Carles Joe Smullin v. MITY Enterprises

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 04-3135
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Carles Joe Smullin, et al., *
*
Plaintiffs - Appellants, *
*
* Appeal from the United States
v. * District Court for the
* Eastern District of Arkansas.
*
Mity Enterprises, Inc.; Do Group *
Holding, Inc., *
*
Defendants - Appellees. *

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Submitted: May 9, 2005
Filed: August 25, 2005(Corrected: 09/14/05)
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Before LOKEN, Chief Judge, BEAM and SMITH, Circuit Judges.
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LOKEN, Chief Judge.

On Friday, November 8, 2002, Do Group Holding, Inc. (“Do Group”), sold the
assets of its manufacturing plant in Marked Tree, Arkansas as a going concern to an
unrelated buyer. The buyer interviewed the plant’s sixty-eight employees over the
weekend and hired forty-four. The plant opened on Monday, November 11, without
a break in operations, making the same products with the same equipment in the same
facility and selling those products to the same customers. Forty former Do Group
employees at the Marked Tree plant commenced this action, alleging that Do Group
and its parent corporation, Mity Enterprises, Inc. (“Mity”), violated the Worker
Adjustment and Retraining Notification Act (“WARN Act”), 29 U.S.C. §§ 2101 et
seq., by terminating the sixty-eight employees without giving the sixty-day advance
notice required by 29 U.S.C. § 2102(a).

The WARN Act’s sixty-day notice requirement applies to businesses that
employ one hundred or more employees. See 29 U.S.C. § 2101(a)(1). The district
court1 granted summary judgment for the defendants on the ground that Do Group
and other Mity affiliates are not a single employer, in which case Do Group employed
fewer than one hundred employees. Plaintiffs appeal. Reviewing the grant of
summary judgment de novo, see Rifkin v. McDonnell Douglas Corp., 78 F.3d 1277,
1279-80 (8th Cir. 1996), we conclude that we need not address the 100-employee
question because the sale of the Marked Tree plant was a sale of business that did not
result in an employment loss under the WARN Act. Accordingly, we affirm.

The WARN Act provides that a covered employer must give at least sixty days
written notice of a “plant closing” or a “mass layoff.” 29 U.S.C. § 2102(a). Relevant
portions of the definitions of these operative terms are critical to this appeal:

(a) Definitions

(2) the term “plant closing” means the permanent or temporary
shutdown of a single site of employment . . . if the shutdown results in
an employment loss at the single site of employment during any 30-day
period for 50 or more [full-time] employees;

(3) the term “mass layoff” means a reduction in force which (A)
is not the result of a plant closing; and (B) results in an employment loss

1
The HONORABLE JAMES M. MOODY, United States District Judge for the
Eastern District of Arkansas.

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 at the single site of employment during any 30-day period for [at least
50 full-time employees];

(6) subject to subsection (b) . . . “employment loss” means (A) an
employment termination, other than a discharge for cause . . . .

(b) Exclusions from definition of employment loss

(1) In the case of a sale of part or all of an employer’s business,
the seller shall be responsible for providing notice for any plant closing
or mass layoff . . . up to and including the effective date of the sale.
After the effective date of the sale . . . the purchaser shall be responsible
for providing notice for any plant closing or mass layoff . . . .
Notwithstanding any other provision of this chapter, any person who is
a [full-time] employee of the seller . . . as of the effective date of the sale
shall be considered an employee of the purchaser immediately after the
effective date of the sale.

29 U.S.C. § 2101 (a)(2), (a)(3), (a)(6), (b)(1).

In the district court, plaintiffs argued that Do Group and Mity are a single
enterprise and therefore a covered employer (the issue we do not consider); that the
exclusion in § 2101(b)(1) does not apply to Do Group’s sale-of-assets transaction;
and that plaintiffs suffered an employment loss -- termination by Do Group -- before
the asset sale became effective. A notable aspect of this argument is its complete
disregard for the operative statutory terms “plant closing” and “mass layoff,” which
trigger the notice requirement in § 2102(a). A “plant closing” requires a “permanent
or temporary shutdown of a single site of employment,” which the regulations define
as “the effective cessation of production or the work performed” by the facility. 20
C.F.R. § 639.3(b). This concept is facility-specific, not employer-specific. It is
obvious, in our view, that there was no “shutdown” of the Marked Tree plant, which
did not miss even a day of operation. Thus, there was no “plant closing.”

