WARNing: The “Liquidating Fiduciary” Exception Should Not Exist
Jonathan C. Gordon*
Abstract
The Worker Adjustment and Retraining Notification Act requires employers of a sufficient size to provide sixty days’ notice to employees affected by plant closings or mass layoffs. The Department of Labor, meanwhile, said that fiduciaries that are liquidating a business do not have to comply with that notice requirement. Courts have uniformly held that such a “liquidating fiduciary” exception exists. I disagree; there is no such exception.
Using traditional tools of statutory interpretation, I submit that Congress did not mean for such an exception to apply. Thus, Congress should clarify the WARN Act and make clear that there is no exception for “liquidating fiduciaries.” Until then, however, courts should stop applying the exception.
Introduction
Congress passed the Worker Adjustment and Retraining Notification Act (the “WARN Act” or “WARN” or the “Act”) in 1988.[1] The Act requires certain employers to provide sixty days’ notice to employees affected by plant closings or mass layoffs.[2] The Act defines “employer” as “any business enterprise that employs—(A) 100 or more employees, excluding part-time employees; or (B) 100 or more employees who in the aggregate work at least 4,000 hours per week (exclusive of hours of overtime).”[3]
If an employer fails to give proper notice, the “employer . . . shall be liable to each aggrieved employee who suffers an employment loss as a result of such closing or layoff for” backpay and benefits.[4] That backpay is “a statutory form of severance pay.”[5] More specifically, because severance pay comes in two forms—(i) pay in lieu of termination notice and (ii) pay based on the employee’s length of service—WARN backpay is “severance pay in lieu of notice, imposed by statute.”[6] As one bankruptcy court explained:
WARN gives the employer a choice—it may provide 60 days’ notice of closing or layoff to its employees, keeping the business open and incurring operating expenses during that period; or it may shut down its operations with little or no notice to its employees, saving operating expenses, but providing back pay to its employees, in compensation for the lack of notice, in accordance with a statutory formula.[7]
The Act further requires that the Department of Labor (the “Department”) “prescribe such regulations as may be necessary to carry out” the Act.[8] In the Department’s Analysis of the Final Rule, the Department commented that a “liquidating fiduciary” does not satisfy the Act’s definition of “employer.”[9] Specifically, the Department wrote:
[A] fiduciary whose sole function in the bankruptcy process is to liquidate a failed business for the benefit of creditors 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. In other situations, where the fiduciary may continue to operate the business for the benefit of creditors, the fiduciary would succeed to the WARN obligations of the employer precisely because the fiduciary continues the business in operation.[10]
A proper understanding of the “liquidating fiduciary” exception first requires a proper understanding of a liquidating fiduciary. When a business is financially distressed, it may choose to file for bankruptcy protection under the United States Bankruptcy Code. Typically, the business has two options: chapter 7 or chapter 11.[11]
If a business files under chapter 7, then a trustee is automatically appointed[12] to replace the debtor’s management and to liquidate the business.[13] Thus, the “liquidating fiduciary” exception is most applicable in chapter 7 bankruptcies—where a trustee (a fiduciary) is appointed to liquidate the business.[14]
If a business files under chapter 11, however, then a trustee is not automatically appointed.[15] Rather, the debtor’s management stays in possession of the business,[16] provided that the management does not engage in fraud or gross mismanagement.[17] As such, the debtor is called a “debtor in possession.”[18] The debtor in possession, however, has all the duties and responsibilities of a trustee.[19] Thus, just like trustees, debtors in possession are also fiduciaries.[20]
But in chapter 11, the debtor is not required to liquidate, though it may choose to do so.[21] Rather, chapter 11 permits the debtor to continue operating the business as a going concern while it restructures its debts.[22] Thus, it is not clear whether the “liquidating fiduciary” exception applies to chapter 11 debtors because the “sole function”[23] of a debtor in possession is not to liquidate.[24] Regardless, though courts dispute the proper contours of the exception, they do not dispute the exception’s existence. All the courts that have considered whether a “liquidating fiduciary” exception exists for fiduciaries in bankruptcy have uniformly answered in the affirmative.[25] Humbly, I submit that those courts have uniformly erred.
This Article proceeds in three parts. Part One examines some of the precedent on the “liquidating fiduciary” exception. Part Two presents my thesis—traditional tools of statutory interpretation prove that the WARN Act includes businesses being liquidated by fiduciaries, contrary to what courts uniformly have held. And Part Three explains that judicial deference to the Department’s interpretation is not warranted.
Part One: Examining the Precedent
Unfortunately, due to limited space, I cannot discuss all the cases that address the “liquidating fiduciary” exception.[26] That said, nothing in them would materially alter this discussion. Instead, I want to focus on two particular cases, In re Hanlin Group, Inc.[27] and In re United Healthcare Systems, Inc.[28]—each of which is noteworthy for a unique reason. Hanlin was the first court to determine whether a fiduciary in bankruptcy is subject to the WARN Act requirements. And United Healthcare, a decision from the Third Circuit, is the leading authority on the issue.
I. Hanlin (Bankr. D.N.J. 1995)
Hanlin Group filed for bankruptcy protection under chapter 11 and, as a result, became a debtor in possession.[29] After filing its bankruptcy petition, Hanlin Group terminated employees without providing sixty days’ notice, as required by the WARN Act.[30] The employees’ union sought $1.2 million in damages for the layoffs.[31]
The court first looked at whether the debtor in possession was an employer under the WARN Act.[32] The court’s entire (and limited) analysis on the issue relied on the Department’s commentary.[33] The court did not refer to the statutory definition of “employer,” nor did the court consider what constitutes a “business enterprise.”[34] Rather, the court quoted the Department’s “liquidating fiduciary” exception before holding that Hanlin Group qualified as an employer because it “continued to operate the business as a whole for the benefit of all parties in interest.”[35] The court, thus, clearly adopted the exception to determine what qualifies as a WARN Act employer, even if the court found the exception inapplicable due to the specific facts.
