Fifth Circuit Rules that COVID-19 Pandemic Did Not Trigger the “Natural Disaster” Exception to WARN Notice Requirements – Littler Mendelson PC

In the first such decision from a federal appellate court, the U.S. Court of Appeals for the Fifth Circuit has ruled the COVID-19 pandemic is not a “natural disaster” that exempts employers from providing advance notice of mass layoffs and plant closures under the WARN Act. The court also opined that the natural-disaster exception requires proof of proximate causation, not but-for causation.1

When the COVID-19 pandemic began in March 2020, businesses had to make difficult decisions whether to lay off employees in light of mandatory closures and rapid economic downturn. There was little guidance at the time regarding how to interpret the WARN Act’s notice requirements in light of these unprecedented circumstances. In general, the WARN Act requires covered employers to provide 60 days’ notice before a plant closing or mass layoff.2 Three exceptions permit employers to avoid or reduce the 60-day notice requirement: (1) the “faltering company” exception; (2) the “unforeseeable business circumstances” exception; and (3) the “natural disaster” exception.3 Employers that violate the WARN Act are required to provide aggrieved employees “back pay for each day of violation.”4

Like many other businesses, US Well Services Inc. laid off employees at the onset of the COVID‑19 pandemic. By way of background, oil producers hire US Well to perform hydraulic fracturing services (fracking). In early 2020, oil prices hit historic lows due to a price conflict between Saudi Arabia and Russia, which was compounded by a precipitous decline in travel and decreased demand for oil and gas at the inception of the COVID-19 pandemic. Accordingly, several US Well customers curtailed or completely shut down the fracking work that US Well had been performing at multiple well sites in Texas. When crew members returned to US Well from those well sites, they were immediately laid off on March 18, 2020, via letters stating:

Your termination of employment is due to unforeseeable business circumstances resulting from a lack of available customer work caused by the significant drop in oil prices and the unexpected adverse impact that the Coronavirus has caused.

Approximately five months later, on August 26, 2020, three crew members filed a class action lawsuit alleging US Well violated the WARN Act by terminating their employment without providing 60 days’ notice. The parties cross-moved for summary judgment. Chief Judge Lee Rosenthal of the U.S. District Court for the Southern District of Texas concluded that COVID‑19 was a natural disaster and that the company could rely on the exception even if the natural disaster did not directly cause the layoff, if the layoff would not have occurred “but for” the natural disaster. The district court denied both motions for summary judgment, however, because it concluded the record did not show whether COVID-19 was the but-for cause of the layoffs.

Upon the crew members’ motion, the district court certified two questions for appeal: (1) Does COVID-19 qualify as a natural disaster under the WARN Act’s natural-disaster exception and (2) Does applicability of the WARN Act’s natural-disaster exception depend upon but-for or proximate causation?

Whether COVID-19 Qualifies as a Natural Disaster Under the WARN Act’s Natural-Disaster Exception

First the Fifth Circuit considered whether COVID-19 is a “natural disaster” that can justify an exception from providing WARN notice. The WARN Act’s natural-disaster exception, as set out in the statute, states no advance notice is required “if the plant closing or mass layoff is due to any form of natural disaster, such as a flood, earthquake, or the drought currently ravaging the farmlands of the United States.5

Because the WARN Act does not define “natural disaster,” the Fifth Circuit first looked to the ordinary meaning of the words at the time the WARN Act was enacted in 1988. “Natural” was defined as “of or arising from nature; in accordance with what is found or expected in nature” and “produced or existing in nature; not artificial or manufactured.” “Disaster” was defined as “any happening that causes great harm or damage; serious or sudden misfortune; calamity.” While it found the dictionary definitions of these terms bear consideration, the court felt they were not dispositive.

The Fifth Circuit next considered the terms’ statutory context and concluded that, by providing three examples after “such as,” Congress indicated the phrase “natural disaster” includes only events of the same kind as floods, earthquakes, and droughts. The court applied two canons of statutory construction that it believed supported its conclusion that the COVID-19 pandemic is not a natural disaster. First, applying noscitur a sociis,6 the court concluded the appearance of “natural disaster” in a list with “flood, earthquake, or drought” suggested that Congress intended to limit “natural disaster” to hydrological, geological, and meteorological events. Second, applying expressio unius est exclusio alterius,7 the court observed that Congress knew how to include, and could have included, terms like “disease,” “pandemic,” or “virus” in the WARN Act. By the late 1980s, Congress was familiar with pandemics and infectious diseases—including H1N1 (1918), H2N2 (1957-1958), and H3N2 (1968). In the court’s view, the fact that Congress chose not to include such terms supported an inference that those terms were deliberately excluded.

Finally, the court noted the WARN Act was “adopted in response to the extensive worker dislocation that occurred in the 1970s and 1980s,”8 and stated the Fifth Circuit has previously observed that because the exceptions to the WARN Act’s notice requirement run counter to its remedial purpose they must be “narrowly construed.”9

Whether the WARN Act’s Natural-Disaster Exception Incorporates But-For or Proximate Causation

Although its finding that the COVID pandemic did not constitute a natural disaster appeared to resolve the US Well appeal,  the Fifth Circuit went on to discuss whether the WARN Act’s natural-disaster exception depends upon but-for or proximate causation. DOL regulations provide: “To qualify for [the natural-disaster] exception, an employer must be able to demonstrate that its plant closing or mass layoff is a direct result of a natural disaster.”10 The Fifth Circuit concluded that Congress explicitly left a gap for the Department of Labor to fill by requiring the secretary of labor to “prescribe such regulations as may be necessary to carry out [the WARN Act].”11 Finding the DOL’s interpretation is not arbitrary, capricious or manifestly contrary to the Act, the court said it would give controlling weight to the “direct result” provision of the DOL regulation.

The court also went on to conclude that Supreme Court and Fifth Circuit precedent equate “direct” causation and “proximate” causation. On that basis, the Fifth Circuit concluded that the DOL regulation’s “direct result” provision requires proof of proximate causation.12

US Well argued that the DOL regulation’s direct causation requirement would require the natural disaster to be the sole cause of the mass layoff and would foreclose the application of the natural-disaster exception in any case with an intermediate event between the natural disaster and the layoff. For example, US Well pointed to instances such as when a hurricane causes a power outage, which in turn causes layoffs, or when Hurricane Katrina caused a breach of levees, which in turn caused flooding in the city of New Orleans, forcing businesses there to shut down. The Fifth Circuit found this argument unconvincing under traditional proximate cause principles because “flooding, power outages, layoffs, and shutdowns are among the reasonably foreseeable consequences of hurricanes and other natural disasters.”

Accordingly, based upon the DOL regulation’s “direct result” requirement and the court’s view that precedent equates direct cause with proximate cause, the Fifth Circuit concluded that the WARN Act’s natural-disaster exception requires proof of proximate causation.

It is unclear why the Fifth Circuit proceeded to address the type of causation required under the natural-disaster exception after having concluded that COVID-19 did not qualify as a “natural disaster.” Based on the court’s comment that layoffs are “among the reasonably foreseeable consequences of . . . natural disasters,” the court might have found causation to exist in the case if it had determined that COVID-19 qualified as a “natural disaster.”

Future of COVID-19 Related Litigation Under the WARN Act

There are other COVID-19 layoff cases pending in district courts around the country in which this issue is also likely to be litigated. The US Well decision is binding only in the Fifth Circuit, and even there it may be modified through en banc review or further appeal. Also, the Fifth Circuit case did not address the extent to which the “unforeseeable business circumstances” exception to 60-days WARN notice is available for COVID-19-related layoffs.

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