?Takeaway: The Worker Adjustment and Retraining Notification Act (WARN Act) has exceptions that protect employers that have to downsize unexpectedly. Yet, as this case shows, employers should not assume that these exceptions will automatically protect them, as a federal appeals court found that COVID-19 did not qualify as a natural disaster.
?COVID-19 was not a natural disaster under the WARN Act and thus the natural disaster exemption from the law’s notice requirements did not apply to an employer that said a layoff was due to a downturn caused by unexpected adverse impacts from the coronavirus, the 5th U.S. Circuit Court of Appeals decided.
Oil producers hire US Well Services Inc. to perform hydraulic fracturing services known as fracking. When the price of oil drops below a commercially viable price, oil producers often discontinue work. In early March 2020, oil prices plummeted to historic lows due to a price conflict between Saudi Arabia and Russia. This effect was compounded by a decline in travel and decreased demand for oil during the COVID-19 pandemic.
As a result, several of US Well’s customers curtailed or completely shut down the fracking work US Well had been performing at multiple well sites in Texas. When crew members returned from the well sites to their respective headquarters after shutting down operations, they were immediately informed that they were laid off. The termination letter to employees stated that termination was due to unforeseeable business circumstances resulting from a lack of available customer work caused by the drop in oil prices and unexpected adverse impacts from the coronavirus.
The plaintiffs, a group of well site crew members, filed a lawsuit in August 2020 under the WARN Act. The plaintiffs and US Well both moved for summary judgment. US Well argued that COVID-19 was a natural disaster under the WARN Act, and thus it was exempt from the act’s notice requirement. The plaintiffs countered that COVID-19 was not a natural disaster and was not a direct cause of their layoffs.
The district court concluded that COVID-19 was a natural disaster and that the natural-disaster standard uses “but-for” causation standards. It denied both motions for summary judgment on the grounds that the record did not show whether COVID-19 was the “but-for” cause of the layoffs. The plaintiffs moved for reconsideration or for the district court to certify the disputed issues to the 5th U.S. Circuit Court of Appeals for an “interlocutory determination” while the case remained pending.
The district court agreed to certify two questions to the 5th Circuit on an interlocutory basis: 1) Does COVID-19 qualify as a natural disaster under the WARN Act?; 2) Does the WARN Act’s natural-disaster exception incorporate “but-for” or proximate causation?
The 5th Circuit found that the natural-disasters exception to the WARN Act does not apply to an employer that shut down a factory during the COVID-19 pandemic because the disease was not a natural disaster. The WARN Act lists three examples of natural disasters: floods, earthquakes and droughts. The U.S. Department of Labor has issued regulations concerning the natural-disaster exception, which also lists storms, tidal waves and tsunamis.
While COVID-19 resembles natural disasters in that it occurred unintentionally, the 5th Circuit interpreted the WARN Act’s short list to mean that Congress intended to limit “natural disaster” to hydrological, geological and meteorological events, and did not include disease, pandemic or virus. The court reasoned that the WARN Act was passed to counter the extensive worker dislocation that occurred in the 1970s and 1980s and thus any exception to it should be narrowly construed. Therefore, diseases should be excluded from the definition of “natural disaster.”
On the second certified question, the 5th Circuit found that the causation requirement for natural disasters was broader than the plaintiffs asserted. It found that a layoff could be a direct result of a natural disaster even if several intervening events separated the natural disaster from the layoff—such as when Hurricane Katrina caused a breach of levees, which in turn caused the City of New Orleans to flood and forced businesses to shut down. All that is required is that shutdown “proximately” result from the natural disaster, and not that the natural disaster be the sole immediate cause of the shutdown.
The 5th Circuit sent the case back to the district court to consider the motions in light of these rulings. This likely means that US Well would have to rely on an argument of unforeseen business circumstances to try to defend itself from liability.
Easom v. US Well Services Inc., 5th Cir., No. 21-20202 (June 15, 2022), petition for rehearing en banc denied (July 11, 2022).
Jeffrey Rhodes is an attorney with McInroy, Rigby & Rhodes LLP in Arlington, Va.