In short, the first court to use the “liquidating fiduciary” exception to determine the status of an employer in bankruptcy, for purposes of the WARN Act, did so without an iota of statutory interpretation.
II. United Healthcare (3d Cir. 1999)
Courts widely consider the Third Circuit’s decision in United Healthcare to be the leading authority on the issue.[36] United Healthcare featured a non-profit corporation (United Healthcare System, Inc.) in financial distress.[37] Because of its financial troubles, United Healthcare did the following:
- United Healthcare’s board voted to sell the company’s assets and shut down the hospital.[38] As part of the shut down, the hospital surrendered its certificates of need to the New Jersey Department of Health and advised the department that it was closing.[39]
- The hospital then voluntarily filed for chapter 11 bankruptcy relief.[40]
- On the same day as its bankruptcy petition, the hospital, pursuant to the WARN Act, gave 60 days’ notice of termination to its approximately 1,300 employees.[41] The notice stated that the employees should continue reporting to work until the termination date (60 days).[42]
- Because the hospital no longer had patients, however, employees did not perform their regular duties.[43] Rather, they “cleaned, took inventory and prepared the company’s assets for sale.”[44]
- Within a month after the bankruptcy petition, the Official Committee of Unsecured Creditors of United Healthcare System (the “Committee”) asked the bankruptcy court “to order United Healthcare to terminate all employees immediately.”[45]
- Before the court ruled on the Committee’s motion, United Healthcare dismissed 1,200 employees, forty-four days before the termination date.[46]
United Healthcare and the Committee then disputed whether these 1,200 employees were entitled to WARN Act back pay for the remaining forty-four days of the notice period.[47] The hospital believed that it did owe the employees for the back pay, but the Committee argued otherwise.[48] The Committee believed that United Healthcare was no longer a WARN Act “employer” because the hospital had surrendered its certificates of need with the aim to liquidate.[49]
The bankruptcy court, guided by the Department’s commentary, agreed with the hospital.[50] Because the hospital was still operating the business for the benefit of creditors,[51] the court held that the hospital’s employees were entitled to WARN Act back pay for the early termination.[52] The district court affirmed.[53] On appeal, the Third Circuit faced one question: “whether the [lower courts] correctly concluded United Healthcare continued as an ‘employer’ within the meaning of the WARN Act after filing for Chapter 11 bankruptcy . . . .”[54]
The court first turned to the Act’s definition of employer.[55] But the court found the definition “general and not especially helpful in determining whether a particular employer is subject to WARN.”[56] Nonetheless, the court pulled two requirements out of the definition: an employer (1) must employ a certain number of employees and (2) must be a “business enterprise,” which the court noted is not defined by the Act.[57] The court found that United Healthcare clearly met the first requirement, but it was less clear that United Healthcare remained a business enterprise.[58] The court pointed to the hospital’s contrasting activities. On one hand, the company had
surrendered its certificates of need, stopped treating patients, and entered bankruptcy to liquidate its assets. Each of these events precluded United Healthcare from performing the everyday business functions of a hospital and health care service. On the other hand, despite those events, United Healthcare remained a corporation that employed for sixteen days a substantial number of employees to whom it assigned various tasks all related to shutting down its operations.[59]
Because of this perceived ambiguity,[60] and because the term “business enterprise” had no statutory definition, the court quickly turned to the Department’s commentary for guidance.[61] The court found the commentary persuasive and adopted the Department’s “liquidating fiduciary” exception.[62] The relevant test, thus, was whether United Healthcare had continued “operating its business as a going concern.”[63]
The court’s initial finding of ambiguity, however, seems to rest on the assumption that a business enterprise is one performing “everyday business functions.”[64] This assumption is wrong.[65] Had the court interpreted the term “business enterprise,” instead of quickly turning to the Department, it would have found that the term does not require “everyday business functions.”[66] Rather, it would have found that the term’s meaning is clear.[67]
***
A common theme runs through the two above cases. Neither interpreted the statute to determine what constitutes a WARN employer. Hanlin does not refer to the statutory definition and gives no thought to what constitutes a “business enterprise.”[68] And while United Healthcare at least looked at the definition of “employer,” the court then assumed that a business enterprise must be “performing everyday business functions.”[69] Other than noting that the Act did not define “business enterprise,” the court did not do any other statutory interpretation before turning to the Department’s commentary.[70]
If either of these courts (or the other courts that have uniformly adopted the exception)[71] had more rigorously applied the traditional tools of statutory interpretation to the statute—rather than turning quickly to the Department’s commentary—they would have found that the WARN Act unambiguously includes businesses being liquidated by a fiduciary.
Part Two: Statutory Interpretation
Because the WARN Act defines “employer” to be “any business enterprise that employs” a certain number of people, the issue faced is first and foremost one of statutory interpretation—what does the term “business enterprise” mean under section 2101(a)(1) of the WARN Act?[72] More specifically, does it include a business that is being liquidated by a fiduciary? Based on traditional tools of statutory interpretation,[73] the answer should be yes. Irrespective of the Department’s guidance, the Act’s text should control because of the Act’s (i) plain language, (ii) structure, (iii) legislative evidence, and (iv) purpose.
I. Plain Language
Interpreting a statute requires first looking at the statute’s language.[74] Section 2101(a)(1) of the Act defines an employer as “any business enterprise that employs” 100 or more employees. The Act does not, however, define “business enterprise.”[75] “When Congress has not supplied a definition, [the Supreme Court] generally give[s] a statutory term its ordinary meaning.”[76] I suggest that the ordinary meaning of “business enterprise” is a business entity[77]—whether it be a large public corporation or a small private partnership. Under such an ordinary meaning, a business in bankruptcy is still a business enterprise even though it may be liquidating.
