only for plant closures and not mass layoffs — allows employers to provide less than 60 days’ notice under the following conditions:

[1] if as of the time that notice would have been required the employer was actively seeking capital or business [2] which, if obtained, would have enabled the employer to avoid or postpone the shutdown and [3] the employer reasonably and in good faith believed that giving the notice required would have precluded the employer from obtaining the needed capital or business.

The unforeseeable business circumstances exception allows employers to provide less than 60 days’ notice of layoffs if a “closing or mass layoff is caused by business circumstances that were not reasonably foreseeable as of the time that notice would have been required.” Id. § 2102(b)(2).

Crucially, the employer cannot rely on either of the exceptions above unless it provides notice to employees that includes “a brief statement of the reason for reducing the notice period[.]” 29 C.F.R. § 639.9.

In addition to the exceptions above, bankruptcy courts also recognize a third “exception,” the so-called liquidating fiduciary exception. Not articulated in any statute or regulation, this exception was created by the Department of Labor’s acknowledgment that in some bankruptcy circumstances an employer (defined for WARN Act purposes as a “business enterprise” with more than 100 employees) acts merely as “a fiduciary whose sole function in the bankruptcy process is to liquidate a failed business for the benefit of creditors[.]”<a href="#_ftn1" id="_ftnref1">[1]</a> In such cases, the entity “does not succeed to the notice obligations of the former employer because the fiduciary is not operating a ‘business enterprise’ in the normal commercial sense.”<a href="#_ftn2" id="_ftnref2">[2]</a>

In re Yellow Corp. Litigation

After a three-day trial, the United States Bankruptcy Court for the District of Delaware determined last month that Yellow Corp. was not liable for alleged violations of the WARN Act.<a id="_ftnref3" href="#_ftn3">[3]</a> Yellow Corp. was once one of the largest truckers in the country. In more difficult circumstances of late, the company retained an investment banker to seek new investments or modify existing loans. To ease its liquidity challenges, the company requested of its union pension fund a deferral of a contribution. The pension fund denied the request.

When the company failed to make the payment, the union gave notice of a strike on July 17, 2023. Customers reacted nervously, and Yellow Corp.’s daily shipments plummeted, exacerbating the company’s financial condition. No longer able to acquire financing or modify its loan agreements, the company filed a chapter 11 petition to liquidate in the United States Bankruptcy Court for the District of Delaware in August 2023.<a href="#_ftn4" id="_ftnref4">[4]</a> Before it did so, however, it sent off two sets of WARN notices to its newly laid-off employees. The first of these occurred on July 28, 2023, addressed to its non-union employees:

The Company is shutting down its regular operations on July 28, 2023, closing and/or laying off employees at all of its locations, including yours (the “Shut Down”). . . . The Company was not able to provide earlier notice of the Shut Down as it qualifies under the “unforeseeable business circumstances,” “faltering company,” and “liquidating fiduciary” exceptions set forth in the WARN Acts.

The second, addressed to its union employees, was sent out on July 30, 2023:

The Company was not able to provide earlier notice of the Shut Down as it qualifies under the ‘unforeseeable business circumstances,’ ‘faltering company,’ and ‘liquidating fiduciary’ exceptions set forth in the WARN Act. . . . The Company had hoped to complete one or more transactions and secure funds and business to prevent the closing of these locations but was unable to do so. These circumstances were not reasonably foreseeable at the time notice would have otherwise been required and notice is further excused because the business is being liquidated.

Employees, unions and pension funds filed proofs of claim under the WARN Act, and after discovery both sides filed motions for summary judgment.

The Delaware Bankruptcy Court

The Delaware bankruptcy court, Judge Goldblatt presiding, wrote a thorough 67-page opinion analyzing the exceptions to WARN Act liability.<a href="#_ftn5" id="_ftnref5">[5]</a>

The court determined that although Yellow Corp. clearly failed to satisfy the 60 days’ WARN notice requirement, it met the faltering company exception, because “the debtors’ efforts, through [their investment banker], to explore options either to refinance existing indebtedness or to attract new capital was sufficient to fall within the faltering company exception,” even if such efforts ultimately proved unsuccessful.<a href="#_ftn6" id="_ftnref6">[6]</a> The court added that “[r]etaining an investment banker that is actively engaged in exploring the market for sources of new liquidity is precisely the kind of activity” that qualified a company for the exception.<a href="#_ftn7" id="_ftnref7">[7]</a>

The court also held that Yellow Corp. satisfied the unforeseeable business circumstances exception. The shut down was caused by the parties’ “history of brinksmanship,” which had pitted them into high-stakes negotiations in the past and from which they emerged with a resolution in each instance.<a href="#_ftn8" id="_ftnref8">[8]</a> Yellow Corp., the court held, therefore had a genuine belief “that the [parties] would come to the table before the clock ran out.”<a href="#_ftn9" id="_ftnref9">[9]</a> The court also opined that the event that catalyzed the company’s collapse was caused “at least in substantial part, by the [union’s] miscalculation about the effect of sending a strike notice.”<a href="#_ftn10" id="_ftnref10">[10]</a>