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 A “mass layoff” requires a reduction in force that results in an employment loss
for at least fifty employees at a single site of employment. The WARN Act’s advance
notice “provides workers and their families some transition time to adjust to the
prospective loss of employment.” 20 C.F.R. § 639.1(a). Therefore, “WARN notice
is only required where the employees, in fact, experience a covered employment
loss.” 20 C.F.R. § 639.6. In this case, because the buyer immediately hired all but
twenty-four of the Marked Tree plant’s employees, fewer than fifty employees
suffered an employment loss. Therefore, WARN Act notices were required only if
the buyer’s hiring must be ignored. That question brings the sale-of-business
exclusion in § 2101(b)(1) into play.

The exclusion applies to “a sale of part or all of an employer’s business.” The
Department of Labor’s WARN Act regulations do not define a “sale of business” for
purposes of § 2101(b)(1). The plaintiffs argue that § 2101(b)(1) does not apply to Do
Group’s sale of the Marked Tree plant because the sale took the form of a sale of
assets, and the plant’s employees were terminated by Do Group with no right to be
rehired by the buyer. This argument is contrary to the plain language of the statute.
In defining the universe of transactions for which the WARN Act deems the seller’s
employees to be employees of the buyer immediately after the sale, Congress did not
use terms common to the tax-oriented world of corporate lawyers and investment
bankers, such as “merger,” “sale of stock,” “sale of assets,” and so forth. Congress
instead used a more generic term, “sale of a business,” which clearly connotes any
transaction that transfers all or part of the employer’s overall operations as a going
concern. Construing the exclusion in this fashion is consistent with the purposes of
the WARN Act because the buyer of a going concern is likely to retain a substantial
proportion of the employees of the on-going business. Moreover, defining the
exclusion in this generic fashion promotes compliance with the Act because buyers
and sellers know when a transaction is intended to transfer a going concern and can
determine who must give the WARN Act notice if a covered employment loss is
likely to occur.

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 Prior cases have applied the § 2101(b)(1) exclusion consistent with this
functional, common sense approach. In the leading case of Headrick v. Rockwell
Int’l Corp., 24 F.3d 1272 (10th Cir. 1994), the court held that the exclusion applied
to an agreement by which the private company managing operations at a government
facility transferred its functions to a new contractor who promised continuity of
employment. Therefore, the employees were deemed to be employees of the new
contractor after the effective date of the transfer agreement, and no mass layoff
occurred. In an opinion by retired Supreme Court Justice Byron R. White, sitting by
designation, the court noted that construing this “exchange for consideration” as a
sale of business for purposes of § 2101(b)(1) was consistent with the purpose of the
exclusion, which “was added to the Act after some Members of Congress expressed
concern that without it adventuresome plaintiffs, perhaps not unlike appellants here,
might well urge a court to hold ‘employment loss’ to cover workers shifted from one
employer to another as the result of a sale.” 24 F.3d at 1280.

Similarly, in International Oil, Chemical & Atomic Workers v. Uno-Ven Co.,
170 F.3d 779, 783-84 (7th Cir. 1999), the court in an opinion by Chief Judge Posner
held that § 2101(b)(1) applied to an operating agreement that transferred management
of the operations of a refinery to a new employer. And at least three cases have
applied the exclusion to sale-of-assets transactions in which the buyer hired or
retained substantially all of the seller’s employees at the same facility. See Wiltz v.
M/G Transp. Servs., Inc., 128 F.3d 957, 963-65 (3d Cir. 1997); Int’l Alliance of
Theatrical & Stage Employees v. Compact Video Servs., Inc., 50 F.3d 1464, 1467-68
(9th Cir. 1995); Dingle v. Union City Chair Co., 131 F. Supp. 2d 441, 444 (W.D. Pa.
2000). By contrast, consistent with this going-concern principle, the court in Oil,
Chemical & Atomic Workers International Union v. CIT Group/Capital Equipment
Financing, Inc., 898 F. Supp. 451 (S.D. Tex. 1995), refused to apply § 2101(b)(1) so
as to impose WARN Act notice responsibility on secured lenders who purchased
refinery assets at a foreclosure sale.