Critics of my interpretation may wonder why Congress would use redundant language; if Congress said “any business enterprise” then surely it meant something other than “any business” because Congress explicitly added another word.[78] Congress’ language, however, may be understandable as a term of art. Congress has used “business enterprise” when writing other laws[79] and has routinely referred to a “business enterprise” as a business:
- Section 1221 of title 15 defines “automobile manufacturer” as “any person, partnership, corporation, association, or other form of business enterprise . . . .”[80] Thus, the language implies that a business enterprise is defined as a business, whether it be a partnership, corporation, or association.
- Section 7108 of title 15 defines “women’s business enterprise” as “(A) a business or businesses owned by a woman or a group of women; or (B) the establishing, maintenance, or development of a business or businesses by a woman or a group of women . . . .”[81] Here, the language clearly equates “business enterprise” with “business.”
- Section 3102 of title 22 defines “business enterprise” as “any organization, association, branch, or venture which exists for profitmaking purposes or to otherwise secure economic advantage . . . .”[82] This definition is synonymous with—arguably, even broader than—a for-profit business.
- Section 1452 of title 28, in governing class action removals, excludes certain class actions that relate “to the internal affairs or governance of a corporation or other form of business enterprise . . . .”[83] A corporation, thus, is one form of a business enterprise. Other forms presumably include other business entities such as associations, partnerships, LLCs, etc.
- Section 6705 of title 42 defines “minority business enterprise” to be “a business at least 50 per centum of which is owned by minority group members . . . .”[84] Yet again, the legislature has explicitly equated “business enterprise” with “business.”
- Section 7141 of title 42 defines “minority business enterprise” to be a “firm, corporation, association, or partnership which is at least 50 percent owned . . . .”[85] A business enterprise, thus, includes corporations and other business entities.
In a similar vein, one district court, in giving jury instructions for a case on illegal gambling activity, explained that “a business enterprise usually involves a continuing course of conduct by persons associated together for a common purpose.”[86] On appeal, the Eighth Circuit found no error with the instructions.[87]
A business in liquidation could meet that definition: the business is a group of persons associated together (whether it be directors, managers, shareholders, or employees) continuously working together in a course of conduct—albeit that conduct is to further liquidation, rather than operations.[88] But even if that argument is not persuasive, a business in liquidation could still satisfy the definition of a business enterprise in United States v. Scavo.[89] Scavo only said that “a business enterprise usually involves a continuing course of conduct by persons associated together for a common purpose.”[90] So even if a debtor’s liquidation is not a continuous course of conduct, it is possible that the debtor is still a business enterprise, outside the usual universe suggested by Scavo.
Indeed, the Department itself even implied as much—that a liquidating business is still a business enterprise. The Department commented that a liquidating business is not a “‘business enterprise’ in the normal commercial sense.”[91] This language implies that a liquidating company is a business enterprise in some kind of non-normal or non-commercial sense. Likewise, the Third Circuit in United Healthcare found ambiguity because the company was not performing “everyday business functions.”[92] In making such a finding, the court implicitly limited the Act to normal, operating businesses.
The WARN Act, however, does not restrict the definition of “employer” to only functioning business enterprises of a normal or commercial sense. Nor does the Act define “employer” to be an operating business enterprise. Under either definition, the Department’s interpretation (and the Third Circuit’s analysis) would be more meritorious. The Department’s exception, however, improperly adds those qualifications to the Act’s definition. The WARN Act solely defines “employer” as “any business enterprise.”[93]
In response, the Department may argue that such qualifications (i.e., requiring that the business be operating in a normal commercial sense) are implicit—that Congress implied that a business enterprise must be operating because the prototypical business enterprise is one in operation.[94] The Act’s definition, however, does not say “a business enterprise,” which could suggest a prototypical interpretation. Rather, the definition of “employer” says “any business enterprise”[95]—regardless of whether that business is operating or liquidating. “As [the Supreme Court] ha[s] explained, ‘the word “any” has an expansive meaning, that is, “one or some indiscriminately of whatever kind.”’”[96] Courts must adhere to the WARN Act’s broad language—with its expansive meaning—and refrain from adding the Department’s restrictions.
In sum, the language of section 2101(a)(1) is clear. The term “business enterprise”—with its ordinary meaning and similar usage in other legislation—is synonymous with the term “business.”[97] And the WARN Act broadly states that “any business enterprise” (thus, “any business”) of the required size must adhere to the notice requirements.[98] Because the word “any” requires an expansive reading, it does not matter whether that business is liquidating or functioning in the normal commercial sense.[99] Holding otherwise would be adding words to the statute and legislating from the bench.
II. Structure and Interpretative Canons
Sticking with the text, “[w]hen Congress provides exceptions in a statute, it does not follow that courts have authority to create others. The proper inference . . . is that Congress considered the issue of exceptions and, in the end, limited the statute to the ones set forth.”[100] That inference stems from the expressio unius canon of statutory interpretation: “expressing one item of [an] associated group or series excludes another left unmentioned.”[101]
Explicitly providing exceptions thus excludes unmentioned exceptions. The Act explicitly provides for three exceptions. Under the “faltering company” exception, an employer does not need to give the required notice if the employer “was actively seeking capital or business” which would have allowed the employer to avoid layoffs, and the employer believed that “giving the notice required would have precluded the employer from obtaining the needed capital or business.”[102] Under the “unforeseeable business circumstances” exception, an employer need not give the required notice if the layoffs are “caused by business circumstances that were not reasonably foreseeable” at the time notice was required.[103] Last, under the “natural disaster” exception, an employer is not required to give notice if the layoff is due to a natural disaster.[104]
Indeed, the Act’s “faltering company” exception considers financially troubled employers. The proper inference, thus, is that Congress considered how the WARN Act would affect financially troubled employers and decided not to provide another shield for bankrupt employers. Had Congress intended a safe harbor for employers liquidating in bankruptcy, it could have done so explicitly.