Although the facts showed that Yellow Corp. was entitled to rely on either statutory exceptions to the WARN notice requirement, the court nevertheless held that neither exception was available to the company because the notice the company did send out to its employees on July 28 and 30, 2023, failed to meet a minimum requirement of late notice — to give a brief statement of the basis for reducing the notification period.<a href="#_ftn11" id="_ftnref11">[11]</a> Neither notices “contain[ed] enough facts adequately to justify the reduced notice,” with the court helpfully comparing Yellow Corp.’s notices to those analyzed in different bankruptcy cases throughout the country.<a href="#_ftn12" id="_ftnref12">[12]</a> Accordingly, Yellow Corp.’s insufficient notice cost them the benefit of both statutory defenses.

The court also considered whether the liquidating fiduciary exception applied to the company. Because the company was still engaged in its usual business on July 28, 2023, the court determined that there was no genuine dispute of material fact that the exception did not apply to its firing of non-union workers on that day.<a href="#_ftn13" id="_ftnref13">[13]</a> However, the court held that a genuine dispute still existed as to whether the company was engaged in its normal business on July 30 when it fired its union workers.<a href="#_ftn14" id="_ftnref14">[14]</a>

Whether Yellow Corp. satisfied the liquidating fiduciary exception was resolved in favor of the company last month, when the court, after a three day trial, held that the company had significantly reduced its activities by July 30 such that it “was no longer in the service of generating future revenues,” at that point.<a id="_ftnref15" href="#_ftn15">[15]</a> Therefore, although the company’s activities that day bore some resemblance to its ordinary course of business, it was “no longer operating its core business functions” and was thus “not an ‘employer’ within the meaning of the WARN Act.”<a id="_ftnref16" href="#_ftn16">[16]</a>

With business bankruptcies on the rise, it is important that employers are aware of the timing and content requirements for WARN Act notices. Accordingly, before implementing a layoff, restructuring or mass termination, employers should consult with legal counsel to ensure compliance with all requirements under the WARN Act.

Warner’s bankruptcy, restructuring and insolvency attorneys will keep you updated on the evolving legal landscape and its impact on you and your business. For more information and assistance with the implications of these recent court proceedings, reach out to Dennis Loughlin, Michael Woo or a member of Warner’s Bankruptcy, Restructuring and Insolvency Practice Group.

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<a href="#_ftnref1" id="_ftn1">[1]</a> Worker Adjustment and Retraining Notification, 54 Fed. Reg. 16,042, 16,045 (Apr. 20, 1989).

<a href="#_ftnref2" id="_ftn2">[2]</a> Id.

<a href="#_ftnref3" id="_ftn3">[3]</a> In re Yellow Corp., No. 23-11069, 2025 WL 657567 (Bankr. D. Del. Feb. 26, 2025).

<a href="#_ftnref4" id="_ftn4">[4]</a> In re Yellow Corporation, No. 23-11069 (Bankr. D. Del. Aug. 2023).

<a href="#_ftnref5" id="_ftn5">[5]</a> In re Yellow Corp., No. 23-11069, 2024 WL 5181660 (Bankr. D. Del. Dec. 19, 2024).

<a href="#_ftnref6" id="_ftn6">[6]</a> Id. at *10-11.

<a href="#_ftnref7" id="_ftn7">[7]</a> Id. at *11.

<a href="#_ftnref8" id="_ftn8">[8]</a> Id. at *12.

<a href="#_ftnref9" id="_ftn9">[9]</a> Id.

<a href="#_ftnref10" id="_ftn10">[10]</a> Id.

<a href="#_ftnref11" id="_ftn11">[11]</a> Id. at *13.

<a href="#_ftnref12" id="_ftn12">[12]</a> Id.

<a href="#_ftnref13" id="_ftn13">[13]</a> Id. at *20.

<a href="#_ftnref14" id="_ftn14">[14]</a> Id.

<a href="#_ftnref15" id="_ftn15">[15]</a> In re Yellow Corp., No. 23-11069, 2025 WL 657567, at *9 (Bankr. D. Del. Feb. 26, 2025).

<a href="#_ftnref16" id="_ftn16">[16]</a> Id. at *10.

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Key Update on WARN Act: Bankruptcy Court Limits Employer Liability in Mass Layoffs in Follow Up to Comprehensive 67-Page Opinion

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Key Update on WARN Act: Bankruptcy Court Limits Employer Liability in Mass Layoffs in Follow Up to Comprehensive 67-Page Opinion

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