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 As support for their contention that § 2101(b)(1) does not apply to sale-of-
assets transactions, plaintiffs rely on our decision in Burnsides v. M.J. Optical, Inc.,
128 F.3d 700 (8th Cir. 1997), cert. denied, 523 U.S. 1119 (1998). In Burnsides, the
buyer initially agreed to purchase most of the seller’s assets in an unprofitable
business and to “take over operations” at the seller’s plant for at least forty-five days.
However, after further review, the buyer elected instead to purchase the seller’s
equipment and tools and remove them from the plant. The parties further agreed that
the seller would encourage its employees to apply for employment with the buyer
after the plant was closed. On the effective date of the sale, the seller ceased
operations, shut down the plant, and terminated its employees. The employees sued
both the buyer and the seller for failure to give WARN Act notices. We expressed
doubt that § 2101(b) applied to “the mere sale of assets in this case,” a transaction in
which the buyer “did not automatically hire [the seller’s] employees, buy [the seller’s]
facility, conduct any operations there, or take on any of [the seller’s] receivables or
liabilities.” 128 F.3d at 702-03. Without deciding that question, we held that the
seller, not the buyer, was responsible for giving the WARN Act notice even if the
transaction was the sale of a business, because the seller was responsible for the plant
closing that occurred contemporaneous with the sale.

Our decision in Burnsides was consistent with the going concern principle we
adopt in this case. It is doubtful that the sale of assets in Burnsides comprised the
sale of a going concern. But if it did, our decision was consistent with the
Department of Labor’s regulation allocating responsibility between the buyer and the
seller when a sale-of-business transaction results in a plant closing. The regulation
provides that, when the sale of a business results in a covered employment loss, the
seller must provide the WARN Act notice if the plant closing or mass layoff occurs
at or prior to the effective time of the sale, and the buyer must provide the notice if
the covered event occurs after the sale. 20 C.F.R. § 639.4(c). In promulgating this
regulation, the Department commented:

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 If a plant closing occurred as a result of the buyer’s decision not to
rehire the seller’s workers, and the closing occurred after the effective
time of the sale, the buyer is responsible for giving notice. This view is
consistent with the statutory provision that the employees of the seller
become the employees of the buyer immediately after the sale, with the
intent of WARN that notice be given to workers who will suffer
dislocations and with the reality of allocating responsibility for notice
to the party to the transaction that actually makes the decision to order
the plant closing or mass layoff.

Worker Adjustment and Retraining Notification, 54 Fed. Reg. 16042,16052 (Apr. 20,
1989). In Burnsides, the plant closing was contemporaneous with the sale, so we
placed the WARN Act notice obligation on the seller.2

Burnsides is consistent with our view that § 2101(b)(1) applies to a sale of
assets that effects the sale of a business as a going concern. In this case, for example,
if the sale of assets was the sale of a business as a going concern, as we have
concluded, then the Marked Tree plant employees are deemed to be employees of the
buyer after the sale, and a WARN Act notice was not required if fewer than fifty
employees were not hired by the buyer. On the other hand, if the transaction was a
sale of business for purposes of § 2101(b)(1) but a WARN Act notice was
nonetheless required, then Burnsides (and the regulations) impose the notice
obligation on the seller, if the plant closing or mass layoff occurred at or before the
sale, but on the buyer, if the plant closing or mass layoff occurred after the sale,
because the buyer then was the party who actually made the decision that caused the
requisite number of employees to suffer an employment loss.

2
Our opinion in Burnsides took issue with the regulations for focusing on the
effective time of the sale, rather than the effective date. 128 F.3d at 703. Though the
timing of the plant closing on the day of the sale became an issue in Burnsides,
without question the seller was responsible for the plant closing. Therefore, our
decision properly imposed the WARN Act notice obligation on the seller.

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 Here, the Marked Tree plant was sold as a going concern, and the buyer
continued operations, uninterrupted, in the same facility. Therefore, the transaction
was the sale of a business for purposes of the exclusion in § 2101(b)(1), which means
that each of the plant’s employees “shall be considered an employee of the purchaser
immediately after the effective date of the sale.” The buyer did not shut down the
facility, so there was no “plant closing” within the meaning of § 2101(a)(2). The
buyer immediately hired forty-four of the plant’s sixty-eight employees, which means
there was no “mass layoff” within the meaning of § 2101(a)(3). Accordingly, no
WARN Act notice was required under § 2102(a), and the district court properly
granted summary judgment dismissing the plaintiffs’ WARN Act claims.

The judgment of the district court is affirmed.
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