Admittedly, the expressio unius canon is not absolute. It “is only a guide, whose fallibility can be shown by contrary indications”[105] to “all other textual and contextual evidence of congressional intent.”[106] Here, however, there are no contrary indications. All tools of statutory interpretation point in the same direction. The Act’s language is clear and further supported by the legislative evidence and overall purpose.
III. Legislative Evidence
The legislative history of the WARN Act is convoluted, but the meaning of “business enterprise” is not. As discussed below, Congress meant for “business enterprise” to be “synonymous with the terms company, firm or business.”[107]
The WARN Act traces its roots to the Omnibus Trade and Competitiveness Act of 1987 (the “Omnibus Act”),[108] intended to “enhance the competitiveness of American industry.”[109] The bill did not contain any provisions related to the WARN Act, however.[110] The Senate, unhappy with the House bill, introduced a bill of amendments to the Omnibus Act.[111] Among many other changes to the House bill, the Senate amendments added a new section titled “Advanced Notification of Plant Closings and Mass Layoffs.”[112]
That section was the foundation of today’s WARN Act and defined an “employer” as “any business enterprise that employs—(A) 50 or more full-time employees; or (B) 50 or more employees who in the aggregate work at least 2,000 hours per week (exclusive of hours of overtime).”[113] That definition is the same definition found in the WARN Act, except the minimum number of required employees has been upped to 100.[114] The WARN Act, thus, started as a subsection of amendments to the Omnibus Act.
In attempts to reconcile the Omnibus Act Senate amendments with the original House bill, the two houses formed a conference and filed an agreed-upon conference report.[115] A conference report “is generally the most reliable evidence in legislative history of congressional intent because it represents the final statement of the terms agreed to by both houses.”[116] With regards to the WARN Act, the conference report “retain[ed] the Senate Amendment language that the term ‘employer’ means a business enterprise.”[117] Further, the conference report added that “‘business enterprise’ be deemed synonymous with the terms company, firm or business.”[118]
The President eventually vetoed the Omnibus Act.[119] In response, the Senate introduced the WARN Act as a separate bill, retaining the same language that “employer” means “any business enterprise.”[120] Like the Omnibus Act, the Senate’s introduced bill did not define business enterprise.[121] Within a month, the House and Senate had passed the bill.[122] And within two months, the bill became law.[123] A conference between the two houses thus was unnecessary, so there is no conference report specific to the WARN Act. As a result, and because the language of “employer” did not change, the conference report to the Omnibus Act provides the best indication of what “business enterprise” means. It means a company, firm, or business.
As discussed earlier, when Congress has used “business enterprise” in other legislation, it has statutorily defined “business enterprise” to be synonymous with those terms. The legislative evidence here, thus, proves that the WARN Act is no different and confirms the earlier textual analysis. As a result, any company, firm, or business that satisfies the defined size must adhere to the Act’s notice requirements—regardless of whether that business is liquidating or operating in a normal commercial sense.
IV. Purpose
Last, the purpose[124] of the WARN Act is to protect employees and their families from being unexpectedly laid off.[125] By providing notice, employers give employees the opportunity to pursue other employment and relocate, if necessary.[126] Excusing fiduciaries from providing notice does not protect employees.
Consider the practical implications of the Department’s exception. Imagine a company, BigBiz. BigBiz is in financial distress. It is working with bankruptcy lawyers and is preparing to file for chapter 7 bankruptcy relief—say, on Tuesday. The company knows it will be shutting down. And so on Monday, the CEO of BigBiz contemplates terminating a substantial number of employees. After all, there is no need for them because the company is shutting down. But, the company never gave proper WARN notice, so it would face certain WARN liabilities.
On the other hand, the company realizes that the company would face no WARN liability if the employees were terminated during the bankruptcy liquidation. Under the purported “liquidating fiduciary” exception, the bankruptcy trustee would not be subject to the same notice requirements that the company’s management had a second before the bankruptcy filing.
To reiterate, if the CEO of BigBiz terminated BigBiz employees on Monday, without any notice, then BigBiz would be liable for sixty days’ back pay to those affected employees. But if BigBiz files for chapter 7 bankruptcy Tuesday morning, and the appointed trustee of BigBiz terminates the employees without any notice on Tuesday afternoon, then BigBiz has no liability. This stark dichotomy could motivate businesses to not give any notice of terminations if a liquidation is on the horizon.[127]
The WARN Act essentially gives employers a choice: (1) they can provide proper notice while continuing to operate and bear related operational expenses or (2) they can shut down without proper notice and save on operational expenses, but provide back pay to employees to compensate for the lack of notice.[128] Essentially, the optimal solution is a mathematical equation—until the “liquidating fiduciary” exception is applied. With the exception, businesses can enjoy the fruits of option two (shut down with no operational expenses) while bearing none of the costs (back pay in lieu of notice). Who, then, bears those costs? The employees. This lack of protection for employees stands strictly at odds with the purpose of the WARN Act.
One could (rightly) argue that it would be inequitable to hold a liquidating fiduciary liable when it had no prior involvement with the business and was appointed solely to sell company assets. However, and I stress this point as it seems to have become convoluted due to the Department’s language, the trustee would not be the party liable. WARN Act liability falls on the employer, the business enterprise—not its managers or executives or trustees or any other individuals.[129]
More specifically, the debtor’s bankruptcy estate would bear the costs of WARN liability because all assets and liabilities of the employer are part of an estate in bankruptcy.[130] One could then argue that it would be unfair to hold the estate (which includes creditors and other parties in interest) liable. But if that is the exception’s purpose, then there should also be an exception for companies that violate the WARN Act while operating as a going concern during bankruptcy (i.e. reorganizing rather than liquidating). When a debtor is forced to pay WARN liabilities to employees, the estate has less money available to pay creditors—regardless of whether the debtor is liquidating or reorganizing. Thus, because the Department’s exception only concerns liquidations, I doubt that the exception’s concern is that creditors are harmed indirectly. If that were true, there would also be an exception for reorganizations.
***
In addition, the WARN Act “is a remedial statute and must be construed broadly.”[131] As a result, exceptions must be “narrowly construed” and “the employer has the burden to prove the exception applies.”[132] Coupled with this high burden, the statutory analysis demonstrates that no “liquidating fiduciary” exception exists.
Part Three: But What About Judicial Deference?
When a court is tasked with interpreting an administrative agency’s law, and the agency has offered its interpretation, the court must determine if that interpretation is entitled to judicial deference—whether it be Chevron (strong) deference or Skidmore (weak) deference.[133]
I. Chevron deference
Though Chevron is under attack by judges, academics, and legislators,[134] it remains good law and must be dealt with.[135] Under Chevron, deference is required when (i) a statute’s meaning is unclear and (ii) the agency’s interpretation of that statute is reasonable.[136] This Chevron framework generally applies to interpretations that are offered through notice-and-comment rulemaking.[137] But Chevron can also apply elsewhere.[138]
To determine whether the Chevron test applies to a guidance document outside notice-and-comment rulemaking—like the Department’s Analysis, at issue here—courts look at various factors: “‘the interstitial nature of the legal question, the related expertise of the Agency, the importance of the question to administration of the statute, the complexity of that administration, and the careful consideration the Agency has given the question . . . .’”[139]
Here, however, those factors do not require analysis because even if the Chevron test does apply, deference would still not be warranted. If Chevron applies, then analysis begins with the first step—is the statute’s meaning clear, as determined by “traditional tools of statutory construction”?[140] As discussed in Part Two of this Article, the WARN Act is clear and includes businesses being liquidated by fiduciaries.[141] Because the first step is answered affirmatively, the Chevron test ends.[142] The test never reaches the second step (deference).[143]
II. Skidmore deference
Skidmore deference is weaker.[144] Unlike Chevron deference, Skidmore deference is not binding.[145] Rather, Skidmore interpretations are “entitled to respect” and can be looked upon for guidance.[146] But because the WARN Act is clear enough to overcome Chevron deference, it would also overcome the weaker Skidmore deference. Whatever respect the Department’s commentary deserves, it is not enough to overcome the WARN Act’s unambiguous language.
Conclusion
The WARN Act requires “any business enterprise” that meets certain size requirements to give sufficient notice to employees before a mass layoff or plant closing.[147] In its Analysis on the Final Rule, the Department of Labor purportedly created a “liquidating fiduciary” exception on the grounds that a “liquidating fiduciary” would not be operating a company in the normal commercial sense. Courts have uniformly adopted that exception.
Those courts, however, have uniformly erred. As the text, structure, legislative evidence, and purpose of the WARN Act make clear, the Act does not exempt businesses being liquidated by fiduciaries. Any business of the required size is subject to the Act’s notice requirements—regardless of whether that business is liquidating or operating. Thus, irrespective of the Department’s commentary, the WARN Act is clear and its meaning must control: there is no “liquidating fiduciary” exception.
* University of Notre Dame (B.B.A. cum laude, 2015); Northwestern University (J.D. cum laude, 2018). Special thanks to Andrew Dawson, David Neff, and Victoria Nourse for helpful feedback. Thanks also to Katherine Drews and Louis Murray for valuable editing.
[1] 29 U.S.C. §§ 2101–2109 (2012).
[2] 29 U.S.C. § 2102(a) (“An employer shall not order a plant closing or mass layoff until the end of a 60-day period after the employer serves written notice of such an order . . . .”); see §§ 2101(a)(2) and (3) for definitions of “plant closing” and “mass layoff,” respectively.
[3] 29 U.S.C. § 2101(a)(1) (emphasis added).
[4] 29 U.S.C. § 2104(a)(1).
[5] In re ContinentalAFA Dispensing Co., 403 B.R. 653, 658 (Bankr. E.D. Mo. 2009); see also In re Hanlin Grp., Inc., 176 B.R. 329, 334 (Bankr. D.N.J. 1995) (same quote); In re World Mktg. Chicago, LLC, 564 B.R. 587, 596 (Bankr. N.D. Ill. 2017) (citing ContinentalAFA, 403 B.R. at 658) (“There is little question that WARN Act claims are in the nature of severance.”).
[6] In re Cargo, Inc., 138 B.R. 923, 927 (Bankr. N.D. Iowa 1992).
[7] Hanlin, 176 B.R. at 334; see also John-Ethan Gionies, Note, The Liquidating Fiduciary: A Hidden Exception to WARN Act Liability, 31 Hofstra Lab. & Emp. L. J. 273, 285–86 (2013) (explaining the “liquidating fiduciary” exception and analyzing how it would apply in bankruptcy proceedings, but not questioning its existence).
[8] 29 U.S.C. § 2107.
[9] Worker Adjustment and Retraining Notification, 54 Fed. Reg. 16,042, 16,045 (Apr. 20, 1989) (analyzing a portion of the final rule later codified at 20 C.F.R. pt. 639.3(a)).
[10] Id.
[11] See 11 U.S.C. §§ 701–84 (2012); 11 U.S.C. §§ 1101–1174. The business may also file for chapter 12 if it is a family corporation or partnership engaged in fishing or farming. Id. § 101(19A)(B).
[12] See 11 U.S.C. §§ 701–02.
[13] The trustee may, however, operate the business for a limited period, provided that doing so is “consistent with orderly liquidation of the estate.” 11 U.S.C. § 721.
[14] See In re World Mktg. Chicago, LLC, 564 B.R. 587, 599 (Bankr. N.D. Ill. 2017) (“As such, a chapter 7 trustee is just the sort of liquidating fiduciary that is contemplated in the Department of Labor commentary.”).
[15] 11 U.S.C. §§ 1106, 1107.
[16] Id.
[17] Id. § 1104(a).
[18] Id. § 1101(1).
[19] Id. § 1107(a).
[20] Commodity Futures Trading Comm’n v. Weintrauf, 471 U.S. 343, 355 (1985) (“[I]f a debtor remains in possession—that is, if a trustee is not appointed—the debtor’s directors bear essentially the same fiduciary obligation to creditors and shareholders as would the trustee for a debtor out of possession.”).
[21] World Mktg. Chicago, 564 B.R. at 600 (“The sole function of the debtor in possession and chapter 11 trustee is not to liquidate.”).
[22] 11 U.S.C. § 1108.
[23] 54 Fed. Reg. 16,045 (1989).
[24] Compare World Mktg. Chicago, 564 B.R. at 600 (suggesting that the “liquidating fiduciary” exception should never apply in a chapter 11 case because the sole function of a debtor in possession is not to liquidate and the debtor in possession may continue to operate the business) (a prospective approach focused on the debtor’s statutory powers) with In re United Healthcare Sys., Inc., 200 F.3d 170, 178 (3d Cir. 1999) (applying the exception in a chapter 11 case because the debtor in possession demonstrated a clear intent to liquidate) (a retroactive approach focused on the debtor’s actions).
[25] See United Healthcare, 200 F.3d at 177, 179 (“It is appropriate, therefore, to consider agency regulations and comments as well as the case law. . . . In conclusion, we do not believe United Healthcare continued as an ‘employer’ within the meaning of the WARN Act when it assumed the role of fiduciary following the filing for bankruptcy. At that time, it ceased operating its business as a going concern and was simply preparing itself for liquidation.”); In re Century City Doctors Hosp., LLC, 2010 WL 6452903, at *7 (B.A.P. 9th Cir. Oct. 29, 2010) (“Given that the Ninth Circuit already has used the DOL Commentary for the same purpose, the bankruptcy court did not err when it relied on the DOL Commentary to determine whether the Trustee qualified as an employer under the WARN Act.”); World Mktg. Chicago, 564 B.R. at 599 (“The bankruptcy courts that have considered the specific question of whether a liquidating fiduciary exception to the WARN Act applies have uniformly concluded that it does. . . . In light of the foregoing, the court has little hesitation in holding that there is indeed a liquidating fiduciary exception to the WARN Act in the manner set forth in the Department of Labor commentary.”); In re Dewey & LeBoeuf LLP, 487 B.R. 169, 175 (Bankr. S.D.N.Y. 2013) (stating that “[a] liquidating fiduciary principle has developed, pursuant to which a liquidating fiduciary in a bankruptcy case does not fit the definition of an employer for purposes of the WARN Act” and continuing to apply the exception); In re MF Glob. Holdings Ltd., 481 B.R. 268, 280, 282 (Bankr. S.D.N.Y. 2012) (“[T]he Court is persuaded that the ‘liquidating fiduciary’ principle is applicable in these proceedings.”); In re Century City Doctors Hosp., LLC, 417 B.R. 801, 805 (Bankr. C.D. Cal. 2009), aff’d, 2010 WL 6452903 (B.A.P. 9th Cir. Oct. 29, 2010) (finding no WARN liability because “the trustee acted solely as a ‘liquidating fiduciary,’ rather than an employer ‘operating a business enterprise in the normal commercial sense’”); In re Jamesway Corp., 1997 WL 327105, at *12 (Bankr. S.D.N.Y. June 12, 1997) (“Thus, liquidating fiduciaries need not provide notice to terminated employees under the WARN Act.”); Hanlin, 176 B.R. at 332 (quoting the Department’s commentary and then holding that the debtor was a WARN employer because it “continued to operate the business as a whole for the benefit of all parties in interest”).
[26] See supra note 25.
[27] 176 B.R. 329 (Bankr. D.N.J. 1995).
[28] 200 F.3d 170 (3d Cir. 1999).
[29] Hanlin, 176 B.R. at 332.
[30] Id.
[31] Id. at 332.
[32] Id.
[33] Id.
[34] Id.
[35] Id.
[36] See, e.g., World Mktg. Chicago, 564 B.R. at 600 (“The Third Circuit’s United Healthcare case is th[e] leading authority on the issue.”); MF Glob. Holdings Ltd., 481 B.R. at 280 (“The United Healthcare case is particularly instructive.”).
[37] In re United Healthcare Sys., Inc., 200 F.3d 170, 172 (3d Cir. 1999).
[38] Id. at 173.
[39] Id.
[40] Id.
[41] Id.
[42] Id.
[43] Id.
[44] Id.
[45] Id.
[46] Id.
[47] Id. at 173–74.
[48] Id. at 174.
[49] Id.
[50] Id.
[51] Id.; see also 54 Fed. Reg. 16,045 (1989).
[52] United Healthcare, 200 F.3d at 174.
[53] Id. at 175.
[54] Id.; Gionies, supra note 7, at 289–90.
[55] United Healthcare, 200 F.3d at 176.
[56] Id.
[57] Id. (“‘[B]usiness enterprise’ [is] a term the statute does not define.”).
[58] Id.
[59] Id. (emphasis added).
[60] Id. at 176–77 (“Addressing the facts here in context, we do not believe WARN’s plain language resolves whether United Healthcare was an ‘employer’ required to provide sixty days notice prior to its termination of the 1,200 employees.”).
[61] Id. at 177 (“It is appropriate, therefore, to consider agency regulations and comments as well as the case law.”).
[62] Id. at 179 (“[W]e do not believe United Healthcare continued as an ‘employer’ within the meaning of the WARN Act when it assumed the role of fiduciary following the filing for bankruptcy. At that time, it ceased operating its business as a going concern and was simply preparing itself for liquidation.”).
[63] Id.
[64] Id.
[65] Infra Part II.
[66] Id.
[67] Id.
[68] In re Hanlin Grp., Inc., 176 B.R. 329, 332 (Bankr. D.N.J. 1995)
[69] United Healthcare, 200 F.3d at 179.
[70] Id. at 177.
[71] See supra note 25.
[72] 29 U.S.C. § 2101(a)(1) (2012) (emphasis added).
[73] See Gen. Dynamics Land Sys., Inc. v. Cline, 540 U.S. 581, 600 (2004) (looking at the “text, structure, purpose, and history” of a statute to interpret its meaning); see also Sir William Blackstone, 1 Commentaries on the Laws of England 58–61 (Cooley ed. 1876) (1765-69) (“The fairest and most rational method to interpret the will of the legislator is by exploring his intentions at the time when the law was made, by Signs the most natural and probable. And these signs are either the words, the context, the subject-matter, the effects and consequence, or the spirit and reason of the law.”).
[74] See, e.g., Barnhart v. Sigmon Coal Co., 534 U.S. 438, 450 (2002) (“As in all statutory construction cases, we begin with the language of the statute.”).
[75] United Healthcare, 200 F.3d at 176 (“‘[B]usiness enterprise’ [is] a term the statute does not define.”).
[76] See Lopez v. Gonzales, 549 U.S. 47, 53 (2006) (“The everyday understanding of [the word at issue] should count for a lot here, for the statutes in play do not define the term, and so remit us to regular usage to see what Congress probably meant.”) (emphasis added).
[77] For example, Merriam-Webster defines “enterprise” as “a unit of economic organization or activity; especially a business organization.” Enterprise, Merriam-Webster Dictionary (2018), https://www.merriam-webster.com/dictionary/enterprise [https://perma.cc/9XMP-QQ5M]. In a similar manner, Black’s Law Dictionary defines “business enterprise” as “a for-profit company, business, or organization that provides financial, commercial, or industrial goods and services.” Business Enterprise, Black’s Law Dictionary (10th ed. 2014). A business being liquidated still provides goods and services—just not for much longer. For example, when retailers (such as Toys R Us) liquidate under chapter 7, they continue to sell any remaining inventory. See Joan Verdon & Nathan Bomey, How Chapter 7 Liquidation Works: Toys R Us Preps Going-Out-of-Business Sales, USA Today (Mar. 9, 2018), https://www.usatoday.com/story/money/2018/03/09/chapter-7-bankruptcy-liquidation/409239002/ [https://perma.cc/XHR9-LLQP].
[78] See Brett M. Kavanaugh, Fixing Statutory Interpretation, 129 Harv. L. Rev. 2118, 2161–62 (2016) (“Judges say that we should not interpret statutes to be redundant. But humans speak redundantly all the time, and it turns out that Congress may do so as well. Congress might do so inadvertently. Or Congress might do so intentionally in order to, in Shakespeare’s words, make ‘double sure.’”).
[79] See W. Virginia Univ. Hosps., Inc. v. Casey, 499 U.S. 83, 88–89 (1991) (looking at the “record of statutory usage” across various titles of the United States Code to determine that expert fees are not included in “attorney’s fees”).
[80] 15 U.S.C. § 1221(a) (2012).
[81] 15 U.S.C. § 7108(7) (2012).
[82] 22 U.S.C. § 3102(6) (2012).
[83] 28 U.S.C. § 1452(d)(2) (2012).
[84] 42 U.S.C. § 6705(f)(2) (2012).
[85] 42 U.S.C. § 7141(f) (2012).
[86] United States v. Scavo, 593 F.2d 837, 842–43 (8th Cir. 1979).
[87] Id. at 843.
[88] See In re United Healthcare Sys., 200 F.3d 170, 176 (3d Cir. 1999) (employees had “various tasks all related to shutting down . . . operations”) (emphasis added); see also In re Fairfield Sentry Ltd., 714 F.3d 127, 137 (2d Cir. 2013) (holding that a debtor’s “liquidation activities and administrative functions” may be considered to determine the debtor’s center of main interests for purposes of a chapter 15 cross-border bankruptcy) (emphasis added).
[89] 593 F.2d 837 (8th Cir. 1979).
[90] Id. at 842–43 (emphasis added).
[91] 54 Fed. Reg. 16,045 (1989).
[92] 200 F.3d at 176.
[93] 29 U.S.C. § 2101(a)(1) (2012) (emphasis added).
[94] See Victoria Nourse, Two Kinds of Plain Meaning, 76 Brook. L. Rev. 997, 1000 (2011) (“As linguist Larry Solan has written, ordinary meaning is prototypical meaning—that is, meaning focusing on a core example, rather than reaching the conceptual or logical extension of the term. Prototypical meaning picks the best example, not the peripheral one.”) (emphasis added).
[95] Id.
[96] Dep’t of Hous. & Urban Dev. v. Rucker, 535 U.S. 125, 131 (2002) (quoting United States v. Gonzales, 520 U.S. 1, 5 (1997)).
[97] Supra Part II, Section I.
[98] 29 U.S.C. § 2101(a)(1) (emphasis added).
[99] Rucker, 535 U.S. at 131.
[100] United States v. Johnson, 529 U.S. 53, 58 (2000).
[101] N.L.R.B. v. SW Gen., Inc., 137 S. Ct. 929, 940 (2017) (quotations omitted) (citing Chevron v. Echazabal, 536 U.S. 73, 80 (2002) (quoting United States v. Vonn, 535 U.S. 55, 65 (2002))).
[102] 29 U.S.C. § 2102(b)(1).
[103] Id. § 2102(b)(2)(A).
[104] Id. § 2102(b)(2)(B).
[105] United States v. Vonn, 535 U.S. 55, 65 (2002) (citing Pauley v. Beth Energy Mines, Inc., 501 U.S. 680, 703 (1991)).
[106] Burns v. United States, 501 U.S. 129, 136 (1991).
[107] H.R. Rep. No. 100-576, at 1046 (1988) (Conf. Rep.).
[108] Omnibus Trade and Competitiveness Act of 1987, H.R. 3, 100th Cong. (1987).
[109] H.R. Rep. No. 100-576, at 1 (1988) (Conf. Rep.).
[110] H.R. Rep. No. 100-576, at 1045 (1988) (Conf. Rep.) (“The House bill contains no comparable provision” to the section “Advance Notification of Plant Closings and Mass Layoffs[.]”).
[111] Omnibus Trade and Competitiveness Act of 1987, S. 1420, 100th Cong. (1987).
[112] Id. at 609.
[113] Id.
[114] 29 U.S.C. § 2101(a)(1) (2012).
[115] H.R. Rep. No. 100-576 (1988) (Conf. Rep.).
[116] Auburn Hous. Auth. v. Martinez, 277 F.3d 138, 147 (2d Cir. 2002).
[117] H.R. Rep. No. 100-576, at 1046 (1988) (Conf. Rep.).
[118] Id.
[119] See Actions Overview of H.R. 3 – 100th Congress (1987-1988), Congress.gov, https://www.congress.gov/bill/100th-congress/house-bill/3/actions?q=%7B%22search%22%3A%5B%22hr3%22%5D%7D&r=1616) [https://perma.cc/PYH4-6M59].
[120] Worker Adjustment and Retraining Notification Act, S. 2527, 100th Cong. § 2(a)(1) (1988).
[121] Id. § 2(a).
[122] Worker Adjustment and Retraining Notification Act, S. 2527, Roll Vote Nos. 225, 229.
[123] Worker Adjustment and Retraining Notification Act, Pub. L. No. 100-379, § 102 Stat. 890 (1988).
[124] Dolan v. U.S. Postal Serv., 546 U.S. 481, 486 (2006) (“Interpretation of a word or phrase depends upon reading the whole statutory text, considering the purpose and context of the statute, and consulting any precedents or authorities that inform the analysis.”) (emphasis added); McCreary Cty., Ky. v. Am. Civil Liberties Union of Ky., 545 U.S. 844, 861 (2005) (“Examination of purpose is a staple of statutory interpretation that makes up the daily fare of every appellate court in the country.”) (emphasis added).
[125] In re APA Transp. Corp. Consol. Litig., 541 F.3d 233, 239 (3d Cir. 2008), (“The purpose of the WARN Act is to protect workers by obligating employers to give their employees advanced notice of plant closings.”); Bader v. N. Line Layers, Inc., 503 F.3d 813, 817 (9th Cir. 2007) (“The purpose of the Act is to give advance notice to workers and the community so that workers can prepare to seek alternative employment and communities can prepare for the economic disruption of a mass layoff.”).
[126] Bader, 503 F.3d at 817.
[127] Gionies, supra note 7, at 285 (“But now, in light of United Healthcare and Jamesway, it is possible that employers, under certain circumstances, might be wise to instead delay their layoffs or plant closings until after filing a petition in bankruptcy in hopes of completely relieving themselves of WARN Act liability by qualifying as liquidating fiduciaries instead of business enterprises.”).
[128] See In re Hanlin Grp., Inc., 176 B.R. 329, 334 (Bankr. D.N.J. 1995).
[129] 29 U.S.C. § 2104(a)(1) (2012).
[130]11 U.S.C. § 541 (2012) (defining the estate to include “all legal or equitable interests of the debtor in property as of the commencement of [a] case”).
[131] Solberg v. Inline Corp., 740 F.Supp. 680, 685 (D. Minn. 1990) (citing Belland v. Pension Benefit Guar. Corp., 726 F.2d 839, 844 (D.C. Cir. 1984)).
[132] Snider v. Commercial Fin. Servs., Inc., 288 B.R. 890, 895 (N.D. Okla. 2002) (citing Carpenters District Council of New Orleans & Vicinity v. Dillard Dept. Stores, Inc., 15 F.3d 1275, 1282 (5th Cir. 1994)) (“Exceptions to the sixty day notice requirement are to be narrowly construed and the employer has the burden to prove the exception applies.”).
[133] See Hale Melnick, Note, Guidance Documents and Rules: Increasing Executive Accountability in the Regulatory World, 44 B.C. Envtl. Aff. L. Rev. 357, 373–75 (2017).
[134] Kent Barnett & Christopher J. Walker, Chevron Step Two’s Domain, 93 Notre Dame L. Rev. 1441, 1441 (2018) (“An increasing number of judges, policymakers, and scholars have advocated eliminating or narrowing Chevron deference . . . .”); see generally Christopher J. Walker, Attacking Auer and Chevron Deference: A Literature Review, 16 Geo. J.L. & Pub. Pol’y 103 (2017).
[135] Pereira v. Sessions, 138 S.Ct. 2105, 2129 (2018) (Alito, J., dissenting) (“[U]nless the Court has overruled Chevron in a secret decision that has somehow escaped my attention, it remains good law.”).
[136] Chevron v. Natural Resources Defense Council, 467 U.S. 837, 842–43 (“If the intent of Congress is clear, that is the end of the matter; . . . [but] if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.”).
[137] Melnick, supra note 133, at 373.
[138] Id. at 378 (“The Court in Barnhart announced that Chevron deference does not apply only to rules promulgated through notice-and-comment rulemaking.”) (citing Barnhart v. Walton, 535 U.S. 212, 221–22 (2002)).
[139] Id.).
[140] 467 U.S. at 843 n.9; see also Gen. Dynamics Land Sys., Inc. v. Cline, 540 U.S. 581, 600 (2004) (“Even for an agency able to claim all the authority possible under Chevron, deference to its statutory interpretation is called for only when the devices of judicial construction have been tried and found to yield no clear sense of congressional intent.”).
[141] Supra Part II.
[142] 467 U.S. at 842 (“If the intent of Congress is clear, that is the end of the matter . . . .”).
[143] Id.
[144] Melnick, supra note 133, at 375.
[145] Id.
[146] Id.; Skidmore v. Swift, 323 U.S. 134, 140 (1944).
[147] 29 U.S.C. § 2101(a)(1) (2012) (emphasis added).